Budget Bashing Blues Case Study

The strategic planning session had degenerated into a gripe session—and you were one of the biggest gripers. Your company's CEO, Jan Draper, liked to keep planning sessions focused, and she usually did a good job of it. But she apparently sensed that this was a time when frustrated managers needed to have their say. The meeting was attended by most of your company's top management team, and almost all of them appeared frustrated by the current budget process. The key budget complaints brought up by the managers included:

  • The current budgetary process takes too long and is too expensive. The company's approach to budgeting tries to get all levels of management involved. Everyone agreed that this approach was good in theory. However, in actual practice, middle and supervisory managers frequently were bogged down and overwhelmed by the amount of time spent dealing with budget issues. 
  • It appears that at least a few participants always try to "game the system" by purposefully overstating their resource needs or understating their capabilities during the budget process in order to make it easier to achieve their budget goals. 
  • The focus on meeting annual budget numbers encourages an emphasis on short-term thinking rather than strategic thinking. For example, in order to stay within budget, managers sometimes defer needed purchases or repairs. Moreover, the focus on meeting budget targets often prevents managers from thinking creatively. 
  • The budget is based on assumptions and forecasts that seldom turn out to be accurate—often because of factors beyond the control of managers. For example, in 2008 and 2009, the dramatic economic decline made it impossible for managers to meet budget targets that were formulated before the full impact of the recession was appreciated. Since performance evaluations, bonuses, and promotions are based on meeting budget numbers, this created a lot of stress and frustration. 

Most managers agreed that the whole budget process needed rethinking. Rachel Sperling, the youngest member of the top management team, argued for a more radical approach, suggesting that the company abandon the annual budget process altogether. This was met by skepticism (and even some derisive laughter), but Rachel held her ground. She mentioned that she had done some research on a movement called "Beyond Budgeting" that called for more flexible planning tools and evaluation of employees based on relative performance rather than fixed budget targets. She pointed out that companies as well known and diverse as Google, Toyota, American Express, and Southwest Airlines have used Beyond Budgeting ideas to move away from traditional budgeting methods. CEO Draper let the discussion on budgets go on for several minutes before steering the meeting back on track. Before turning back to the agenda, she noted that budget issues were a topic that clearly needed further research and discussion. She asked you (as one of the biggest gripers) to work with Rachel to come up with some preliminary proposals that could be discussed at a future meeting devoted to the budget process. 

 

Respond to the Case Study questions in essay format. The essay must include an introduction, a body, and a conclusion, and should address all parts of the question. Make sure to cite any sources you use. Proper citation format for a source includes the name(s) of the author(s), the title of the work, the date of the publication, and the page number if you directly quote the source.

Case Study Questions

What would you do to fix the current budgetary problems the organization is facing? How would you communicate the needed changes to the staff so they understand your new direction?

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