Death of the annual budget

Leading companies are ditching the annual budget in favour of more flexible, responsive and dynamic methods to improve their competitiveness and performance, a new report by Business Intelligence found.

by Business Intelligence, May 2006
Last Updated: 23 Jul 2013

The report, which came out on May 7, claims that the annual budget is "inflexible, irrelevant, out-of-date, a drag on performance, dysfunctional in its impact and unjustifiably expensive to produce". A pretty damning statement for a tool that is still used by the vast majority of organisations.

But the research by Business Intelligence suggests that companies would in fact benefit from switching to more modern tools such as quarterly planning cycles, rolling forecasts, Economic Value Added (EVA), balanced score-cards and other performance frameworks.

The report shows that companies like Boston Scientific saw a 62% rise in global sales after switching to a 12-month rolling plan updated quarterly. Herman Miller, an office furniture and service provider, achieved a compound growth rate of 14.6% since 1996 largely thanks to a focus on EVA, while UBS Global Wealth Management and Business Banking improved resource allocation, decision-making and waste reduction with the introduction of quarterly re-forecasting.

"Dissatisfaction with the annual budget is a symptom of a growing crisis in performance management," says James Creelman, author of the report. "More senior managers acknowledge that the budget, like other methods developed to meet the needs of industrial-age business, is no longer fit for purpose."

Budget changes might also trigger changes in the business culture. "Instead of beating the budget, companies that have overhauled their process focus on beating the competition," the report concluded.

Source: Reinventing Planning and Budgeting for the Adaptive Enterprise
Business Intelligence, May 2006

Review by Emilie Filou

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