Beyond budgeting — breaking a 100 year industrial model

… budgeting takes a lot of time. Ford Motor Company once estimated that its planning and budgeting process cost around $1.2 billion a year.

And that’s how it is with many more companies. They often spend almost one-quarter of the year checking, measuring and ‘fine-tuning’ the current budget and another quarter preparing the budget for next year. Of course, this is at the expense of their ‘real’ work.

In addition, budgets are too rigid and too inflexible. Circumstances change rapidly in this complex world, but traditional budgets cannot respond to this. An annual budget doesn’t take this volatility into account.

That was an excellent article by Marty de Jonge, “Stop Budgeting & Start Adding Value.” He was talking about commercial budgeting practices, but clearly they ring true for government budgeting as well. Read the whole thing (HT: Chad M). The DoD’s budget should move in a similar direction. Here’s a taste:

One of the successfully used modern budgeting methodologies is Beyond Budgeting. A complete system of principles, processes and tools to work without fixed budgets, but with common sense, transparency and trust… By Beyond Budgeting, you bring the value back into the budgeting process. You simplify the process and save time by saying goodbye to unnecessary steps.