Nothing is more wrought with waste than the dysfunction of the annual budget process. Arbitrary targets are set during this process and management plans against corporate and government fantasies. The process is painful, and outright delusional.
W. Edwards Deming would be correct to ask “by what method” will you achieve that 8% reduction in expenses or that lofty 16% growth in revenue? The truth is rarely do managers know, only that they have a target to achieve and the games begin. Naive managers play this game like a game of poker . . . “I call that 8% reduction and raise it to 11%.” While the mature manager will negotiate the number down and immediately devise excuses that will get the manager through the first quarter or two.
The rest of the year is spent looking at that annoying report that describes “planned vs. budget” and like a roller coaster the management ride begins. Reports are written about the variance from budget. Display lights show red, yellow, green against budget and the psychological torment to “do something” begins.
Short-term behavior to “hit the numbers” often create a management paradox. Resources are cut, maintenance is cut back – in a rob Peter to pay Paul scenario that one would think they would only see with “The Three Stooges.” It is laughable, only this is real life in business and government. The bean counters have taken over business and government. This, I have concluded, is why accounting firms are so into consulting as one dysfunction (budgeting) can be reinforced by more dysfunction (consulting to achieve short-term numbers) . . . waste begets waste.
As targets are put in place, the whole focus of the organization turns to the numbers as this is what managers pay attention to. It creates a defacto purpose, instead of focusing on creating value for customers everyone’s attention is on achieving their target. And with customer purpose gone, sanity soon flys out the window.
More dysfunction of plans, milestones and schedules based on assumptions, but managers have no time for such silliness as getting knowledge. There are meetings to have, people to bash and excuses to dream up and that takes a lot of a manager’s time. The very thing they are trying to reduce raises the need for more resources directed at keeping the budget score and not tending to the system that creates value for customers and constituients. Wrong focus, in a management paradox, creates more costs.
I don’t believe the budget process will die, but I wish it would. This is a problem that will take years to undo. The problem is literally billions will be wasted until we do.
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Tripp Babbitt is a columist (Quality Digest and IQPC), speaker, and consultant to private and public service industry.