Budgeting and Agile - (Courtesy Stephen Denning - Forbes)

• Traditional Budget cripples innovation, is cumbersome, time consuming,  wasteful, and riddled with gaming the system. Encourages unnecessary spending, hides accountability, is demoralizing, inefficient, ineffective and fundamentally at odds with the dynamics of business agility.
• In theory Budget (traditional) is a brilliant idea. Helps top management keep track of their strategies, plans, programs. It enables action, measures performance, etc.
• In practice, 
• Budget counts outputs whereas Agile management counts customer outcomes.
•  Process for arriving at budget is heavy, and takes a long time. 
• Creates a sense of entitlement -- regards the level of inputs from last year's budget as entitlement for the coming year.
• It encourages / tries to minimize commitment in terms of output -- level of outputs from previous year is often presented as a ceiling for the coming year. 
• Encourages the ethic of "spend it or lose it". Doubtful whether all the expenditures towards the end of the fiscal year are really high priority.
• Budget process itself is costly -- many disputes as to how to reconcile conflicting claims on budget.
• Budget is often treated as a combined TARGET, FORECAST, COMMITMENT and RESOURCE ALLOCATION process. It ends up performing none of those functions very well.
• Budget numbers is therefore a sub optimal compromise and therefore a poor basis for performance evaluation.
• Budget interlocks with other aspects of internal bureaucracy, therefore adjusting budget is not easy. To fix budget, you need to fix the other issues (organizational structure, cost accounting, HR system,  Executive compensation and share buyback, Disconnect with strategy -- all explained below). 

• Ability of top management to monitor minute details of spending / budgeting leads to such diktats as "Freeze all travel expenses", which deprives a genuine and important organizational plan. 
• Traditional budgeting is therefore predicated on mistrust (Can't trust an exec for travel expense, but is willing to give responsibility to manage a million dollar investment).
• Budget has a long horizon of 12 months.  But by 4th Qtr, the budget horizon reduces to couple of months. It allows only for minor ad hoc adjustments, as the attention shifts to preparing and agreeing for the next year budget.
• The appearance of control that budget offers to senior management is often an illusion of control not real control.

What does Fixing the Budget Involve?

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There are a whole lot of issues to be addressed to fix the Budget issue:

• Organizational structure: budget reflects, reinforces and aggravates the siloed organizational structure, which gets into the way of delivering value to customers. Siloed teams hand off work to another silo, thereby reducing the pace of delivery.
•  Budget as an internal mindset -- budget reflects an internal mindset as opposed to customer-oriented mindset. "Hierarchy is