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Bottom Line on Budgeting --Dickeson

December 2003
"Beyond Budgeting" is a new book by Jeremy Hope and Robin Fraser recently published by Harvard Business School Press that's been provoking comment in the trade press. It's subtitled "How Managers Can Break Free from the Annual Performance Trap." It has a message for those few printing companies still spending time and effort at annual budgeting exercises.

Back in an earlier day, I can recall the annual budgeting routine at printing companies. Along about two months before the close of a fiscal year, the company accountant would send out a form asking each department to predict their annual revenues and expenditures for the coming year. Then, over the next couple of months, there'd be guessing and haggling over those inputs until, finally, the accountant would issue the BUDGET for the year ahead.

Why we did this and what useful purpose it would serve was hazy at best. I guess we did it because the accountants and the banking community said we should. Besides, everyone else was doing it and that, in itself, was reason enough. If you were a publicly held company, the stock investors wanted something they could base a PE (Price Earnings) ratio on, whether real or not, for valuing the stock.

If you weren't a publicly traded company, it was seen as a cause for joy or guilt as the year went along. There was always that column in the financial statements headed "Budget," followed by an "Over or Under Budget" column. Something had to appear in those columns.

Unfortunately this took a lot of time and effort, both for the accountants and for the staff that were entailed. And there was the "gaming" involved. Department heads always started with a fat estimate expense, knowing they'd be cut back in the budget process.

They still kept a bit of the fat for a "rainy day" when things ran a bit over. But wait until the year-end drew close and it would need to be spent on the "use it or lose it" theory.

Budgeting Woes

Pity the salespeople. The budget always started with "Sales" for each month of the year. How do you predict sales by the month when the month hasn't even begun? Take last year and increase it by 5 percent or so to make management happy? How in the name of sanity were you supposed to know what was going to happen three months from now, let alone 10 or 12 months hence?


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