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Why do we budget anyway? What’s the point?

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Have you ever stepped back and asked yourself, “Why do we go through this budget process anyway? What’s the point?” I remember being in the throws of the budget process at Reader’s Digest, where I managed the process for North America, and asking myself that question a lot.

True confessions… in my most cynical moments, I would have said the budget process was about punching a number in the budget template. But that’s not what I learned when I was at Pepsi, which had a world class planning process. I learned that budgeting was as much a communication exercise as it is a financial one.

What you heard a lot, if you were in business planning at Pepsi, was “The Plan is nothing… but Planning is everything.”

That probably sounds a little odd to you so let me decipher what that means. The act of planning, if it’s done well, is about figuring out as an organization, where you want to go and how you’re going to get there. Who needs to do what? What resources are required? How will we know if we’re succeeding?

People just didn’t budget at Pepsi, they made commitments. And that required a steady stream of communication up, down, and across the organization.

Someone I know who manages the process at Drew University put it this way, “The budget should be a numerical expression of the strategic plan.” I really love that, it says so much with so few words. But once again, making the budget an expression of the strategic plan requires effective communication.

The sad part is we’ve really gotten away from budgeting as a communication exercise, and in many companies it’s just about rolling the numbers up and making sure they tie out. I think that’s happened because A) We have tools for budgeting that are great at the accounting side of things but were never really intended for communication B) Time pressures have squeezed even more communications out of the process in an effort just to get it done on time. C) The whole process has earned a bad reputation as a necessary evil, and necessary evils are meant to be minimized.

Is budgeting and planning a communications exercise in your company or organization? What measures have you taken to protect it from falling into “the numbers trap”?

 

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