The Problem With Set It and Forget It Budgets
Business needs change rapidly, but most budgets don’t. Our research showed that more than half of business owners only touch them once a year.
Previous article in this series: Are Manual Processes Slowing You Down?
In our State of Corporate Budget 2018 survey, we asked nearly 250 business leaders how frequently they update their budgets.
More Frequent Updates Drive Success
Companies that set their budgets more frequently are more confident about their overall process.
In fact, 90% of the companies that budget monthly or quarterly gave themselves an A or B rating, compared to 74% of those that budget annually or biannually, and 50% of those with no formal process in place.
Regular Budget Adjustments Not Common
Although companies that revisit their budget regularly feel more successful, most don’t do it. Only 14% of the companies we surveyed evaluate their budget periodically throughout the year and adjust as necessary. Businesses with more than 500 employees were less likely to operate this way, indicating that the practice may be harder to sustain as companies grow.
- 87% of the companies that operate this way gave themselves an A or B (compared to 79% overall)
- 78% ranked ongoing cross-department communication and updates as the top reason for their rating (compared to 70% overall)
The Cost of No Formal Process
On the other side of the spectrum, 7% of the companies we surveyed reported that they had no formal budget process in place. Most of these were companies with fewer than 100 employees, and this group was more than twice as likely to distribute budget ownership to individual department managers (63% vs. 24% overall). Half of these companies (50%) gave themselves a C, D, or F for overall budget effectiveness, and almost half (47%) had “no idea” how much of their budget goes to discretionary spend, compared to 25% overall.
Center Team Take
Traditionally budgeting has been an annual process requiring months of preparation and weeks of negotiation, relying on the ‘sophisticated’ technique of taking a previous year’s expenses and tacking on an extra 10% to account for growth. Because the business environment changes rapidly, a budget set three months before the start of the fiscal year no longer reflects reality. Budgets need to adapt, just as businesses adapt. | Heather Singh, CMO
TO THE POINT:
Business needs change rapidly, but most budgets don’t. More than half of business owners only set budgets once a year.
The next post in this series is In the Dark About Discretionary Spend?