Why Budgeting and Sound Financial Practices are Crucial

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Beyond Budgeting > Forum > Why Budgeting and Sound Financial Practices are Crucial

Why Budgeting and Sound Financial Practices are Crucial
Tim Jones, Consultant, United States, Member
Folks, all you have to do is look at the US debt and look at the fact that we have lived "beyond our means" for sometime now. You can't continue to operate without a plan for your money! It gets you in trouble as a household or as a country! The US is $16 trillion in debt!
Companies go bankrupt everyday because they operated on the assumption that a budget wouldn't work, was too time consuming, too much bureaucracy, etc.
It's time that we have professors in our universities that have experience in the real world and quit hiring these "financial philosophers" who operate on "theory" and have no idea what it is like to operate within limits, meet a payroll, develop realistic five-, and ten-year plans, etc.
We still have to operate according to sound business principles. Just because the airplane has been invented doesn't mean that gravity has somehow ceased to exist or apply to us!

Why Budgeting is Important
Isaac Asante, Financial Consultant, Ghana, Member
Every management tool has weaknesses. The point in budgeting is to count the cost before going into an activity at the start of the year, and if it has already started, to assure there there will be resources to complete it.
Due to the difficulty of measuring resources other than money, we often take the simpler route of estimating only cost elements in what we call traditional budgeting.
Otherwise the idea of estimating what it takes to carry out a plan is a fundamental, age old practice with humankind, which cannot be wished away. If we want to move from point A to B, we surely consider how to get there - do we need to walk, fly, swim, sail, ride or go by car? How do we pay for the means? Even if we decide to walk, how much time do we need, and so on?
What makes traditional budgeting painful for many is the aspect of quantifying the activities planned in terms of figures, given that rates, economic factors are difficult to estimate.
Otherwise budgeting is a sine qua non for all forward-looking entities.

That's Simple - Its a Drug
Sergey Baltin, Manager, Russian Federation, Member
I totally agree, but this is from the point of view of non-government person. If you are in a government structure - I believe that it's so hard for governments to stop spend a lot.
Reason 1: they all are politicians, not government-men. Let me explain: the first thinks about loyalty of electorate. The second - about nation, nation in the future, next generations etc. Electorate is a drug, you have to spend more and more to get more satisfaction (presidential elections).
Reason 2: if your government don't use debt, the growth rate is lower. Meanwhile other governments use debt-money, use leverage and constantly grow a bit better then you. So if all run faster after drinking some magic water (debt) what should you do? 99% chance the next marathon you will buy the same magic water and you don't care about long term future.
What to do 1: stop thinking only about yourself.
What to do 2: someone crush current money system!

That's Simple - It's a Drug
Tim Jones, Consultant, United States, Member
@Baltin: you are right concerning politicians. You are correct in the electorate being a drug. Getting better as a country is no longer the primary drive. The primary drive becomes getting re-elected (at any cost).
Politicians are to government what embezzlers are to business. In both government and business the end result of overspending is the same - collapse.

Budgeting Still Relevant
Benjamin Ogudoro Nkemakolam, Financial Consultant, Nigeria, Member
The relevance traditional budgeting depends on the method of application.
Rolling budgets can solve most of the weaknesses of traditinal budgeting. Do not forget that budgets are a good yardstick for measuring performance. Budgets predicated on activity levels are good tools for measuring performance and serve as control measures.
Therefore, adaptive budgeting implementation is good and can help benchmark cost.
Other management tools like ratios and percentages are also useful. But budgeting helps to identify elements of cost and revenue and their interplay. Hence it is still a relevant tool.

Why Budgeting is Useful
Dario Gragnani, Manager, Italy, Member
Budgeting is useful. 'You cannot manage what you do not measure'. Budgeting requires to analyze and decide. It is part of the job.
It clarifies the job to perform. It constitutes the base upon which a well implemented 'earned value management' can really help reaching financial goals.
Good budgeting is not only a matter of tools. It's a matter of management's will and organization.
Even annual budgeting is useful. Annual budgeting has reasons: legal aspects, periodic public information.
Among the main weaknesses of annual budgeting are: Time consuming, cost, burocracy depend upon how you perform the job. Frequency and changing environment: not all the business are the same; manufacturing airplanes is different than deliver consumer electronics.
Anyway, if your business requires higher frequencies, nobody tells you can't do it.

Budgeting is Still Useful
Andyson Mupeta, Student (MBA), Zambia, Member
Traditional or not it, budgeting remains a helpful means of operationalizing the company activities so these can be tracked with concrete metrics for reflection on performance.
Budgeting has weaknesses but is not useless.

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