R.I.P. Budgeting

I recently found an article that talks about budgeting. I could not resist commenting as I think this has gone the way of the Dodo. Here’s the original article from Fred Wilson, a VC in NYC who we follow. He writes great articles and blog posts and is well worth reading. Budgeting in a large company

Here was my response to the article.

I’ve been in the planning and forecasting space for many years, both at the internal management accounting level and as a vendor selling such solutions. I stopped using the word ‘budgeting’ a long time ago. Quite honestly, using the words ‘fast growing’ and ‘budgeting’ in the same sentence is an oxymoron. There is nothing fast about budgeting. By the time it’s finished, it’s out of date. It does not have the ability to be dynamic the way the business is. Far better to produce a ‘plan’ and forecast against that, adjusting as you go along in almost real time, rather than gauge your performance off of a budget that was out of date when it was communicated out to everyone.

There’s also another point to make here. The article insinuates that the whole Executive/Senior team are involved. Sure, but that’s where budgets fail because that the only team that gets involved. Operations, (where all the money is spent and made) get wind of the ‘budget’ when it’s been signed off by the ivory tower. Result – filed under T for trash. Operations continue business as usual.

I’ve seen it a hundred times. If you don’t involve ALL stakeholders in the process, good luck. What you need is a top’s-down, bottom-up process, that forges agreement between all stakeholders and can be adjusted on-the-fly as business grows and/or changes.

Seems your next post will be talking about forecasting, which I look forward to. I just think the whole budgeting part in a company should be transferred into a dynamic plan.

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