Typical planning and budgeting processes require an extraordinary commitment of time and resources. But the bigger problem is that they lock companies into fixed plans in a world of constant change where long-term predictions will be increasingly unreliable.
Unpredictable, accelerating change necessitates three things:
First, planning faster and more frequently. If we can adjust a long-term forecast every quarter, month or week, we can continually improve its accuracy. Current planning and budgeting systems are designed to help senior executives predict, command and control, a rigid model especially ill-suited to periods of change during which forecasting becomes increasingly difficult and commanding people to stick to flawed plans more dangerous.
Second, changing the purpose of planning and budgeting. Effective planning and budgeting defines success not as hitting budgets, but as improving outcomes for customers, employees, investors and communities. It focuses on learning, adapting and growing―not on trying to predict the unpredictable. It tells the truth about forecasts, making it commendable to expose honest uncertainties and potential pivot points―not pretend they’re unthinkable.
Finally, shifting the budgeting focus from financial precision to setting strategic portfolio guidelines. These guidelines force discussions that allocate resources from the strategy down, rather than from individual projects up. By properly aligning resources with strategic priorities, companies can better see the tough trade-offs that should be made but aren’t―either because of neglect or because they’re being made by the wrong people.
It has clearly become more important in the current turbulence that the executives responsible for strategic outcomes make the resource trade-offs to achieve them.