What not to do when managing a budget

17 2018 August
Executive Education INCAE

Tom Peters, the American business management guru, said that to achieve excellence in something, it was enough to think about everything we should do to fail or spoil it and, once analyzed, just don't do it. 

Exactly in this way is how the Director of Organization of the Spanish bank IberCaja, Pedro Cervera, proposes to think about the budget of a company.

Assuming that the budget is a very consolidated financial control tool, and that it is also usually consolidated as a management tool, its impact is very high, so care must be taken that their 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", He begins by mentioning Cervera in his article entitled "How not to manage a budget."

However, a central defect is usually the budgetary slack generated by the practice of neglecting income and exaggerating expenses, which leads to a comfort area within each area that will generate a distortion of great proportions to the company as a whole. 

But let's go in order by listing everything that can be done to achieve budget management failure, according to Cervera:

  1. Let reality and other conditions motivate the budget amendment without having elapsed more than a third of the term for which it was designed.
  2. Allow the process to be carried out within functional silos that do not communicate with each other. Thus, it could create an informational 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 break down horizontally, with added items and without the possibility for the manager to know the details.
  3. Destroy multi-year commitments. The key would be to deny that they are and thus ensure that each cycle experiences the approval of the game as an independent frame. In other words, living day to day. 
  4. Control exercises should ensure that lessons learned are facilitated obvious ones and ignore those that would require further thought. Thus, the percentage or absolute deviations can help to determine a certain level of confusion that makes the follow-up little objective. Nothing better than a volatile budget to argue a flexible follow-up and admit certain slacks and excesses.
  5. An additional confusing technique is the combination of budget models to cause significant distortions. 
  6. Encourage the tempting game of negotiation in which the behavior factor is usually converted in the realization of the budget. 

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