Even as small signs that the economy is stabilizing make headlines – the S&P 500 is up 20 percent year-to-date, and pending home sales rose for the fifth month in a row, according to the National Association of Realtors – corporate treasurers still face the sorts of challenges that can can cause even sound sleepers to bolt wide awake in the middle of the night.

Among the most persistent has been the lack of credit. In May of this year, more than one-fourth of companies surveyed by the Association for Financial Professionals indicated that credit was tighter than it had been. As a result, nearly all the firms had taken some action to survive the credit crunch, including chopping capital spending and hiring. more

How often have you demanded, “Just give me a number.” You had a spreadsheet and needed to plug in one number. So you ask someone who should have it, but instead of a number you start getting a whole song-and-dance: If this happens, then it’s this number; if that happens, it might be a different number, etc. etc. All you wanted was a lousy number!

This is a well-documented tendency (see Why Can’t You Just Give Me the Number?: An Executive’s Guide to Using Probabilistic Thinking to Manage Risk and to Make Better Decisions by Patrick Leach, Probabilistic Publishing, 2006). The number you get will most likely be an average concocted from a range of values.

“Plans based on average assumptions are wrong on average,” declares Sam Savage, in The Flaw of Averages (John Wiley & Sons. Inc., 2009). Think of a drunk walking down a busy road wandering from side to side. Mathematically, the drunk’s average position is smack in the middle of the road where he might be safe, but, as Savage explains, “the average state of the drunk is dead,” not unlike spreadsheets based on flawed data. more

Have you ever seen a friend about to make a huge mistake but you cannot seem to find any way to stop them? That’s how I feel about this time every year. I know calendar year-end companies are issuing their budget instructions and timelines. These will include submission dates and other requirements. For many companies, it is merely the prelude to the Annual Budgeting Dance.

Many field organizations will diligently plan their opening moves. What do they submit that is sufficiently credible to avoid outright rejection yet remain low enough to be easily reached?

Corporate is already planning its counternegotiation strategies to leverage the field up so that when the totals are all compiled the resulting sum will be sufficiently above whatever the magic number that is needed to please Wall Street.

The Annual Budgeting Dance is merely the ritual of getting to a set of mathematical relationships that match those numbers. It’s a lot like musical chairs but not nearly as much fun. It explains why the budgeting process is filled with numerous iterations. Organizations typically take three or more iterations to get to a final budget (with the last one typically forced because there is no more time).

On the third iteration, the guy in the field in exasperation states, “Just tell me what you want the number to be. I am tried of guessing.” Corporate replies, “I can’t tell you. It needs to be your number. You need to own it.” The field quickly lets him know, “It quit being my number two times ago.”

In many ways, this exchange explains why budgets destroy motivation and ultimately are disempowering. As David Cooke, CFO of Park Nicollet, described the challenges he faced when he eliminated budgets in 2005, he stated that managers had learned to use budgets as a crutch: “If the amount was in the budget, a manager concluded he had to do it. If it was not in the budget, he concluded that he could not possibly do it. Either way, he never had to make a decision on whether he should do it or not.”

This back-and-forth seems like so much dumb stuff I wonder why can’t we get it right the first time. And why is the resulting output a set of crutches so that managers can avoid making decisions?

So again, why do we keep doing this dumb stuff???

If you feel like you are trapped into doing dumb stuff, add a comment or drop me an email. You can remain anonymous. We will discuss what finance can do to transform into a higher-value-added function where value is created. ###

Financial executives at small to midsize enterprises in the U.S. have some strong opinions about IFRS.

That’s fine – but many of these folks need to bone up on current IFRS-related developments.

For example, a new poll of 220 finance professionals within private, U.S.-based SMEs (companies with annual revenues of less than $1 billion) expresses strong support for the formation of separate IFRS for private companies. Yet, 43 percent of these same survey respondents indicated that they were not aware of the IASB’s ongoing effort to tailor IFRS to SMEs.

These results and other SME viewpoints on IFRS are contained in a new Deloitte survey.

And here’s one place to start boning up: an interesting advisory group of the FASB. ###