RE-EVALUATING the TRADITIONAL BUDGET

• Published in: Accountancy SA p. 18
• Main Author: Naudé, Pierre
• Format: Trade Publication Article
• Language: English
• Published: Johannesburg South African Institute of Chartered Accountants 01.06.2007
• Subjects: Budgeting; Budgets; Collaboration; Cost reduction; Forecasting; Guidelines; Innovations; Managers; Organizational change; Performance management; Strategic planning; South Africa
• ISSN: 0258-7254

Research from Cranfield School of Management suggests that 80% of companies are unhappy with their current budgeting, forecasting and planning process, and financial managers have ranked the reform of their budgeting process as number one on their "to do" lists. There are a number of reasons why budgets are so disliked and add so little value, including: 1. Budgets take up too many man hours. 2. Budgets are too reactive and inflexible and are a barrier to change. 3. Budgets focus on cost reduction and not value creation. Any company can respond to change, but it's a matter of how fast you can re-engineer your business in a coordinated fashion. To be able to move to a planning process that is more adaptive and accurate, the main points to be addressed first would be to move to a more driver-based process, focused on both financial and operational drivers. Steps that an organization should take to move to an adaptive forecasting process are outlined.