By David Parmenter

The annual planning process is part of the trifecta of lost opportunities for a corporate accountant.  The other two being the year-end accounts and the monthly accounts processes.  All three exercises keep the corporate accountant locked into processing and reporting leaving little time for added value activities.  It is interesting to note that we seldom get thanked for preparing the annual accounts, for controlling the annual planning process or for preparing the month-end accounts.

In fact, I believe that annual planning, as businesses use it today, is one of the greatest mistakes companies have made since 1494, the year Pacioli wrote about  double-entry bookkeeping in Summa de arithmetica, geometria, proportioni et proportionalità. We need to do it quickly and then migrate to a rolling planning process.

The first writers to put annual planning to the sword were Jeremy Hope and Robin Fraser in their classic book Beyond Budgeting.

The 10 reasons why the annual planning process should be replaced are because it:

  1. Takes too long, costs too much – too much detail and too many iterations.
  2. Does not help run the business as it is out of date as soon as the ink has dried
  3. Leads to dysfunctional behaviour, building silos and gaming the system
  4. Undermines monthly reporting (monthly budgets are poor targets)
  5. Is an anti-lean process
  6. Often has allocations that budget holders have no control over
  7. Forces decisions to be made too early and often too high up in the organisation
  8. Prevents value adding activities that were not in the budget
  9. Is a bad yardstick for evaluating performance
  10. Based on planning and central control which has MacGregor’s theory X premise “that you cannot trust people”

 

Smart organizations do not have an annual planning process anymore. Instead, they use quarterly rolling planning.

 

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