There is a strange ritual at the center of corporate life. Toward the end of each year, thousands of intelligent people negotiate a detailed set of numbers describing twelve months they cannot see, sign them, and then spend the next year explaining why reality diverged. Everyone involved knows the numbers will be wrong. They produce them anyway, with enormous effort, because the budget's real function is not prediction. It is a story the organization tells itself so that people who will never meet can act as if they share a plan. Understanding the budget as fiction, rather than forecast, is the fastest way to see both why it endures and why letting go of it is less reckless than it feels.
A forecast nobody expects to be right
Start with the open secret. Budgets are not accurate, and the people who make them do not expect accuracy. Libby and Lindsay (2010), surveying North American budgeting practice, found managers overwhelmingly kept the budget for motivation and performance evaluation, the behavioral jobs, rather than defending it as a reliable picture of the future. The budget earns its keep as a control device and a coordination story, not as a crystal ball. That is a quiet but damning admission. An instrument justified by its predictive power that no one trusts to predict is being kept for other reasons entirely.
Those other reasons are real, which is why the survey also found most managers regarded their budget as value-added rather than something to scrap. A shared fiction has genuine uses. It aligns a marketing plan with a hiring plan with a factory schedule. The trouble begins when the organization forgets the number is a story and starts treating it as a fact, punishing managers for the gap between an invented figure and an actual year.
What the fiction costs
A story told with money has consequences the storytellers do not intend. Bukh, Ringgaard and Sandalgaard (2024), following the interplay of budgets and forecasts inside one firm, showed how easily even the reformed instrument, the forecast, slides back into a committed narrative that people pad and defend. Their broader caution is that the boundary between honest prediction and agreed fiction is fluid, and that idealizing a clean escape from the budget misreads how tenaciously the story reasserts itself. The fiction is sticky because coordination is genuinely valuable, and people will recreate a shared plan even after you delete the official one.
The cost lands hardest on truth-telling. When the budget becomes the story you are graded against, honesty about the future turns into a bad career move. You lowball the target you can beat and inflate the resources you can defend. Ostergren and Stensaker (2011), studying a large energy company that abandoned budgeting, found that removing the budget did not create a vacuum but forced new control mechanisms and new dependencies to surface. Read that as evidence that the coordination work the fiction was doing is real, and has to be done by something. Delete the story and the organization writes a new one, out of forecasts, relative targets, and negotiated dependencies between units.
Managing without the comforting lie
The practical question is not whether to keep a fiction, every organization runs on shared expectations, but which fiction to run on and how much to believe it. A relative target measured against competitors is still a story, but it is a story that updates against reality and cannot be quietly negotiated down in a conference room. A rolling forecast is still a construction, but one that admits it will change.
For a leadership team in a volatile decade, the useful reframe is to stop asking the budget to be true and start asking what work it is really doing. If the honest answer is coordination and motivation, then a fixed annual number is a clumsy tool for both, too rigid to coordinate a fast market and too gameable to motivate honestly. The firms that thrive without a formal budget did not abolish shared expectation. They replaced a stiff annual fiction that everyone privately disbelieved with lighter, faster stories that stay closer to the facts. The budget was never the map. It was a tale told to keep the crew rowing together, and there are better tales to tell.
Sources
- Libby, T. & Lindsay, R. M. (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Finds managers keep budgets mainly for motivation and evaluation while treating them as value-added, showing the budget survives as coordination device, not accurate forecast. https://bpb-us-w2.wpmucdn.com/u.osu.edu/dist/8/36875/files/2016/12/Libby-Lindsay_budgeting_survey-17bvsph.pdf
- Bukh, P. N., Ringgaard, A. & Sandalgaard, N. (2024). Moving beyond Beyond Budgeting: A Case Study of the Dynamic Interrelationships between Budgets and Forecasts. Shows the boundary between honest forecast and committed fiction is fluid and the story reasserts itself, cautioning against idealizing a clean escape. https://doi.org/10.1080/09638180.2024.2362681
- Ostergren, K. & Stensaker, I. (2011). Management control without budgets: a field study of Beyond Budgeting in practice. Shows abandoning the budget forces new control mechanisms and dependencies to emerge, evidence that the coordination work the budget did is real and must be replaced. https://www.tandfonline.com/doi/abs/10.1080/09638180903487842