Companies Give Traditional Budgets The Boot, Experts Say

Compiled By Deborah Austin The traditional annual budget may face extinction, suggests a recent study "Driving Value Through Strategic Planning and Budgeting" by global consultancy Accenture, New York, and Cranfield School of Management, Bedford, England. Budgets constrain responsiveness, promote cost reduction rather than value creation and fail to reflect today's emerging network structures, say study respondents. Among alternative approaches: activity-based budgeting; rolling budgets -- which frequently refresh the outlook so the plan remains relevant; and for some companies, eliminating budgets entirely. Companies can reduce budget cycle time 30% to 40% with approaches more aligned to their overall strategic planning, say the study's authors. In fact those eschewing traditional annual budgets have seen 221% average five-year share price growth, compared with 167% for more-traditional counterparts. The study revealed three key themes:

  • Companies can no longer justify time/effort invested in budgeting processes.
  • Budgets must become more responsive, enabling nearly real-time tracking.
  • Management must understand budgets cannot serve as both control and motivational devices.
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