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Fixing budget gaming

A most interesting article in the Harvard Management Update (Lauren Keller Johnson – Stamp Out Budget Shenanigans, Harvard Management Update August 2005) outlines some good practices to help address common games people play at budget time. Citing Richard Steele, a partner in Marakon Associates, they recommend four practices that can help make the budgeting process more realistic and strategic. I thought these were quite interesting, and essential in an era in which it is really hard for more senior people to know what is going on at an operating level.First practice: Create decision support units that can offer an alternative to proposed budgets. This means that someone other than the manager whose personal good fortune is linked to achieving the budget is looking at the numbers as well.

Second practice: Use the very common 360 degree feedback process to include peer questions about the managers’ behavior at budget time. By asking peers what they think, the questions can reveal behavioral tendencies to under-promise, demand too much or be unrealistic.

Third practice: Include customers in budget reviews. This means asking questions such as how many customers have you lost this year? How many need to be acquired to replace them? How many to grow? This will get the debate beyond the numbers to the strategic issues.

Fourth practice: Establish consistent checklists and standards for budget-planning meetings – including questions about execution, strategy and investments.

Food for thought as we enter into the second half of the year.

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