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Why do so many executives hate budgeting?

It just sucks. Every year we try to make improvements, and it gets better, but it still sucks.”

This is a sentiment expressed by the CEO of a successful and fast-growth technology company on a conference panel last month. The other panelists, also CEOs and senior executives of growing companies, nodded agreement.

What was the focus of their shared disdain? Their firm’s annual planning process.  But why?

My first executive role was in finance and planning of a global brand, so I have experience leading what can seem to many like an arcane and antiquated business process.  Annual operational plans should be the backbone of your organization’s strategic management practice, yet all too often, they fall short of achieving this objective.

Here are three ways annual planning efforts fail to provide the value they could and what can be done to improve their usefulness.

1.  Many senior-level business leaders would like to see annual planning time reduced. They argue that time spent by their incredible talent in building out plans, pitching them, negotiating priorities and allocation of resources has marginal returns in creating competitive advantage. Yet they also know an approved budget and integrated plan is needed to effectively manage their business. The tension between the need and the activity comes from the view that the iterative nature of planning and budgeting is not adding value.

Why don’t you just give me my budget number, and I will give you a plan to hit it?

This sort of comment is what those intolerant of the iterative nature of planning think (if not say) when the annually planning time arrives on the management calendar. 

When I hear this sort of declaration, I know that management has not done a good enough job communicating (or possibly has not fully realized) how the planning cycle provides them the opportunity to understand more deeply how their business is operating and to align its activities toward long-range goals.  Even for those not yet on the executive team, participating in a robust annual planning cycle offers real leadership training experience. Where else can you learn so much about all the aspects of operations?

The opportunity offered, but rarely fully optimized, is to start each planning cycle with enthusiasm and optimism. At the start, the leadership teams should review and discuss with each other what they learned from last year’s cycle and how this knowledge strengthened their ability to guide the business. Also, as the process is kicked-off, executive sponsors should call out the leadership training experience participating in the annual planning process provided and challenge everyone to mentor and grow from it.

2. Another frustration with annual planning processes is that they frequently lack time to engage in new strategic thinking; they rely too heavily on incremental planning discussions. While reviewing progress against current and long-range goals is an important step in annual planning, it should only be the first step. New thinking, based on factors neither identified nor understood during the prior year’s planning discussions, should match if not dominate the time discussing progress against the current strategic plan when defining the next year’s goals and resource allocations. The failure to engage in strategic thinking annually by revising planning assumptions and updating or reorder goals is often why most savvy business leaders find that budgeting sucks for them. The budgeting process leaves them no room to share new perspectives, debate priorities, or double down on existing goals as a group of executive leaders.

Processes too rigidly defined around generating a management budget without responding to changing market conditions produce plans and metrics disconnected from the operating realities and run the risk of becoming an irrelevant management tool. This disconnect is most evident when those leading innovation efforts within the firm ignore the budget completely without implications, creating resentment within the firm for those still held to the budget for performance. 

3. Finally, a significant reason stated by managers about why they resent spending time spent on their company’s annual efforts is that once the budget is final, attention narrows to performance against only the numbers. Today’s managers are encouraged to review data on these dashboards daily, sometimes hourly. The dashboards that hold the data and measurements but can distract from regular progress reviews of the plan as a whole.

Departmental or cross-functional plans are the source of the numbers in our dashboards, yet how often are those plans reviewed and discussed? Once a year? That is not enough to ensure your goals are met or exceeded. Depending on the breadth and depth of the plan and the cycles in your business, detailed progress reviews should be conducted once a quarter or more frequently if the investment is high or if the area is brand new to the firm. Budgets should fall out of planning, and plans should guide decision-making. Visible, regular review and stewarding of plans is how goals are met or exceeded.  

To summarize, to make your annual planning process more useful in managing your business:
  1. Leverage it to deepen your understanding of how your business truly operates and to mentor and grow leadership skills.
  2. Connect the annual planning exercise with strategic thinking by building in time to discover and evaluate shifts in your planning assumptions and updated or reorder your goals.
  3. Set up regular plan review sessions throughout the year to assist your teams in executing on the plans your metric is built to track.
Back at the conference, after a few minutes the groans diminished, and one executive sheepishly admitted, she enjoyed her firm’s budgeting season.  I wonder how many of these strategic management practices her firm employs
  1. Learn more about strategic management practices, get our Strategic Management Toolkit.

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Post Tags: Strategic Planning

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