BUDGET GAMES

Corporate Budgeting: the Ugly Side*

It consumes a huge amount of executives’ time, forcing them into endless rounds of dull meetings and tense negotiations.

It encourages managers to lie and cheat, lowballing targets and inflating results, and it penalizes them for telling the truth. * The Wall Street Journal

Corporate Budgeting: the Ugly Side

It can turn business decisions into elaborate exercises in gaming.

It has the potential to set colleague against colleague, creating distrust and ill will.

It may distort incentives, motivating people to act in ways that run counter to the best interests of the company.

The Sandbagger Comes to the table with a less

ambitious plan: “There is no way we . . . can grow by 10%”

When growth exceeds the target the Sandbagger becomes a hero

Result: Sandbagger is overpaid for performance

Adapted from "Games Managers Play at Budget Time"

The Magician Leaves out negative facts and diverts

attention to positive items: “There really are no weak spots in our business right now.”

Result: Inconvenient items that the magician tries to hid will eventually reappear and may have disastrous consequences for the company.

The Lone Agent Contends that the business cannot

conform to corporate conventions because of some unique characteristic: “. . . That principle does not apply to our business.”

Result: Lone agents sow mistrust among peers and superiors.

The Visionary

Managers who do not have numbers on their side often appeal to emotions: “I can’t say exactly when, but this is going to be BIG, really BIG.”

Focus is on long term with little said about the short term

Result: Visionaries should be on solid ground; otherwise the company spends money on projects that often fail.

The Hostage Taker Some managers claim that they can

deliver significant returns if they are given a large proportion of the available funds: “If we don’t invest BIG right now, we’ll be left on the sidelines.”

Result: This can have the potential to damage the company in the future if the Hostage Taker’s plans do not turn out as projected.