The Investing Authority’s Post

𝗙𝗼𝘂𝗿 𝗕𝘂𝗱𝗴𝗲𝘁𝗶𝗻𝗴 𝗠𝗲𝘁𝗵𝗼𝗱𝘀 Original Content Creator: Anders Liu-Lindberg (Give him a follow) ------- 1. Traditional budgeting 2. Zero-based budgeting 3. Rolling budgets/forecasts 4. Beyond budgeting Let's learn more about each of them... TRADITIONAL BUDGETING Relies on historical data as a starting point. Assumes that current spending patterns are a good basis for future budgets. May lack flexibility in adapting to changing business conditions Pro’s Simplicity: Easy to implement and understand. Historical data: Relies on past budgets as a starting point. Stable: Provides stability in budget planning. Con’s Rigidity: May not adapt well to changes in the business environment. Potential for inefficiency: Can perpetuate wasteful spending. Limited focus on strategic goals: May not encourage innovation or cost reduction. ZERO-BASED BUDGETING Requires a thorough review of all expenses and activities. Promotes cost-consciousness and alignment with strategic goals. Encourages a more dynamic approach to budgeting. Pro’s Cost-consciousness: Forces a thorough review of all expenses. Aligns with goals: Encourages a focus on strategic objectives. Flexibility: Can adapt to changing business conditions. Con’s Resource-intensive: Requires detailed analysis of all expenses. Time-consuming: Can be labor-intensive to implement. Potential for shortsightedness: May cut essential long-term investments. ROLLING BUDGETS/FORECASTS Provides a more responsive approach to financial planning. Allows for regular adjustments to reflect changing circumstances. Can better align with long-term strategic goals. Pro’s Continual planning: Provides ongoing planning and forecasting. Flexibility: Adapts to changing circumstances more readily. Alignment with strategy: Can better support strategic goals. Con’s Resource-intensive: Requires continuous monitoring and adjustment. Complexity: May be challenging to maintain, especially for smaller organizations. Potential for overemphasis on short-term results. BEYOND BUDGETING Encourages decentralization and empowerment of teams. Promotes a shift from budgets to performance measures tied to strategic objectives. Suggests a more flexible approach to resource allocation. Pro’s Agility: Promotes a more adaptive and responsive approach to financial planning. Empowerment: Encourages decentralization and employee empowerment. Focus on value creation: Shifts the emphasis from budgets to value-added activities. Con’s Cultural shift: Requires a significant cultural change in the organization. Lack of control: May be challenging for some organizations to relinquish traditional control. Measurement challenges: Traditional performance metrics may not align with this approach.