Budgets And Budgeting

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Budgets And Budgeting
3 Ways to Bring Flexibility to Budgeting
by Nadya Zhexembayeva
September 28, 2022
Every two years, we conduct “speed of change” research with our clients and 
community. In 2018, in a survey of more than 2,000 managers, 47% reported that 
in order to survive, they needed to reinvent their businesses every three years or 
less. In 2020 that number jumped to 60% in the make of the pandemic. The data 
from 2022 is still coming in, but the first 600 respondents show that the speed of 
change remains incredibly high, with 55.8% reinventing every 3 years or less, with 
20.8% changing their plans every 12 months or less — the highest velocity we’ve 
ever seen.
Surviving — and more importantly, thriving — in this new normal requires a new 
set of rules across all functions and industries. Take, for example, the practice of 
“just-in-time” manufacturing. In the relatively certain low-volatility world, having 
low or even no inventory is incredibly efficient: you don’t have to tie up capital or 
invest in storage management. But with today’s unreliable supply chains, 
just-in-time might be exactly what destroys your business.
That, of course, applies to strategic planning — and a number of thinkers, 
including the authors of this recent HBR article, have already set out new 
principles for strategy making in turbulent times. But how do we translate these 
principles into practice — especially when a strategic plan gets cascaded into daily 
reality through budgets and day-to-day management? Right now, as so many of us 
are in the middle of a planning and budgeting process, how do we prepare for the 
volatility and uncertainty of the coming months?
Three science-backed and field-tested hacks can make a difference for you today:
Set your goals in ranges.
It has been the common practice for decades to set goals in a singular, 
no-room-for-interpretation format: say, 10% net profit growth, 7% EBITDA growth, 
or a 15% market share achieved. This approach worked great in a predictable, 
low-volatility world. But in a world of constant change, it won’t.
What’s the alternative?
Instead of singular “10% net profit growth,” have a meaningful debate to determine 
a market-ready range (say 8–12% or any other range that your analysis suggests). 

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Or replace a “15% market share” with a range that would give flexibility to your 
team while still providing focus and discipline — perhaps, 12–18%, or 11–17%.
Working with a range is backed by science. Management thinker Steve Martin 
explains why:
“Researchers at Florida State University recently demonstrated how this small shift 
in goal setting could have an impressive impact. In one study, members of a 
weight-loss club wanting to lose two pounds per week were assigned to one of two 
groups — a single-number goal group ‘lose 2 pounds per week’ or a high-low 
range goal group that averaged the same ‘lose 1–3 pounds per week.’
The impact of being set a high-low goal on members’ sustained motivation to 
pursue their goal (by enrolling in an additional 10-week program) was striking. 
Only half assigned a single-number weight loss goal persisted with the longer-term 
target, but nearly 80% of those assigned a high-low range weight loss goal did.”
Our fieldwork confirms the scientific data and shows another benefit to using 
ranges: it solves the age-old war between the “top” and “bottom” of the 
organization around goal-setting. Often, when the board is aiming high, the team 
sees its goals as unrealistic, and as a result, all parties leave the planning process 
dissatisfied, frustrated, or worse — completely demotivated.
Thinking of your goals as a range rather than a singular point gives you the 
flexibility necessary to adapt to a changing environment. It is important to figure 
out your range deliberately and clearly — and celebrate when you hit any point 
within the defined range.