Traditional budgeting under the microscope. By John Stokdyk
To hear it from the campaigners at the Beyond Budgeting Round Table (BBRT), traditional budgeting is not only inflexible and inefficient, it is a borderline evil that contributed to notorious corporate scandals such as Enron and WorldCom.
One anonymous WorldCom executive described the culture of instant financial gratification that the budgeting process perpetuated: "You would have a budget, and [WorldCom CEO Bernie Ebbers] would mandate that you had to be 2% under budget.
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SME budgeting & forecasting
I enjoyed the article and agree with roy - lets hear more about how it relates to sme's.
I am FD of a 60 employee business and have 3 in accounts dept. I have abandoned the annual budget and converted to a 12M Rolling Forecast - updated monthly because its quite fast changing.
The effect on fellow board members is dramatic: we now always look 12 months forward (no longer reaching the end of the year without a plan!) - debate is shifting from the past to the future and strategy is more naturally discussed.
Nobody spends the budget because there isn't one although theres a bit of that at year end still. Otherwise resouces are allocated on merit.
In time I plan to move to 18M RF with quarterly update.
Advice is keep it simple, basic excel is fine but allow the model to highlight changes made that break the logic of the spreadsheet so you don't lose track of unusual future costs/revenues when reviewing and updating.
Monthly accounts compare to prior year since we normally get very close to the current month's RF.
10 reasons
is wonderfully concise and there ia perfect example of a listed company which feel foul of at least 7 of the points. bugets are servants not nasters