Agile Approach to Budgeting for Uncertain Times [#AgileApproach #AgileBudgeting]

Agile Approach to Budgeting for Uncertain Times [#AgileApproach #AgileBudgeting]

1. Change the purpose of planning and budgeting
2. Shift the focus from financial precision to strategic success
3. Plan faster and more frequently

1. Change the purpose of planning and budgeting
Effective planning and budgeting define success as improving outcomes for customers, employees, investors, and communities — not as hitting budgets.

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 are unthinkable.

2. Shift the focus from financial precision to strategic success

Typical questions strategic portfolio guidelines might raise:
1. What are the outcomes that will be most important for strategic success?
2. In light of those priorities, where should resources go? For example, how much of our resources should go to running the business (operations) versus changing the business (innovations)?
3. Within innovation, what is the right balance of resources going toward incremental innovation versus breakthroughs?
4. How much should go to various customer segments?
5. How much should go to different sales and distribution channels, geographies, business units, brands, or product lines?
6. How much of our technology resources is properly spent on keeping current systems running versus developing new features or improving architecture?
7. What hypotheses must be true for these resource allocation strategies to work, and how can we test them most quickly and efficiently?

3. Plan faster and more frequently
If budgets are inflexible and a crucial forecast cannot be adjusted, the person making it naturally obsesses over its accuracy. Left untouched, even small mistakes can compound over time and make a mess of plans.

However, if we can adjust a long-term forecast every quarter, month, or week, we can continually improve its accuracy in far less time and with far less effort.

Setting bold, challenging objectives and then adjusting plans to incorporate valuable lessons learned is the best way to improve.

Like five-day hurricane paths, five-year business strategies are hard to predict.

Fortunately, business planning can follow similar principles: describe an expected path, estimate the uncertainty and a reasonable range of outcomes, clarify the hypotheses behind the predictions, track the validity of those hypotheses, change those that are wrong and adapt the plans to achieve the best possible results in light of the most accurate information.

For most companies, traditional planning and budgeting has a comfortable certainty built into it.

Managers like knowing what is expected of them.

CEOs like the control it connotes.

It is hard to give that up.

But precision is not the same as accuracy, and plans that are flexible enough to focus on what truly creates value are worth the discomfort.

An Agile Approach to Budgeting for Uncertain Times
Harvard Business Review

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