A Fortune magazine article with the title ‘Why budgets are bad for business’ included the following statements:

Budgets, say experts, control the wrong things, like head count, and miss the right ones, such as quality, customer service – and even profits. Worse, they erect walls between the various parts of the company and between a company and its customers.

When you’re controlled by a budget, you’re not controlling the business.

Reliance on budgets is the fundamental flaw in American management. That’s because they assume that everything important can be translated into this quarter’s or this year’s dollars, and that you can manage the business by managing the money. Wrong. Just because a budget was not overspent doesn’t mean it was well spent.

For tracking where the money goes, budgets are dandy. They become iniquitous when they are made to do more – when the budget becomes management’s main tool to gauge performance. Managers do incredibly stupid things to make budget, especially if incentive pay is at stake. They woo marginal customers. They cut prices too deeply.

The worst failure of budgets is what they don’t measure. Budgets show what you spend on customer service, but not what value customers put on it.