Agility vs. Control: Should We Ditch Annual Budgets?

Many companies still cling to the annual budgeting process, even though it often feels slow, rigid, and difficult to maintain. Teams grapple with forecasting revenue and expenses a full year in advance, only to watch real-world changes overtake those assumptions within months.

Yet, leaders fear that abandoning the “comfort” of a budget might lead to fiscal chaos, unchecked spending, or confusion among stakeholders.

Why Companies Stick to Traditional Budgeting

• Habit and familiarity: Annual budgets have long been a cornerstone of financial planning. For many, that’s "how we’ve always done things," and shifting to a new model can seem risky. In smaller and mid-size companies, leadership teams are often juggling multiple roles and lack the time to overhaul processes.
• Investor and stakeholder expectations: Some boards and investors expect a formal yearly plan, considering it proof that leadership has a grip on strategy. Without a clear, long-term view, stakeholders may feel that the business is losing direction and/or discipline.
• Resource constraints: Smaller teams rarely have time to run frequent re-forecasts; so, the idea of scrapping an annual plan can feel like trading one burden for another. Repeated planning cycles without automation can also overload lean teams and create bottlenecks.

Implications of Rigid Budgeting

Relying on a fixed annual budget often creates a “set-it-and-forget-it” mentality that clashes with today’s fast-paced business environment. Managers become locked into assumptions made months earlier, even if realities change drastically.

When a new competitor arrives or a supply chain disruption hits, rigid budgets can prevent teams from reallocating resources quickly, jeopardizing both revenue and profit targets. Moreover, because the annual plan rarely allows for continuous refinement, finance and operational teams may scramble to force-fit new priorities within old constraints.

This rigidity also fosters a “spend it or lose it” culture where departments feel pressured to use every cent of their allotted funds (even on low-impact projects) just to preserve next year’s budget.

Rather than looking for fresh opportunities or cost-saving measures, teams concentrate on hitting artificial targets, which can inadvertently encourage short-term thinking at the expense of longer-term innovation. In the worst cases, departments prioritize protecting their piece of the budget pie over collaborating toward shared objectives, creating silos and discouraging knowledge-sharing.

Finally, excessive bureaucracy emerges as a byproduct of rigid budgeting. From lengthy initial negotiations to periodic reviews, the process is steeped in manual forecasts, spreadsheet reconciliations, and executive approvals that may no longer reflect current circumstances.

Leaner teams in smaller companies spend disproportionate time reconciling outdated numbers instead of delivering strategic insights. As a result, organizations miss out on real-time decision-making and the adaptability required to seize new opportunities.

How to Transition to Agile Planning

1. Hybrid or Tiered Budgets

Separate your financial plan into stable costs (e.g., rent, salaries, essential overhead) and dynamic allocations (e.g., growth projects, R&D). This approach safeguards crucial expenses while preserving room to redirect funds toward high-impact opportunities. By locking in foundational expenses, you also ensure there’s a baseline level of financial discipline to guide decision-making.

• Action Step 1 - Identify which expenses remain predictable each quarter (utilities, payroll) and which are more variable (marketing initiatives, product expansions). Document these in separate planning streams for easier management.

2. Rolling Forecasts with Light Tools

Move to monthly or quarterly updates that allow you to tweak figures in real-time. Modern planning solutions can automate data updates, reduce manual work, and keep a clear audit trail. This gives teams the ability to focus on analysis and strategy rather than repetitive number-crunching.

• Action Step 2 - Consider planning solutions with writeback capability, so finance teams can input new data, collaborate instantly, and adjust projections without duplicative spreadsheets. Ensure that staff are trained on the platform for maximum adoption.

3. Shorter Planning Windows (With Accountability)

If you opt for the 90-day cycles or frequent re-forecasts, ensure you have transparent governance. Set triggers (like exceeding a certain spend threshold) that require ROI analysis or peer review before proceeding. This keeps teams accountable without the rigidity of a formal budget.

• Action Step 3 - Use an approval workflow or “decision memo” system to document the rationale behind each major spend. Regularly review outcomes to ensure that your ROI-focused approach delivers the expected results.

Example - Bayer's Shift to Abandon Annual Budget

A high-profile illustration of this shift away from traditional budgeting is Bayer’s decision to abandon annual budgets in favor of short, 90-day cycles - an approach driven by the company's CEO Bill Anderson.

Anderson asserts that the traditional budget is “the belly of the beast of bureaucracy,” stating that the months-long process of setting fixed targets as wasteful and out of sync with real-world needs. Under Bayer’s revised framework, teams reorganize every 90 days to tackle current priorities rather than following a plan formulated a year (or more) in advance.

A discussion under Paul Barnhurst 's post shows that many finance professionals are intrigued by Bayer's move, praising the agility and cross-functional collaboration this move fosters. A stark contrast to the inertia seen in rigid budgeting cycles.

Still, several counterarguments persist. Some worry about quarterly replanning turning into its own bureaucracy, while others stress that constant reshuffling could dilute long-term strategic focus and strain employees.

Overall, Bayer’s experience illustrates how radical budgeting changes can spur both innovation and disruption. Certain teams report operational gains, while others struggle to adapt.

Whether this model endures amid challenges remains to be seen; yet, it’s clear the shift away from traditional budgets isn’t just theoretical.