Budgeting: What's wrong?

What’s wrong with having budgets?

Well, lots of things...

• It takes away a lot of management time
• Expensive: Ford Motor Company spent $1.2 billion annually on its budgeting process




• A survey showed that budgeting consumed between 20-30 % of senior executives' time
• A Stanford professor says that a few companies avail themselves of the data collected during the budgeting process to actually understand their business models and what actually drives success

• May drive unproductive behaviour. How? Evaluation & payouts to senior executives are based on whether the budgets are met/exceeded. Hence, they have every incentive to set targets that they can meet or, even better, exceed, while the boards will try to set ambitious goals... So whats the end result? The process rewards forecasting ability, and also the ability to negotiate with one's bosses
• Zero based budgeting is more of a myth. Everybody focuses on what the company achieved last year...
• Too much focus on the budget target: There is an example of a company not spending money fearing that they will miss the budget target...
• Another problem is that the budgetary targets is that its based on forecasting ability and negotiation. Its possible to hit the targets while losing market share, falling behind technologically, and even going broke

The obvious solution is to use budgets as rough guidelines for planning & forecasting, but to base assessments of executives, depts, and companies on indicators that more fully capture relative performance vis-a-vis external competitors.... is it growing faster, is it gaining or losing market share, is it out-performing its competiton in bringing new products & services to the market? Is it attracting & retaining customers & employees

The absence of rigid budget adherence is not the same as financial anarchy! Instead of spending too much time in meetings where people weigh past performance against budgetary goals, it can be more productive to focus on recent product and customer successes & failures, whats been learnt, & how the company can do things to be more productive/effective in the future...

Adapted from 'What were they thinking? Unconventional wisdom' written by Dr. Jeffrey Pfeffer

What were they thinking? Unconventional wisdom about management

Dr. Pfeffer (he’s the Thomas D. Dee II Professor of Organizational Behaviour at Stanford) has written an interesting book on management wisdom. Its called ‘What were they thinking? Unconventional wisdom about management.

He refers to an experiment he does on a regular basis with his executive students. He will go up to one & say, “Assume that you work in my company & that you are who you are- a competent, experienced, hardworking, intelligent individual, doing your best to do your job as you think you should. Now I come up to you & say, ‘Our organization has fallen on hard times- which, by the way, may be because of strategic mistakes you had no part in making- and in order to restore profitability & financial viability, we need to cut salaries & other employee benefits, by about 25%.’ How would you feel about this, and what are you going to do in response?”



He says ‘I have never once had an executive respond by thanking me for making the tough decision required to keep the organization economically viable. Instead I get one of the two responses. The first, often communicated with a reasonable amount of anger & emotion, is that the person is immediately going to look for another job & leave. The second response, if I add that general conditions of the job marker preclude such a move, is that he is going to with-hold efforts & ideas, cut back on what he does, & maybe find ways of getting back at management by intentionally messing things up.

Note what cutting salaries does beyond the immediate benefits of reducing the wage expense. First, it drives people to leave. And who is likely to be able to find another job? Usually, the best people- those who have the most skills, experience, and the highest levels of performance. As the best people leave, turning the company around becomes more difficult, because turn-arounds require insight & skill, & both are being lost.

Second, cutting salaries creates a desire of the part of those who remain to passively (by slacking) or actively (by sabotaging) harm the company….

Read the book. Its available in our library!

International Women's Day: 08 March

Annually on 8 March, thousands of events are held throughout the world to inspire women and celebrate achievements. A global web of rich and diverse local activity connects women from all around the world ranging from political rallies, business conferences, government activities and networking events through to local women's craft markets, theatric performances, fashion parades and more...

Many global corporations have also started to more actively support IWD by running their own internal events and through supporting external ones. For example, on 8 March search engine and media giant Google some years even changes its logo on its global search pages...

08 March is a Sunday. We thought of celebrating IWD on 7th itself (its a surprise so shush...) along with the exclusive women's event- LPL Throw Ball Championship!!

Wouldn't it be amazing if you personally are present to cheer up the girls? I think that would make their day!!