Budgets are plans…and everyone loves to take a cheap shot at both…so
much so that it’s downright nauseating. One of the most hackneyed
expressions I heard in my 39 years (and counting!) years in the U.S.
Army and Army Reserve was, “no plan ever survives contact with the
enemy.”
My response?
“Well, no (excrement)!”
The value in having a plan is not survival; it’s knowing where to pivot
because having a plan gives you the agility needed to survive contact
with the enemy. The same can be said about a budget.
All the criticisms listed in the text about budgets, as well as the
supplemental reading, are legit. Budgets are a prediction, and they can
prove to be downright inflexible, ineffective, divisive, time consuming,
etc.
“(Budgets) can really lead to a lot of acrimony within the company, and
some cases, the budgets can be grossly inaccurate,” according to an
Edspira accounting video on YouTube. “So you spend all this time
making these budgets, and then they’re inaccurate, you say, ‘Okay, was
this even worth our time?’” (Disadvantages of Budgeting in Managerial
Accounting, 2018).
Yes. Budgets are worth our time because they are a tool enabling
management to control its resources. As Professor Michael McLaughlin
of the Edspira accounting video series explains, people naturally focus
on the day-to-day activities instead of thinking long term.
“Budgets force people to think about the future,” (Advantages of
Budgeting in Managerial Accounting, 2018). “Putting together a budget
and actually put on paper and say, ‘Okay, what is it going to look like 12
months from now?”
I am a chief warrant officer, which in civilian word, makes me a mid-
level manager. I plan because I must. The traditional budgets, produced
annually, enables management to plan and control its resources. They
also provide a metric by which you can evaluate subordinates. And
that’s important because so much of the work we do is nebulous and ill-
defined. We must assign concrete numbers to gray-area work because,
otherwise, holding people accountable would come down to a gut
feeling.
None of that excuses all the pitfalls associated with budgets. My
trouble is I can’t really think of a better alternative.
“More and more businesses are moving toward operating without a
long-term budget and working with a 13-week cash flows instead,”
according to this weeks’ reading, Budgets Don’t Work: How Businesses
Can Do It Differently. “There are a number of situations where the
revenues are so erratic that doing a budget and trying to benchmark
against it is seen as a waste of time.” (Rygelski, 2018)
I’m just not buying it. Maybe it’s Army thinking, but I just think in terms
of 12-month increments. I can't get out of that mindset.
I don’t know if they’re considered alternatives, but I do like zero-based
budgeting, which forces managers to justify every dollar every year.
That’s opposed to just assuming that next year’s budget will start with
the same amount as this year’s budget. I think zero-based budgeting
would force managers to use better numbers to justify their spending.
I am also interested in rolling budgets, which means you add a month to
the end of the cycles after completing a month at the beginning of the
budget cycle. This continuous or perpetual budget is always a 12-
month budget. This creates constant updates that force more realistic
thinking.
I started with a quote, so I’ll end on one. Quotes about planning are
ubiquitous. Quotes about budgets? Not so much. But I do like this one
from famed financial expert Dave Ramsey:
“A budget is telling your money where to go instead of wondering
where it went.”
i i i i i i i i i i i i i References
Advantages of Budgeting in Managerial Accounting. (2018.).
Www.youtube.com. https://youtu.be/1OXYImMJYW8
Disadvantages of Budgeting in Managerial Accounting. (2018).
Www.youtube.com. Retrieved May 24, 2022, from
https://youtu.be/UPbrB2VemFw
Rygelski, M. (2018). Council Post: Budgets Don’t Work: Here’s How
Businesses Can Do It Differently. Forbes. Retrieved May 24, 2022, from
https://www.forbes.com/sites/forbesfinancecouncil/2018/01/05/b
udgets-dont-work-heres-how-businesses-can-do-it-
differently/?sh=355eb82c46b8
TOP 25 QUOTES BY DAVE RAMSEY (of 157). (2009). A-Z Quotes.
Retrieved May 25, 2022, from
https://www.azquotes.com/author/12070-Dave_Ramsey
