Peter Drucker once said that budgeting is not a financial process.
“Only the notation is financial,” he argued, “The decisions are entrepreneurial.”
This is an important insight that is often overlooked in the number-focused ‘to-ing and fro-ing’ that typically dominates formal budgeting rounds. As the term was originally conceived, an entrepreneur is someone who creates value by moving resources from areas of low productivity to areas of higher productivity. So, rather than starting with the numbers, Drucker’s observation implies that managers should focus their attention on how best to acquire, deploy and manage the resources needed to deliver the organization’s business agenda. The budget itself simply expresses the consequences of this managerial activity in financial terms.