Annual planning, as businesses use it today, is one of the greatest mistakes organisations have made since 1494, the year Pacioli wrote about double-entry bookkeeping in Summa de arithmetica, geometria, proportioni et proportionalità. The first writers to put annual planning to the sword were Jeremy Hope and Robin Fraser in their classic book Beyond Budgeting. The reason the annual planning process should be replaced is because it:
- takes too long and costs too much;
- leads to dysfunctional behaviour, building silos and barriers to success;
- undermines monthly reporting (monthly budgets are poor targets);
- is not designed for a dynamic company in a rapidly changing environment; and
- is an ‘anti-lean’ process. Smart organisations do not have an annual planning process anymore. Instead, they use a quarterly planning process which I call quarterly rolling planning.
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