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    Senior Finance Executive ~
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New Year, New Budget … but is it the right tool?

There is always something exciting about starting a new year.  It’s like having a clean slate so to speak.  Oh, it doesn’t mean that what has happened to you in the past disappears but it’s a point from which to start measuring new challenges and new initiatives.  This is true whether you are an individual or a business.  Individuals use resolutions to set up these challenges and initiatives, many of which will fall by the wayside before the end of January.  For a business, it often means the beginning of a new budget and that too can fall by the wayside quickly.

A budget can be a dangerous business tool when its weaknesses are not well understood and too much faith is put in it.  The budget that was created last year, after many months of work, represents a best guess about where the business will be this year given the set of assumptions made at the time the budget was created.  But we all know that the assumptions can become skewed or change as the economy ebbs and flows.  And as a result, measurement against a static budget isn’t always going to lead you in the right direction.  So what do you do to avoid the budget becoming a wasted effort and the nemesis of everyone in your company?

I recently read “Beyond Budgeting”, a book addressing the weaknesses of the traditional budgeting process and how to combat it.  The authors promoted the idea that the budget can be done away with and gave a number of case studies attesting to the success of this method.  However, the budgeting process is so deeply ingrained in the American business psyche that only a handful of companies will ever be able to achieve this nirvana.  Instead, there are a number of tools that I have worked with in the past that can help make the budget more valuable and supplement it to drive growth.

  • Flex budgeting
  • Balanced scorecard
  • Benchmarking
  • Incentivizing the right way

I will be discussing each of these tools in posts throughout the coming week starting with flex budgeting.

Wishing everyone a Happy and Prosperous New Year!

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3 Responses

  1. Laresa,

    Great initiative. I look forward to reading your posts. A couple of suggestions:

    – Expand a bit more on ‘Beyond Budgeting’s’ premise. If a company does away with budgets, what other monitoring/control methods do they advocate?

    – Make some posts about family budgeting: processes, tools, what has worked or not worked in your experience.

    Balancing content of interest to both a corporate and non-corporate audience could expand your readership further.

    • Dennis — Thanks for the thoughts. I will definitely use them to build future posts. The whole blogging thing is new to me so I’m sure this will develop over time as I get into my groove.

  2. Laresa:

    Congratulations on the launch of your blog. I like the look and feel as well as the content. These topics are important and a venue such as yours to stimulate thought & discussion is a great resource for regional businesses and non-profit organizations. I look forward to reading your opinions and suggestions.

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