OBLITERATE TRADITIONAL BUDGETING.

• Author: Marcino, George R.

The annual budgeting -- or, in some environments, "planning" -- process is an ordeal that would make Machiavelli proud. Every year a call goes out to each budget center to start preparing next year's budget. A bunch of financial guys, anointed by general management to keep everything moving, usually facilitates the process.

They do this by providing each unit manager with a "workbook" that shows all the expenditures of the past period down to three decimal places. Then, the ordeal starts. The unit managers agonize over their plans for the next period: Do I add staff? How much of a salary increase? Any new programs? Finally, after much soul-searching and number-crunching, the budget is submitted, only to be turned back with insightful commentary such as "it's too much" or "we can't afford it."

The cycle is repeated and repeated until the manager, debilitated by exhaustion, accepts the final version, which chops out training programs, systems upgrades and other "non-essential" items. Why is this process so painful and unfair? Let's examine some of the critical shortcomings.

For one thing, traditional budgeting is incremental -- that is, next year's budget represents incremental additions and deletions to all the budgets that preceded it. Rarely do you see zero-based budgets, which wipe the slate clean and start all over. Even those who profess to use zero-based budgeting clear the slate and then add back large components of past work. Is it any wonder that some elements of an organizational resource pool get hard-wired into budgets, and the entire budget grows bigger each succeeding year?

The incremental changes (mostly additions) invariably lead to higher operating budgets, which leaves management in a very bad mood. When the order to "cut" comes down, only programs not yet started can be removed without disruption. So, reluctantly, unit after unit pares or eliminates many new initiatives, some showing real promise.

Tolerating overlap and duplication

If and when new programs are approved, new work begins while work originally intended to produce the same result continues. Take, for example, the case made for outsourcing maintenance. What happens to those employees who originally performed the work? Will they be redirected, with new tasks and job descriptions? Chances are they will use their newly found free time to "monitor" the contractor, or spend more time on current tasks. Incremental planning tends to build new programs on old ones...