Budget bashing can occur for many reasons and often is the symptom of a poor budgeting process or lack of communication and guidelines. Understanding why it occurs and establishing process improvements or other mitigating tactics is key to minimizing the disruption to the organization and creating a good plan/budget.
- Summary:** The concerns over the budgeting process or the budget itself can have many root causes. The categories of complaints include; Timeliness, Politics and Authority, Rules, and Relevance. Each drives a different set of issues which, if not addressed, can result in a retreat from the process that is suppose to help an organization improve performance. Identify the source of the concerns and focus on the process issues, rather than the need to budget at all. More...
- Summary:** The Planning and Budgeting process can attract a lot of criticism and demands a lot of time and resources from the organization. This criticism could be a symptom of an overly complex process, or as is the case in many organizations a deflection of other more deep rooted organizational issues (i.e., lack of concensus or shortage of resources). More...
Concerns are often raised about budgeting and budgets. Both the active participants in budgeting, as well as those non-participants who are subject to the consequences of budgets, may be displeased with the process and result. These concerns may also be the misdirected expression of disappointment with the overall organization or individuals within it – it may be more acceptable to criticize a business process than the larger organization or its senior members. Either way, it can seem like good sport to criticize budgeting since so many members of the organization engage in it. There are very few individuals who voice their pleasure with budgets, except, perhaps, the “winners” of the process – and their praise often seems self-serving.
Criticisms of budgeting are important to appreciate. Criticisms can serve as indicators to the process owners and senior management that the costs of this particular process may be getting to be high relative to its value. Rather than tolerate complaints as just the “background noise” of usual discontent with a contentious activity like budgeting, leaders will want to listen for patterns of concerns and possibly take action to improve the process or outcome of budgeting.
Budgets are “bashed” either because of the way the process is designed or carried out, or because of the result of the budget process. Each type of concern involves a different set of issues for management. Concerns about the result of the budget process may be due to disappointment with the substantive outcome of a fair and effective process of allocating burdens and benefits. Losers complain, after all. However, if such disappointment impairs subsequent performance, or leads to a retreat from future budget iterations, then managers should examine whether or not the process can be adjusted to prevent strong objections. In some cases, however, leadership may need to “undo” the budget choices if the din of complaints is too great. When the process fails to serve the organization, it is often better to redesign the process, or adjust outcomes, than to suffer damage to the performance of the organization. After all, budgeting is intended to improve organizational performance, and that performance should not be held hostage to budgeting, or any other business practice.
It may be simpler to address concerns about budgeting when they focus on process issues, such as fairness of the process or the competence and neutrality of how it is carried out, rather than the need to budget at all. Process concerns can also undermine the cohesion of the larger organization if they are widespread and of long standing. However, so long as the members of the organization still recognize the legitimacy of budgeting as a business process, even if they express displeasure with how it is done, then management can commit itself to process improvements as a way of rescuing budgeting efforts.
The following sections categorize some of the often-heard complaints about budgeting and indicate which class of concern it fits into.
Timeliness: When the budget process fails to take into account changing financial realities, the process owners should work with the participants in the process, and the “consumers” of the budget, to determine whether the budget process iterates rapidly enough. If reliable data is not available, or the related decision processes do not cycle rapidly enough, however, it may be necessary to make more structural adjustments to address concerns about timeliness.
Politics and Authority: Losers in the budget sweepstakes are most likely to complain about “politics” causing outcomes that are not favorable to their interests. Sometimes “politics” is just an excuse for having lost in the competition for scarce resources, or for getting stuck with difficult performance targets. However, there are other times that the cry of “politics” actually reflects concerns about the process itself – that a legitimate argument was not acknowledged or appreciated. In this way, then, accusations of “politics” are the consequence not so much of the outcome but of a process that is seen as incomplete. If participants feel they are not being listened to, and if the result is to tell them that they should not be sore losers, then future budget iterations may deteriorate as participants withdraw. Another way that unfairness can be perceived by participants is when the top level of the organization is seen as arbitrarily overriding choices arrived at by the process.
Rules: The clarity of the rules of the budget process are centrally important to the success of the effort. Lack of training for participants, or vagueness about what is being decided, how, and when, is to lose the battle for hearts and minds of the budget process participants even before it begins. The budget process should be well-advertised to all members of the organization; it should be clear who participates and their roles; the purpose and applicability of the budget should be specified; and the detailed steps of the process, including when those steps end, should all be made evident to anyone interested in the process.
