How Budgeting is Evolving

It was little more than a year ago when we surveyed Business Finance readers on their budgeting practices. We were surprised to learn that 28 percent of finance executives viewed their 2009 budget targets as having become obsolete before the year had even begun. Meanwhile, two out of three expected their 2009 budgets to be obsolete within the first 6 months of the year.

In the face of such incriminating data, we decided that it was time to write an obituary for that cumbersome business process.

We put a nasty-looking black crow on the cover and took a stab at estimating the budgeting’s actual age: “Dead at 87,” we reported. Oh, well, so much for emancipating finance’s rank and file.

This year, 42.2 percent of our 2010 survey respondents told us that they made no major changes to their budgeting process over last year. Apparently, budgeting has more lives than a Bronx alley cat. However, budgeting innovation also appears to be advancing at a rapid clip. Double-digit percentages of respondents told us that their companies were moving to rolling forecasts, driver-based approaches, interim budgeting updates, and other process innovations.

Still, it’s hard to understand the enduring grasp that budgeting has on business. When we asked respondents to name the most positive aspects of their budgeting process, the most popular answer (80 percent) was, “It forces us to think about where we’re going.” Now, there’s an undeniably strategic driver. I mean, isn’t this what people say after witnessing natural disasters? In light of the many hours that finance people dedicate to collecting data and identifying targets, shouldn’t the budgeting process offer more positives than a tsunami?

There’s little question that our survey’s line of questioning was intended to turn up the heat on the traditional budgeting process and get finance people to thinking about how they can better empower the front lines of their organizations rather than the rank-and-file. We may have been a tad premature with last year’s obit. However, the cause of death already seems obvious. The Internet will ultimately bring traditional budgeting control processes to an end as it forces companies to rethink how they hire and motivate people and plan.

We look forward to sharing more of our budgeting survey findings with you during an upcoming Business Finance research webcast. Until then, may your budget targets be replaced before the front lines realize they are obsolete.

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