This time of year usually brings a brief period of relief for finance teams within organizations that use a calendar year-end.

Hopefully, your weeks of budget negotiations have finally concluded with the board approving a 2010 budget. Yet for many, this “accomplishment” fails to generate any deep satisfaction. It feels shallow because good managers know that the actual shelf life of a budget is very short.

The 2009 Business Finance survey of planning, budgeting, and forecasting practices (view here) researched how long budgets remain relevant. Two-thirds of the respondents said they were obsolete within four to six months. Even more startling: In 2009, a whopping 28 percent of respondents acknowledged that their budgets were obsolete on day one.

The short life of budgets stems from the fact that budgets require the preparer to make underlying assumptions about many things. These assumptions include macroeconomic growth, related customer activity, potential actions of key competitors, price fluctuations in the cost of major commodities that support product and service delivery, currency and interest rates fluctuations, and many more things too numerous to mention.

Many of the delays in completing budgets directly relate to these uncertainties or to differences of opinion on what assumptions should be made. This can also result in multiple groups preparing budgets that have fundamentally different assumptions.

Many hope to create “better budgeting” that uses technology to correct this problem. But these efforts frequently fail because they ignore a fundamental problem: We live in a complex and increasing unpredictable world. The last 15 months have made this painfully clear. With the economy an unsettling roller-coaster ride, organizations experienced the queasy feeling that results from trying to predict the future.

Realizing these difficulties, many organizations issued orders to scrap the budget. If this describes your situation, I would like to know if you intend to return to budgeting in 2010. Many of the calls I’ve received lately come from finance leaders in organizations that have eliminated budgets but aren’t sure what to do instead.

For them, we recommend considering the 12 Beyond Budgeting principles. These provide a useful road map to the areas you need to address as well as recommended best practices. For more information on these principles, please see my blog series. The latest blog covers “How to make planning an adaptive and continuous process.”

Next week, I will discuss how you can make your resource allocation process adaptive as well. ###