Extreme Budgeting

Budgeting on the fly. You have a rough idea how much things are going to cost, but you're flexible. If a project gets canceled, you can roll its budget into another.

Taken to an extreme, annual budgets are made only to acquire resources per year like programmers, programmer time and pens. These resources are allocated on a need to use basis. Conflicting requests are decided on the fly by management (it is their job, after all).

This is much like financing in your own personal life.

The cons are that a lot of micro-scale budgetary decisions have to be made continuously higher up in the management chain. Also, the rest of the world isn't too impressed with this strategy. You could be sued for due diligence. After an IPO, this is almost impossible.

Thoughts? This is too idealistic; I don't deal with corporate financing and I know I'm missing a lot here

True, but a lot of readers probably wish they could be here and rightly so.

Cashflow and hysterisis are problems here.

Unless you have a lot of slack, you're not going to be able to predict what your cashflow requirements are. Your expensive resources are sticky (you can't just hire and fire permanent staff on a weekly basis, not if you want them to be motivated anyway, and you'd like to preserve the learning embodied in your staff anyway). So in lean periods, you have staff sitting around chewing up money, but not bringing any in. You can't bring people on to a project and have them productive immediately.

So you can make the budget changes quickly, but you can't move the resources around to follow those changes.

This matters. Running out of cash kills many more companies than being unprofitable.

This is the same problem in effect as optimising manufacturing. Setup and changeover times, maintenance schedules, supplier lead times and restrictions and so on all mean you can't often achieve the "build to order" ideal. You can't manage projects to order, either.

Doesn't mean you shouldn't try to minimise these confounding factors. Make sure you pick the right ones, though (see TheGoal).

--PaulHudson

Well, where I've worked, there has always been more ideas than employees to implement them. There is always something to do. I've noticed that entire teams become available at the same time, so they can be applied to new projects as a group. Typically, the projects were related so the experience moved gracefully. Perhaps you need a more holistic product line, like MS Office, with separate but interoperating components. I'm not sure what the answer is, but I'm greatly interested in more efficient, dynamic and flexible budgeting schemes. (Aren't we all?) -- SunirShah

Working on ideas is not the same as bringing in money. Sure, you can always find something to do, but if that's not going to bring in a return in the long term, then those staff are just chewing up money.

-- PaulHudson

Must read?? for people interested in CategoryLifeStrategies, page last edited in 2001, presumably after Y2K extreme budget blowout.