An interesting article has appeared in the Harvard Business Review regarding budgeting. The tenet of the article is that you should abandon budgeting as a management process and instead focus upon driving inefficiency out of the cost drivers to the business.
The citation for this notion is that Management spend far too much time collating, discussing and disseminating budgetary information across the organisation; the article gives examples of large organisations that have relinquished the budgetary process and adopted the aforementioned principle.
I’ve been pondering this notion around in my head for some time and can see where the author is coming from but I’m not entirely convinced that I would want to let go of my numbers as they are the ones that have established my KPI’s; it’s my KPI’s that I manage surely, not my budget?
I do believe however that there is a lot to commend this principle if the Management Team have the ability to understand the structural and operational cost drivers but at some point someone must establish what they are from a zero base and once having done that, then to move forward to managing them, but have we not just come full circle in our logic?
Perhaps what should actually be said is “establish the budgets once and then manage them by spending the time on driving the inefficiency out of the operational cost drivers”
I’d be interested in your thoughts – drop a line or call; always welcome.