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More fiction has been written in Excel than in Word

In other words, the budget season is in full swing for many organizations.

The usual routine involves using last year's budget as a starting point, adding and subtracting based on new year plans, and negotiating a hefty budget for the coming year. But how much does this ritual actually contribute to achieving organizational goals? Here are 5 red flags to watch out for:


1. Lack of learning capacity

A major red flag is when there are no evaluations afterwards after deploying resources. When business cases are not reviewed so that lessons can be learned. We know that most projects are underestimated especially when there is a large-scale investment in IT. The central question there is of course to what extent value has been created with the resources deployed within the agreed time frame. In other words, this is about learning, not internal accountability.


2. No room for agility

When every euro is pre-allocated to "must-do" cost items, the organization is unable to respond to opportunities and threats throughout the year. This makes the organization vulnerable. In practice, you see that many managers work with pots or jars of budget. They ask for more per project to accommodate this, but this reduces the learning capacity of the organization.


3. False precision

Financial diligence is a cornerstone of a healthy organization. However, sometimes organizations go overboard. When they do, diligence turns into false precision. We overestimate our ability to predict and engage in a ritualistic dance with assumption-based calculations. This creates an illusion of accuracy, but assumption + assumption = a bigger assumption.


4. Financial gravity

There is a law known as the Matthew Effect: "For to every one who has will more be given, and he will have abundance [...]". In other words, budgets automatically move to departments or projects that already have a large budget. This can lead to budget ratios that do not reflect strategic ambitions.


5. Sunk cost fallacy

And finally, in budget processes, we often encounter a fallacy called the 'sunk cost fallacy'. This fallacy makes it difficult to let go of projects where we have already invested a lot of time and money. Sometimes, however, it is most sensible to stop these poorly performing projects despite the pain to our ego. Unfortunately, we do this too little because we have already invested a lot of resources and ego in these projects.


Wishing you all the best with your budget season. May all your investments be fruitful...


 

We are happy to help you find the right balance in your budget processes. Start with an inspiration session or a workshop, or send us a message!

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