BusinessCompany NewsBudget tyranny warning

Budget tyranny warning

It's trendy to criticise budgeting, and indeed, the case for the prosecution contains much of merit. But many of the problems with budgeting lie with the people, including most accountants, who simply don't understand the basics of what budgets are for or how to use them.

And I’m not talking about the sales director who, when asked to reduce his budget, went away and knocked 10% off all his nominal codes.

To start with, a budget should never be a straitjacket. It should be accepted that a budget is simply one possible scenario that inevitably will never happen. It would not even be desirable if it did happen. Circumstances change as time goes by and in these changed circumstances, the original budget will not be relevant.

Yet how many people will use a now outdated budget to support a bad business decision or to rebut a good one? Would you hire someone you no longer need because it was in the budget? Well I wouldn’t, but I know many people who would. Would you fail to hire someone you now desperately need because it wasn’t in the budget? Sadly, many people would do this too.

An outcome that bears no resemblance to the budget may result from the best of business decisions and represent a brilliant performance. But sadly, too many employers will reward only those who come in according to plan.

In reality, what’s far more important is to study variances from the budget and to understand whether they arose for positive reasons or negative reasons, and the impact of these reasons on the business going forward.

I knew someone who would always accrue, defer and misallocate costs and revenues so that his results were always perfectly in line with his budget. For years, his bosses thought he was wonderful. When they eventually caught on, he was rightly sacked for withholding vital management information that threatened the very existence of the business itself.

But his bosses should also take some time to reflect on the environment of budget tyranny, which they themselves created and encouraged.

  • James Andrews is a pseudonym (JamesAndrews2057@aol.com).

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