Midas or the Budgeting curse
Midas or
the Budgeting curse
Let’s call him Midas. While he drinks hot coffee and receives a bag of
food after waiting for his turn in the long line, he shares a little bit of his
story with me.
A long time ago he was a successful jewelery entrepreneur in Gondomar,
a business he inherited.
Gold is a commodity highly subject to fluctuations caused by macro
factors.
«I lost everything», regrets Midas.
«I lost everything», regrets Midas.
He recognizes that, over the years, he made a number of mistakes regarding
his business strategy. He relied too much on the manager responsible for executing
the annual budgeting. Midas found out too late that since making accurate
estimates was time-consuming, the manager did it fraudulently. Sometimes he underestimated
budgeted revenues and other times he overestimated budgeted costs, to achieve
targets more easily, creating a budgetary slack. In addition, they were too
dependent on the budget, which made them rigid and unable to adapt to changing
market circumstances.
Photo credit:
https://www.pan.com.pt/pan-quer-garantir-direito-ao-cartao-do-cidadao-para-pessoas-em-situacao-de-sem-abrigo/
Midas regrets not using the budget as a tool for making managers
accountable and monitoring overall results on a regular basis. Asked what he
would have done differently, Midas wisely replies that he would try to overcome
the traditional budgeting constraints, using rolling budgets created in an
ongoing basis. On top of the annual budget he would add a quarterly period to
reflect the economic and competitive changes, making the company more agile and
adaptable to the environment. Lastly, asked if the "beyond budgeting"
philosophy could fit, Midas says he doesn't believe it, because that implied an
open collaborative mindset, which still doesn't happen in that industry. Moreover,
as it was a kind of manufacturing with inventory, that wouldn’t be an appropriate
option.
Midas smiles, gives me a handshake and promises to return the
following week.
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