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Handbook of Budgeting, 6th Edition by William R. Lalli

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CHAPTER FOUR

Budgeting and Forecasting: Process Tweak or Process Overhaul?

Joseph M. Orlando

Partner, KPMG LLP, Risk Advisory Services

William E. Dailey

Managing Director, KPMG LLP, Risk Advisory Services

INTRODUCTION

The process of developing an annual budget or interim financial forecast should provide a company with the opportunity to integrate its strategic objectives with the budget proposals of its business units and functions. On the surface, this seems fairly straightforward. Yet the art and science of budgeting and forecasting have been at the center of a highly charged discussion in recent years. Numerous magazine articles have pronounced budgeting and forecasting as evil, dead, or superfluous—often citing a lack of flexibility in a changing marketplace, excessive detail, and simply “taking too much time.” In fact, Jack Welch1 has called it “the bane of corporate America.”

Whether the shortcomings of budgeting and forecasting processes are real or perceived, there has been no shortage of effort in this area during the last 20 years. Myriad approaches have been offered—zero-based budgeting, fixed and variable cost, balanced scorecard, and activity-based management—but none with staying power. Software applications ranging from “super spreadsheets” to enterprise resource planning (ERP) tools have promised but not delivered a silver bullet. Along the way, companies have tinkered with various components of the leading methodologies and tools, but in most cases ended up with ...

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