No need for Annual Budgets !

What is the motherhood statement all about? How can I ever make this statement? Did I commit a crime? Well, let me dwell into this a bit to absolve

This is the “That Time” of the year organizations would have embarked the Annual Budget exercise.  Let us comprehend how all-encompassing is this practice, a judicious or significant one. If an iota of sensibility and rationality prevails, many in the organization would say no to this annual budget exercise. It was happening for the past many years…. We continue to do this, seems a compelling conclusion for this event.

Given the ever changing dynamics of the events around us, it’s only prudent and pragmatic to be aware of the fact that, change is the only constant. How far these changes can be envisaged and factored into the budget numbers? Will this ever be consequential? How to foresee and append all these into the budget? What events will happen 5 months or 7 months from now and how to factor those in the financial statements.

To quote an example, the change in the oil prices or a modification in the tax structure by the government will have a bearing in few line items in the income statement. These decisions may have an impact on the product pricing.  Given the above, an organization, which embarks on the Annual Budget ritual would have factored a standard rate and explain the variance month after month. Does this sound logical? Clearly no. Is there a solution? Yes. The answer to this is FORECAST

Now that we have an answer, my declaration here is to sidestep this annual budget exercise, and embrace Forecast. I advocate to have a quarterly forecast. This would give a tremendous clarity on the current situation and make modifications as the environment around is impacted by various decisions. All major events throughout the year, be it local or global, that’s impacting the business is known and necessary adjustments in forecast can be carried out. In this way, the business is well in the region of acceptable variances and more so, the cause for the variance is clearly drawn. This paves the way for the implementation of corrective actions.

As it ends, lets remember, Its not gonna be easy… but its gonna be worth it