Budget and Strategy Once a Year or Continuously?

photo credit: kenteegardin via photopin cc

photo credit: kenteegardin via photopin cc

With the pending end to the year and a new financial year starting for many of our clients I pose this question to you: why is it that the business cycle for strategy and budgets must so often be annual?  We see so often in the corporate landscape that firms aligned decisions processes to artificial cycles driven by financial reporting. Good ideas have to wait until they match the budget and finance cycle and in my view (as well as possibly many others who felt trapped by this before) this just does not make sense.  I have written on this topic before (“Same procedure as every year”) and I strongly believe it is time that organisations break the annual cycle deadlock.

Let us consider a recent piece of strategy work for a large customer of ours. The organisation was looking to increase the lean concept of straight through processing efficiency on one of its key customer facing processes. The IT architects working with the business leads had come up with a fantastic idea how to execute changes to realise drastic improvements during the middle of the year but the project is yet to start months later due to the vicious. Ultimately in this organisation, as with many, the decision process for funding is aligned to annual budgets, the fact that the problem existed mid year, the solution was known mid-year and the demand was clearly there for a fast implementation and early payback, however seems to get ignored in favour of the artificial and vicious budget cycle. Now everyone within this organisation, is waiting for the new budget year, with the delivery six months later than it could have been and the question remains is who actually benefits from this procedure?

 

What should happen is that the idea is assessed for payback and risk and if judged worthwhile, it should be sensible to start immediately. This would be possible in an organisation with a continuous budgeting processes where forecasts and budgets are not annual but are constantly reviewed and updated. Sadly, our artificial finance driven reporting years confine budgets to once a year – strategy is considered thereby not more often than once a year as well. Perhaps if you are reading this and you are in charge of your organisation why not challenge this accepted practice and see if you can introduce a more agile approach to budgeting, and take advantage of continuous strategic planning?

For further reading, we recommend the Harvard Business Review article “Who needs budgets?” by Jeremy Hope and Robin Fraser, inventors of the Beyond Budgeting model.

HBR Article - click to download

HBR Article – click to download

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