Oh, happy days. It's budget time,

Yes, it's that time of year again, when all companies go into their annual funk as they tackle the annual budget. Yes, the time when even the most positive of us cannot defend the sheer nonsense and hypocrisy that goes on, that more and more extends over a quarter and often into the New Year. Most of us in the end capitulate to self-flagellation of "do I" or "don't I" as we commit to numbers that often make no sense or have any bearing on reality or possibility.

We all agree that regardless of what we do in a company, there has to be a road map and financial planning is absolutely necessary. But while many of us have come to view as pointless the budget process as it is handled in most companies, I would counter that it is actually counterproductive-and takes up far too much time and resources than need be.

Budgeting has become more about self-defense and completely ignoring business opportunities, because no one wants to stick their neck out. A few years back, I submitted a very aggressive budget for a division I was managing in a large corporation-but it needed new resources and investment. In the budget interview rvith corporate heads. I tried in vain to convince them that rve had a one year rvindorv to outfox a competitor, who was No. I in one category but rvould clearly expand the brand into others. I argued the market rvas ripe and that our rvhile our company had missed the boat two years earlier, rve rvould have a small amount of time to get the No. I position in this new category. I spent another meeting defending my budget. only to have my numbers kicked out and cut by 75Vc. A year later, I had to defend rvhy rve trailed a competitor who had come out with almost exactly what I had pleaded for a year earlier. We never caught up.

So what's rvrong? In most companies. the sales force generally starts the process by coming up rvith numbers they absolutely can make. This already gets the process off to a bad start. When you are rervarded to hit target. you come up rvith numbers that guarantee you will get your bonus. So sales submits the lowest numbers that they think they can get away with or negotiate from as the process develops. Let's say they project a 8% increase. Norv it seems to me, it does not maner that the competition grew their businesses 2OVc last year or that the industry grew l5Vc. On the other hand. the financial team is sweating buckets and burning the midnight oil plastering rvalls rvith printouts that could cover Manhattan in a tickertape parade, and they have the opposite view point and. unfortunately often no sense of reality. Finance comes up with a justification that the business can grow 22Vc.

Then comes that magical time when the spotlights are turned up and you meet in a room. look uneasily at each other, ruffle reports that you can barely see over, wrestle for some form of advantage or capitulation, until bleary eyed, the numbers-in a spirit of compromise-are split down the middle (l17c). After the handshakes and attaboys, each team leaves the room congratulating themselves that this rvas the best result possible under the circumstances and horv they had outfoxed the other. B.S., I say!

The problem rvith all of this is that you end up with exactly what the system demands: no risk, no imagination. no big dreams. and everyone being paid on an internallycalculated number versus rvhat really it should be based on. How did the business perform this year versus last year? How did it do in the real rvorld. both in terms of its nearest competitors and the industry as a whole? What changes in products or technology will impact the industry next year and offer a rvhole new set of operating and sales metrics?

Instead. get the sales and the financial teams rvorking in harmony and discussing "what if' scenarios rvith the inherent risks that not all will pan out. If undentood by all, that means market realities can be discussed in a non-defensive way. Then the budget process really begins to have meaning and purpose. Agreed strategies and investment plans. if backed by meaningful market intelligence and a structured financial framervork, can lead to exciting things. Yes, there have to be built in upside and worst case scenarios. but it is no longer an "us" versus "them." Any plan should include flexibility for change if market conditions deem it necessary. But there has to be trust by people in the field that they rvill not be punished for missing stretch targets, but that they rvill be rervarded if they do reach them.

The trouble rvith corporate America today is that companies seem to value and compensate bad habits. Far too many companies are risk averse. Delivering the budget should not be a test of wills betrveen finance and sales. It should be based on riskirervard strategies and tactics that market conditions allorv. Good luck!