Relevance: When the budget process results in understandings that have little consequence on behavior of individuals, then concerns very sensibly arise as to the value of the process and the importance of the budget. Budgets may either not guide behavior because they contain incorrect assumptions or data, or they may be overly restrictive and do not account for the richness of efforts that may be necessary to achieve business results. Also, budgets may lack relevance if there are no consequences (either positive or negative) to variance from the plan. In such cases, it is not surprising when the budget is viewed as irrelevant and the attendant process is not a high priority. At the other extreme, however, “hitting one’s number” at any cost means that budget targets may be overly restrictive and unrealistic. Here, too, assumptions may not be fully shared or understood, and it would be wise to have a frank discussion about what a realistic set of targets means to the organization and its participants. These discussions may be very revealing, but budget participants will prefer the bright light that is shed on all players to the hidden shadows that obscure claims on resources or assertions of success. (dz)
The Planning and Budgeting process is often a scapegoat for many ailments of the enterprise. It is common to blame the budget for one’s problems or workload. Sometimes, the criticism is valid – sometimes not. When valid, the process owners must take action to improve the process or expectations of the process.
The Planning and Budgeting process is often a catalyst for operating decisions. If one agrees with the decision, the credit always goes to the decision makers. If one does not agree with the decision made, it is politically safer to blame the process rather than the decision makers. If the organization needs a scapegoat, then the Planning and Budgeting process will serve the purpose. However, in this case, bashing is inherent to the process rather than a symptom of a problem
In other instances, Planning and Budgeting receives criticism for “Not being Relevant by the time it is Finished”. Partly, this criticism may be warranted if the process is not well designed or well managed. However, the root cause may also be management’s reluctance to make tough choices and decisions—procrastinating a decision until it is forced on them. Here the blame belongs to management not the process. Another factor is that business conditions are always changing. If they have changed radically, then the plan must also change radically.
Another frequent criticism involves the “Budget being Inflexible”. Here the root cause is often how management uses the budget. Frequently, the budget is also used to determine incentive compensation. This is a mistake. Having compensation tied to budget performance guarantees problems including the appearance of holding the budget constant despite changing conditions. The first step in the solution is to disconnect incentive compensation from the budget. Then, compensation should be based on market and other external benchmarks.
A budget is also inflexible when management chooses to apply it long after conditions have changed. The practical lifetime of the budget is management’s choice—Not the budget’s.
Planning and budgeting is also criticized for top-level overrides. This is especially true when the process starts with a bottom up orientation with great effort from lower levels. When received by upper management, the budget is adjusted, seemingly arbitrarily. Two principal solutions address this criticism. First, management should complete and communicate an effective strategic plan before the bottoms up process begins. This would set the stage and boundaries for the bottom up portion to be much more relevant. Second, especially given that management set the stage properly, when a top-level override must be made, management should accept responsibility for the decision, recognize the negative effects of the override, and communicate the rational and necessity for the override.
Planning and Budgeting is often perceived as not adding value to the organization. Most often this is due to participants being diverted from their regular duties to prepare something that only upper management uses. Since their performance is measured on their regular work, that is where they want to spend their time—Not on the budget. This is compounded by the relatively infrequent time cycle of the planning and budget process compared to their normal work. Operations personnel do not get promoted for being very good at budget submissions. Between budget cycles, there is ample time to forget the process and/or for the personnel to change. Then when the cycle comes again, it is again a very BIG deal to respond to—again a distraction from normal work.
Planning and Budgeting process owners need to recognize these issues and adjust the timing of the process to minimize their impact. They should not assume that other participants are budget experts—Nor should they insult their intelligence. The process should be made as smooth as possible while retaining flexibility. More importantly, communication should include the role of the planning & budgeting process and the decisions being made. Ample opportunities should be afforded for participants to communicate their concerns to management. This bi-directional communication should be designed into the process. (as)
- Identify the source of concerns and focus on the process issues, rather than dismiss planning and budgeting as non value added. (ie Don't throw out the baby with the bath water)
- Listen for patterns of concerns and take appropriate action to:
- Improve the process or outcome of the planning and budgeting process.
- When the process has failed, consider undoing budget choices to enhance the validity of the process.
- When the process is sound but the decision is unpopoular, consider the worth of the decision versus the value of participant buy-in as a factor in reviewing alternatives.
- Clarify roles in the planning and budgeting process to reduce discontent with the process and make it more efficient.
- Design appropriate consequences to variances from the plan so that they correspond with desired behavior and actions.
- Management should complete and communicate an effective strategic plan before a bottom's up process begins.
- When a top-level override must be made, management should accept responsibility for the decision, recognize the negative effects of the override, and communicate the rational and necessity for the override.
- Making timely decisions will reduce bashing.
- Your input is welcome here
http://www.managementmag.com/index.cfm/ci_id/2845/la_id/1 - //CMA Management// March 2003 (1 of 2) http://www.managementmag.com/index.cfm/ci_id/2897/la_id/1 - //CMA Management// April 2003 (2 of 2)
- Not relevant by the time it is formalized – not reflect current conditions
- Lack of cooperation
- No clear stopping rule
- Too many levels of development and review
- Too much politics involved
- Budgets act as an inflexible baseline
- There is a correct amount of division of effort
- Top level overrides
- Some do not care much about budgets
- Budgeting does not provide value
- Viewed as low priority
- Perceived lack of relevance
- Process can be “trumped”
- Budgeting is dangerous
- Lack of process
- Too much rework
- Budgeting requires lots of effort
- Some disdain budgets