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Let It Roll

Why more companies are abandoning budgets in favor of rolling forecasts.

When something affects business at Corning, it, too, has a flexible budget to accommodate the impact. This is a far cry from the days when the 160-year-old maker of specialty glass and ceramics stuck to a traditional budget. “We used to put together a budget and then everyone did everything they could to make sure it was achieved,” says Tony Tripeny, senior vice president and corporate controller at Corning, which had revenues of $6.6 billion last year. “Now we realize that a budget isn’t what it used to be.”

Corning still pulls together a budget, but its significance has waned. “We do rolling forecasts that we update each month to address what we think will happen for the rest of the quarter,” Tripeny explains. “Based on this analysis, we will go to the business units and say, ‘What are you going to do differently? What actions are you going to take, and how is that different from what we had assumed with the budget?’”

So, why have a detailed budget at all? It has specific benefits, replies Tripeny. As an example, he cites the relationship of a budget to Corning’s resolve to be the lowest-cost producer in its markets. “During the budget process, we set up specific objectives, like targets for manufacturing costs,” he says. “Even though the business might change during the year, it normally doesn’t change enough to alter the manufacturing-performance targets. From a control standpoint, a budget still has value, but it shouldn’t guide how you manage the business, which is about perceiving what’s ahead and acting on it quicker than the competition.”

A New View of the World

Solo Cup Co. also continues to formulate a budget, although its use for operational purposes has been deemphasized. Last year, the privately held manufacturer (annual revenues: $1.5 billion) implemented a new planning process that integrates demand more tightly with supply and inventory. “It gives us a view of the world that goes well beyond budgetary boundaries,” says George Chappelle, Solo Cup executive vice president and COO.

Each month the company takes the demand forecast from the previous month and compares it with actual results. If it sells more or less than it had predicted, the company analyzes whether the numbers represent a true increase or are a one-time event. “Based on this analysis, we reforecast the next 18 months and develop a new inventory plan based on the demand, which then drives a new production plan,” Chappelle says.

Solo Cup continues to execute a budget to communicate company performance to the board of directors and external constituents, says Chappelle. “But, we don’t view the budget as a meaningful way to run the business,” he adds.

Bob Bukala, CFO at advertising media company Geomentum, says that one way to flex with a volatile business climate is simply to talk it through. Each Monday, he meets with the division managers of each of the business units to examine the project pipeline and assess which moves are and aren’t paying off, and where resource commitments and investments should be made. As he says, “While a budget gives you the end game, which is useful, I manage this business dynamically, every Monday morning, without it.”

Russ Banham is a contributing editor of CFO.

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