Even if your budgeting process isn’t keyed to a year-end cycle, there still lasting and significant impacts on day-to-day Procurement and Purchasing operations.

One of the biggest problems, some independent budgeting experts conclude, is that budgets serve more to hinder change and innovation than to encourage it.

Budget researchers found many flaws with the basic budgeting process, but these were the highlights:

• Dead on arrival. Only one in five businesses flex budgetary muscle to change course during a fiscal year. With most budgets being considered a “done deal,” 85% of management teams reported spending less than an hour a month talking about strategies. In other words, woe to the manager who racks up costs — even in the name of progress — that weren’t accounted for in the budget. As a result, budgets tend to focus on changes at a snail’s pace, instead of encouraging “big picture” thinking.
• Use it or lose it. How many times have you heard managers (or even yourself) scrambling to spend the balance of budgeted resources. Otherwise, you’ll be scrambling to explain why you really need the same resources in the new budget — or else face the prospect of ending up with less the next time around.
• Play it safe. Who’s heroic enough to go out on a limb, especially when that limb is an unfunded initiative? Risk-takers could be asking for big trouble. Besides, if the gamble pays off, who’s to say your boss won’t step up to take the lion’s share of the praise?
• More, more, more — not better, better, better. Setting operational goals linked directly to budgeting processes can have a nasty little backlash. Sales is rewarded for its ability to move product to customers. That means job No. 2 is convincing customers to buy, buy, buy — especially that slow-moving stuff that’s been gathering dust.
• Ahem, creative, ahem, record keeping. Some pros find themselves “managing outcomes” to keep budget figures under control. In more extreme cases, the manipulation is known as “cooking the books.”

Tags: budget, procurement, purchasing