Who Hates the Budgeting Process? – Agitator

Does anyone enjoy the budgeting process?   Tell me if this rings familiar,

• You and your team (charity side or agency or combo) create a budget for the upcoming fiscal
• You rely on historical data to inform projections
• You discount any prior year, non-recurring anomalies (e.g. big disaster that supercharged fundraising)
• You do your best Carnac the Magnificent impression and try to read the tea leaves on any externalities or macro factors that may make the upcoming year different from the prior (e.g. change in tax law or likelihood of recession)
• You painstakingly enter all this into Excel and triple check the numbers
• You and your team feel good about the work and the projections, you’ve got some Ikea effect bias and attachment to the numbers but hey, you did the work
• Senior management/Board spends two seconds looking at the topline (or bottom line) growth over the prior year, rejects the budget and says we need more, but spend has to stay the same (or worse, it’s cut).
• The mental death spiral kicks in, you do a good faith effort to revisit on Draft 2 but by Draft 17 you’ve given up and simply reverse engineered starting with the (unreasonable) end in mind and reworking the inputs to match.
• You then gird yourself for the inevitable revisions that will come fast and furious during the year

Brutal.  The forecast changes are almost always making the guess worse, not better.  This is what happens with gambling on sporting events.  Research shows that when gamblers change their original prediction they consistently win fewer bets.

One could have surmised that changed your bet made you more successful.  Consider, any change in your bet is, by definition, closer to game time and more information is always available with the passage of time in sports gambling.  There are injury reports, more accurate weather forecasts and last but not least, betting lines and odds that can move in reflection of the wisdom of the crowd.

But no, the opposite happens.  Why is this?  First, we tend to overestimate the value of new information and make excessive changes to our forecasts.  I can imagine this happening in Draft one of that budget.

Secondly, we are often using our first forecast as the anchor and making adjustments off of it, creating mostly noise in our forecasts.  I can imagine that happening in versions 2-5 of the budgeting kabuki.

Of course we all know why the final, version 17 of the budget sucks.

Kevin