In offices and conference rooms all over the world the annual blind soduko competition has begun. Any fool can play a regular game of sudoku. But blind sudoku, now that is another matter all together. Only people with job titles beginning with "C", and armed with MBA's and CPA's can master blind sudoku.
Rather than beginning with a couple of numbers filled in on the 81 square grid, this game - also known as annual budgeting - is played with a few numbers already decided, but not shown on the grid. Those who work for the "C" people have to pull a Johnny Carson routine to figure out what they are. The C's know in advance what the top line – sales – and the bottom line – profits are – but they're not telling. In the sudoku game of annual budgeting the C's already know they are going to plan for a sales increase of 'X; and a profit increase of 'Y', but if they told the rest of the company there is a chance the people who actually sell and make things might be planning to do even better so the C's don't want to show their cards first.
The people making and selling are challengeded to submit sales and operating plans – but they don't want to commit to any more than the C's are looking for. If the C's are looking for a 10% increase in sales, and the sales folks believe they can actually get 15%, the sales people want to sandbag and commit to as little over the 10% as possible in order to make it easeier to meet the budget and maximize their performance bonuses. So the Magnificent Carnac routine begins – trying to divine what the C's are looking for without over-committing.
Once that opening round of the grand game is finished and the top line and bottom line are set in stone, the sudoku game takes on a more normal look. The people in each department are then tasked with filling in the rest of the squares in order to make sure the numbers add up to 45 down and across every line.
This normally involves a myriad of lesser games, as the operating folks don't want to show all of their cards any more than the sales people do. If it only takes a 3% cost reduction to make the numbers add up down and across, no sensible operating manager wants to let on that he really thinks he can reduce expenses by 5%. Purchasing people will gather as much data as they can to explain why global commodity prices will increase and they should not be expected to come up with the difficult numbers to make the grids balance out. The heads of all of the support departments will have eloquent cases why their budgets will actually increase. And on and on it will go in a carousel of creative mathematics until finally the numbers are in place that make the preconceived sales and profit figures appear reasonable.
The C's will call this exercise good management, even though few, if any, numbers in the final budget are based on reality. The accounting people will take these numbers, the sole value of which is that they make the sudoku card a winner across and down, and explode the 81 balanced squares into hundreds and thousands of details – updated standard costs – and inventories will be valued, sales prices established, and variances tracked against them. Again, sudoku rules apply, and it is paramount that the standard costs balance and cross check – more so than that they reflect any semblance of reality.
This colossal waste of time – concocting a vast array of numbers, none of which having any validity whatsoever - is what passes for planning and financial management in most companies. It will be compounded with hundreds of hours of analysis and countless meetings. At this time next year people will be analyzing volume, mix and spending variances to these numbers – actually creating coherent tales explaining why next November's reality is different from this November's sudoku results.
You don't have to live this way. You don't really need either annual budgets or standard costs. There is still time. Lean accounting and the SOFP process is a much better way to live. It would mean the C people will have to actually understand the business and sudoku mastery can no longer pass for leadership, but it can be done. Call Brian. Call Jean. Call Francis. You can even call me … but call someone and quit wasting time on budgeting.
After all – this ain't really management is it?