Babies, bathwater,and best practices
Rethinking planning, budgeting, and forecasting
The basic tools of accounting—double-entry bookkeeping, income statement, and balance sheet—can be traced to Venetian investors who funded trade expeditions to Asia during the 1400s. These were valuable tools for high-risk ventures, even by today’s standards.
The concept of planning and budgeting came centuries later. The word “budget” derives from the old French bougette, meaning a small purse. In the mid-1700s, Great Britain’s Chancellor of the Exchequer was said “to open the budget” when presenting his annual statement. The term was extended to private and commercial finances in the late 1800s.
At the beginning of the 20th century, business leaders made a defining choice that sowed the seeds of today’s frustration. With outside investors demanding audited financial statements, managers began to rely on external financial reports as measures of internal performance. They believed it was too time consuming and expensive to produce two sets of manual reports.