Every autumn, a large share of an organization's managerial energy goes into a document that will be wrong by spring. The annual budget is negotiated over months, signed off with confidence, and then overtaken by a market that never agreed to the assumptions. Managers spend the following year defending numbers set before the facts changed, and finance spends it explaining variances against a plan everyone privately knows is stale. The budget persists less because it works than because it is what companies do, an annual ritual whose costs are rarely weighed against its benefits.
The case against it is not that planning is bad. It is that this particular form of planning, fixed, calendar-bound, and tied to negotiation, produces predictable pathologies.
The ritual and its costs
The academic critique is specific. Østergren and Stensaker (2011), in one of the first in-depth field studies of a company that actually abandoned budgets, framed the motivation as documented shortcomings of traditional budgets: they are time-consuming to produce and they orient managers toward cost reduction rather than value creation. A budget is a ceiling and a floor at once. It tells a manager how much may be spent and, implicitly, that hitting the number is the job. Value that would require exceeding a line item, or that appears mid-year when the line items are fixed, has no natural home in the ritual.
The negotiation is where the distortion concentrates. Because next year's budget depends on this year's, and because bonuses often ride on hitting it, the rational move is to argue for an easy target and to spend everything allocated so the allocation is not cut. The document meant to allocate resources efficiently instead teaches people to hoard and sandbag. This is not a failure of character; it is the game the ritual sets up.
Control without the budget
The obvious objection is that removing the budget removes control. The field evidence says otherwise. Østergren and Stensaker's central finding was that abandoning budgets did not abandon control: new control mechanisms emerged, the relationship between corporate and division management changed, and new lines of accountability formed. Control migrated; it did not vanish.
The founding case is older and larger. Svenska Handelsbanken abandoned formal budgets around 1970 under CEO Jan Wallander, replacing them with radical decentralization in which each branch runs as an independent profit center with real decision rights, judged on relative performance rather than a negotiated annual number. The bank became the exemplar the Beyond Budgeting movement was later built on, evidence that a large organization can operate without the ritual and, arguably, operate better.
Semco reached a similar place by instinct rather than doctrine. As Semler has told it, the company ran on six-month budgets and treated a five-year plan as a sign of inattention; he ran fourteen businesses without venture capital and never planned beyond three years, on the reasoning that "three years is as far as anyone can see." He liked to point out that "career" comes from the rut worn by a cart wheel, a groove that carries you forward while narrowing where you can go. The annual budget is that groove in financial form: a track laid a year ago that the organization keeps following because turning is harder than continuing.
The honest counterpoint
The movement should not be oversold, and the research does not sell it. Libby and Lindsay (2010), surveying North American managers, found that most consider their budgeting system value-added rather than something to abolish, and that budgets remain widely used for motivation and performance evaluation. The dominant path in practice is to improve the budget, not to scrap it. Abandonment is a minority position, and the field studies of companies that tried it show hybrids and transitional tensions rather than clean revolutions.
That is the mature reading. The annual budget is a ritual with real costs, months of effort, a bias toward cost-cutting, and a game that rewards negotiation over value, and there is proven life without it. But control has to be replaced, not merely removed, and plenty of competent organizations judge the ritual worth keeping. The question is not whether to worship the budget or burn it. It is whether the company can say, honestly, what the ritual buys, and whether it could buy the same thing for less.
Sources
- Østergren & Stensaker (2011). Management control without budgets: a field study of Beyond Budgeting in practice. Budgets are costly and bias managers toward cost-cutting; removing them does not remove control, new mechanisms emerge. https://www.tandfonline.com/doi/abs/10.1080/09638180903487842
- Lindsay & Libby (2007). Svenska Handelsbanken: Controlling a Radically Decentralized Organization without Budgets. Handelsbanken abandoned budgets ~1970 under Jan Wallander; each branch is a profit center judged on relative performance. https://www.researchgate.net/publication/247875136_Svenska_Handelsbanken_Controlling_a_Radically_Decentralized_Organization_without_Budgets
- Libby & Lindsay (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Most managers see budgets as value-added; the dominant path is to improve, not abolish, them. https://bpb-us-w2.wpmucdn.com/u.osu.edu/dist/8/36875/files/2016/12/Libby-Lindsay_budgeting_survey-17bvsph.pdf