Budgets And Budgeting

Set predefined limits.
I am sure you’ve seen this before: you worked hard on preparing your company’s 
budget, with rounds of corrections and a long approval process. The budget is 
finally signed, and then it becomes irrelevant within months, if not weeks, as 
market conditions shift.
Traditional budgeting harms innovation and renewal in your business, as we found 
when advising a large manufacturing group setting up a corporate venture fund. 
While the incumbent businesses within the group worked relatively well with the 
traditional planning approach, the start-ups within the venture fund were 
suffocated by the need to constantly re-approve each line in the budget every time 
a new pivot was on the horizon.

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Limits came to the rescue. Having a few clearly defined and well-calculated lines 
in the sand gives you a quick and dirty way to move forward while more complex 
budget re-calculations are performed. Cost per unit, cost per customer acquisition, 
number of product launches — many different dimensions can be used to set 
intelligent limits for volatile times.
Limits also help in less dramatic downturns — if a single supplier changes prices 
mid-year or a new regulation makes things more expensive, limits allow your team 
freedom to make well-informed decisions without getting the entire budget 
re-approved every time and thus reducing micro-management.
It’s often claimed that managers need to think outside the box, but as many 
leading creatives have pointed out, to create something new, we need to start with 
a box. Limits and constraints are crucial for our creative thinking, and strategy is 
the best place to apply your creativity. Use the lessons from the past to guide 
your discussion. What kind of limits will allow to minimize the need for 
micro-management and give clarity to your team? Perhaps some level of cost? 
Regional constraints? Customer segment constraints? What imaginary lines should 
your business not cross as it executes your strategic plan?