The Big Questions – Half of FDs say budgeting is outmoded

Only one in three finance directors believes the traditional annual budgeting system meets the demands of modern business.

This week’s Accountancy Age/Reed Accountancy Personnel The Big Question supports research published last week that showed more companies – including corporate giants like Volvo, IKEA and Ericsson – were abandoning annual budgets in favour of flexible rolling forecasts.

Just one third (36%) of FDs said an annual budget provided the right financial foundation for their business.

Nearly half (49%) thought the annual budget was past its sell-by date and too inflexible. Derek Pitcher, of Sea Route Ferry, said: ‘It’s becoming outdated. How can a company maintain its course towards its target when the April budget has such an impact?’

Other FDs said they had already ditched the annual budget. ‘We are starting a quarterly budget,’ said Andrea Wilson, of Personic Software. ‘Annual budgeting is archaic, particularly in the computer industry. If a company wishes to remain competitive it must remain flexible.’

But 36% of FDs defended annual budgets. Stuart Chapman of International Baccalaureate, said: ‘The annual budget sets an important target for business providing it is put together properly. There should also be regular forecasting.’

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