21 March 2012

Of budgets and values

It is shockingly hard to come up with an image
to accompany a post about budgeting.
Budgets are beautiful.

Gordon Gekko's motto--"Greed, for lack of a better word, is good"--was willfully contrarian but hardly persuasive. Greed has the virtue of predictability, but it is not good unless incentives are extremely implausibly aligned.

But budgets are beautiful.

Budgets are beautiful because they are stark and truthful. They tell you everything you need to know about an organization. Does the organization assign resources politically or logically? Does the organization think hard about planning for contingencies? Does the organization recklessly commit all of its funding with no reserve?

Budgets are especially beautiful when they are based on lies.

Consider what Enron's balance sheet said about the organization. The budget was based on lies, and because it was based on lies you could tell that the organization was based on lies. A management that has to lie to make its numbers is an organization that's condemned to fail. (Although not necessarily quickly.)

But it's impossible to make those lies last forever. Eventually, revenues have to meet expenses. And eventually assets (and equity) have to total liabilities.

Organizations do lots of things that aren't beautiful, because they don't have to be true. Organizations sponsor charitable works, even when those organizations' missions are the antithesis of charity. Organizations pass resolutions declaring that they're in favor of women or civil rights, even when those organizations are opposed to both. And organizations say they hire and promote on merit, even when all the top-ranked people in an organization look and sound the same because they're from the same school, same town, same class.

But budgets can't be hypocritical. An organization either spends what it has on a priority or it doesn't. Budgets, therefore, are the ultimate statement of an organization's real values. If an organization values foresight and preparedness, the budget will reflect that. If it's a risky and venturesome organization, the budget will reflect that, too. And if the organization is rotten to its core, then the budget will reveal that, too.

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