Money
Issue No. 1 - July/August 2001
doing away with budgets
Much of the pain we put ourselves through during the budget process no longer serves any purpose – and may be counterproductive, according to Aubrey Joachim, a speaker at the recent Business Forum 01 convention sponsored by the Institutute of Chartered Accountants in Australia.
“It would surprise many an accountant to know that there is a growing trend among leading global organisations to do away with traditional budgets – leaving them better off for the experience,” Mr Joachim said.
“Budgeting, by its very definition of providing ‘probable’ financial outlays and incomes over a specified period, is very much dependent upon assumptions about a future period which is commonly referred to as a planning horizon.
“The pace of business and commerce has been rapidly changing with the planning horizon becoming shorter and shorter. Even management is now taking a short-term view. Today the average American CEO is not looking beyond a three-year tenure.
“This management time warp is resulting in organisations having to react quickly to changing interactive external and internal circumstances in order to exploit opportunities and minimise the impact of threats. Even mere survival is a challenge, as has been proven by the demise of many of the dot coms.
“Thus, to establish budgets in the traditional sense based on a set of fixed medium to long term assumptions is very inappropriate. Besides it would seem to be a wasted effort with the scarce resources that many organisations have today, capable of being better utilised in a more value adding pursuit.”
If ‘command and control’ is the major reason for budgeting, Mr Joachim says there are better and more reliable management tools that will check spending, but also empower aggressive managers to deliver organisational expectations of constant improvement.
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