Traditional budgeting is slowing your growth

Edgar de Wit

Annual budgeting still follows a familiar routine in many organisations. What often goes unnoticed is the effect this approach has after the budget is approved. Once the year is underway, the budget starts to shape decisions, limit options, and frame discussions about growth.

Backwards-looking budgets create friction. Traditional budgets are built on historical outcomes, assuming that past structures, volumes, and cost patterns remain a reliable foundation for future plans. Well, that's just wishful thinking, most organisations face changing conditions throughout the year.

New campaigns are launched, capacity constraints emerge and strategic priorities shift. When budgets are anchored to historical totals evaluating developments can be difficult, as initiatives compete with fixed costs.

What you often see happening, is that budgets gradually turn into reference documents instead of steering instruments. Management discussions focus on explaining deviations rather than exploring options.

The impact across sectors

We notice that this pattern appears across many different industries. Let's look at manufacturing, where growth depends on production volumes, staffing levels, and capacity utilisation. A budget based on last year’s cost structure provides limited guidance when output changes or new product lines are introduced.

For example in healthcare, patient volumes, staffing requirements, and regulatory frameworks shape financial outcomes. Aggregated historical budgets offer little insight into how these drivers influence costs and funding during the year.

In education, student intake determines class sizes, teaching capacity, and funding levels. When budgets are detached from these drivers, planning discussions become abstract and difficult to adjust.

The same tension is experienced across a wide variety of sectors. The budget reflects what happened in the past rather than how the organisation operates today.

Planning around real drivers

Driver-based budgeting starts from a different point. Planning begins with the operational factors that influence performance. These drivers vary by sector and business model. What matters is that they translate day-to-day activity into financial impact.

Restaurant chains, such as Massarella, provide a clear illustration. Weekly revenue and wages form the foundation of planning. The relationship between the two influences many other location costs. When a new location is considered, existing ratios immediately indicate expected performance and cost behaviour.

In education, student numbers drive staffing needs and funding levels making these relationships explicit allows plans to adjust when enrolment changes.

Practical building blocks

Driver-based budgeting can be introduced in small, practical steps.

Revenue planning often follows a price multiplied by volume model. Assumptions about discounts, mix, or cost of goods add context where needed. Changes in volumes or pricing become visible and can be discussed.

Personnel costs can be modelled using headcount or teams combined with annual costs and employer charges. Start and end dates clarify the financial impact of hiring decisions.

Other operating expenses can be defined in the general ledger as fixed or semi-variable. This already creates more insight than uniform percentage increases.

Investments can be planned using investment amounts and depreciation periods. Long-term effects become visible beyond a single budget cycle.

Starting small without overhauling everything

Revenue and personnel drivers together they often account for about 60 per cent of total costs. Even this limited shift changes planning discussions. Conversations move towards volumes, capacity, and growth choices. From there, the approach can evolve gradually, guided by operational reality.

Budgets as tools for growth

When budgets reflect how the organisation actually works, they support better decisions throughout the year. Planning discussions focus on future actions and their implications. Growth initiatives can be evaluated within a structure that adapts as conditions change.

If your budget still mirrors last year’s numbers, it may be holding back flexibility and growth. If you want to explore how budgeting can better support decision-making and growth in your organisation, a Discovery Call is a good place to start.