Tom Peters, the American business management guru, used to say that to achieve excellence in something it was enough to think of everything we should do to fail or mess it up and, once analyzed, simply not do it.
This is exactly how Pedro Cervera, Organization Director of the Spanish bank IberCaja, proposes to think about a company's budget.
Assuming that the budget is a well-established financial control tool, and that it also tends to be consolidated as a management tool, its impact is very high, so care must be taken to ensure that its virtues do not become defects for the business.
"One of the clearest signs of the beginning of an anomaly in the role of the budget is the degradation of its cycle and principles," Cervera begins by mentioning in his article entitled "How not to manage a budget."
However, a central flaw is usually the budgetary slack that generates the practice of disregarding income and exaggerating expenses, which leads to a comfort zone within each area that generates a distortion of great proportions for the company as a whole.
But let's go in order by listing everything that can be done to achieve failure in budget management, according to Cervera:
- Allow reality and other conditions to motivate the amendment of the budget without more than one third of the term for which it was designed having elapsed.
- Allowing the process to be undertaken within functional silos that do not communicate with each other. Thus, you could create an information wall between different divisions that would prevent them from doing this horizontal analysis of a business line or a complete process. Hide go-to-market dates or expected sales volumes. One technique is to build a universe of misinformation in which it is difficult to drill down horizontally, with aggregated items and no possibility for the manager to know the details.
- Destroying multi-year commitments. The key would be to deny that they are and thus ensure that each cycle lives the approval of the item as an independent frame. In other words, to live day by day.
- Monitoring exercises should be sure to facilitate the most obvious lessons learned and ignore those that would require further reflection. Thus, percentage or absolute deviations can help determine a certain level of confusion that makes monitoring less than objective. There is nothing better than a volatile budget to argue for flexible monitoring and allow for slack and overruns.
- An additional technique that would lead to confusion is the combination of budget models to cause significant distortions .
- Incentivize the tempting game of negotiation that often becomes the behavioral factor in budgeting.
