The War on Traditional Budgeting

The traditional budget can't coexist peaceably with business performance management software. One has got to go -- and it won't be the BPM system.

There may be some CFOs out there who feel deep affection for the traditional budget. But if such people do exist, they're a rare breed. Nearly everyone who's been involved with that process knows what an onerous ritual it is and how it hampers corporate performance by shackling managers to an inflexible timetable that's unresponsive to changes in the organization's needs and strategies. Yet every year companies go back to the same broken-down process and do it all over again. Why?

The reasons are largely cultural. Corporations are firmly bound to the annual, top-down budget by chains of familiarity and inertia. Finance executives who seek to break those bonds must be prepared to meet resistance from colleagues who fear that any such move would tear at the very fabric holding the company together. Convincing traditionalists there's a better way to go requires a catalyst, a motivating factor to help them see the light.

Business performance management (BPM) software fits that bill very nicely. Senior managers who usually turn a deaf ear to calls for radical reform of the budget may be open to the idea of investing in a BPM system that focuses attention on a set of key performance indicators. After all, a metrics-oriented company is a healthier, more agile, more competitive operation. And in order to realize those benefits, businesses must ensure that their processes support their BPM software -- and don't conflict with it.

"The traditional budgeting process is incompatible with BPM," says Henry Morris, group vice president, applications and information access software research, with IDC in Framingham, Mass. "If you can't revisit your asset allocation assumptions during the year and take corrective action where needed -- if you can't make changes in response to opportunities -- you lose the key elements of BPM. You need enough give in your budgeting system to allow yourself the chance to make adjustments from time to time."

Sean Mullane, senior manager with Irving, Texas-based performance management advisory firm The Player Group, agrees. "Being adaptive in a very competitive environment requires a dynamic performance system -- not being locked into a fixed performance contract, which traditional budgeting imposes," he says. Companies can leverage BPM software to develop a flexible resource allocation system and realize their latent performance potential. "Make action planning inclusive and continuous," he advises. "Focus on metrics such as cost to income, and establish a fast track for approving projects. It's all about process and about making a cultural shift to let go of the budget."