MARK BARNES: Determining the global economic weather forecast
Budgeting once was about looking at the past to predict the future, but exogenous variables now play a major role when planning for the next year
Budgeting is dead. Is there any point to traditional annual budgets any more? It’s about now (for companies with financial years that coincide with the calendar year) that boardrooms are finally signing off on Budget 2022, Version 5.0 — the final, final, no more changes accepted, planned outcomes for next year. It won’t be right, so what’s the point?
In the good ol’ days of predictable economic environments, preparing the annual budget for the ensuing year was a bit of a doddle. Barring the launch of any new products, or the expiry, or coming on stream of contracts, in its very simplest (misguided?) form, budgeting involved looking at the past to predict the future. Have a bit of a think about next years’ numbers, go out for lunch, build in some conservatism, contingencies, whatever — to cut management some slack (and improve the likelihood of getting an outperformance bonus) — and then copy and paste some index-linked growth into the next five years’ spreadsheet, and you’ll p...
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