This blog is part of the Value Driver Tree Blog series.
Jack Welch, the former CEO of General Electric once characterized budgeting as follows:
It sucks the energy, time, fun, and big dreams out of an organization. It hides opportunity and stunts growth. It brings out the most unproductive behaviors in an organization, from sandbagging to settling for mediocrity. … And yet … companies sink countless hours into writing budgets. What a waste!
(Source: ‘Winning’ by Jack Welch & Suzy Welch)
Jack’s take on budgeting is nothing new. In fact, the opinion continues to resonate with many CEOs and executives. They believe that budgeting, planning, and forecasting in most organizations is a very expensive and time-consuming affair that has often failed to deliver its intended value.
And yet, in a survey of CFOs conducted in 2017, 52% of respondents ranked Strategic Planning as a top-rated business priority, outranking everything else. It was ranked third as a finance department priority, outranked only by increasing cash flow & reducing costs.
Something doesn’t add up. If strategic planning were a top priority for CFOs (which we know it is), enterprises must have had budgeting, forecasting and long-term planning under control by sheer focus. However, it isn’t the case for several reasons.
To understand why, let us first look at some of the common challenges involved with planning & budgeting. We’ll explore these challenges in detail in subsequent blogs.
Common Challenges with Enterprise Planning, Forecasting & Budgeting:
- It sucks in a lot of time & effort
- Too many details and too little value
- It is susceptible to market volatility & changes
- Promotes a culture of conservatism that reduces appetite for risk-taking
As we review the above in depth, we’ll also look at recommended best practices for better financial planning & analysis (FP&A), and how solutions such as Value Driver Trees may help.