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Surprise: Most Firms Still Do Traditional Budgeting

  • By Staff Writers
  • Published: 12/5/2017

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Finance professionals and business leaders alike may complain about budgeting, but they still do it. And a surprising number even find it useful.

According to a new AFP FP&A Survey, nearly three quarters (74 percent) of respondents agree or strongly agree that the budget is a valuable tool. What’s more, 82 percent and 86 percent believe their CEO and CFO find the budget to be useful or very useful, respectively. The budget is seen as strategic in nature, breaking down long-term strategies into a medium-term plan.

The survey of 606 FP&A professionals was conducted in August 2017.

 More results:

  • Budgets have managerial discretion and flexibility built into them. This is a departure from an important past criticism—that the traditional budgeting process promotes sub-optimal behavior by locking managers into a rigid spending paradigm established at the time of the budget, rather than what is best for the company based on the current situation.
  • This managerial flexibility can only happen because budgets are distanced from compensation and forecasting. Twenty percent of respondents primarily cited the budget as a basis for compensation, and 73 percent reforecast at least quarterly. This leads budgets to focus on business goals and allows for honest forecasts rather than becoming a proxy for negotiated bonuses.
  • Budgets dominate periodic performance reviews. Fully 81 percent of the respondents hold monthly or quarterly meetings; 69 percent of meeting time is spent reviewing financial results, and almost half of that is a comparison of actual results to budget, and the remaining time is a comparison to prior forecasts or prior year.
  • The budget process has room for improvement. Fully 64 percent of respondents agree the budget process is useful but could be streamlined. More than one fifth (22 percent) spend more than 12 weeks developing the budget.

“These results demonstrate the pragmatism of FP&A professionals,” said AFP President and CEO Jim Kaitz. “They are sticking with budgeting because they still find it useful, but they are constantly adapting it to better suit their needs, and they are always looking for new ways to improve it.”

To view full results of the survey, please visit www.afponline.org/fpasurvey

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