Thoughts about time frames of budgets on matters and two alternatives to the calendar

Budget accuracy drops exponentially I suspect; if you double the time period of the budget – maybe from six months to a year – the accuracy plummets to one-fourth as good. For that reason, require budgets only for a quarter or two ahead (See my post of April 27, 2005: budget no farther than your headlights; Oct. 22, 2008: budget for flexibility rather than strive for prediction; July 9, 2009: budget scenarios instead of single figures; Aug. 4, 2009: use a funnel metaphor for budgets; Aug. 25, 2009: accuracy degrades dramatically as the time extends; and Nov. 3, 2009: twists and turns when you test the accuracy of law firm budgets.).

Perhaps a better budget interval ignores the arbitrariness of the calendar and looks to stages and milestones. Historians have long recognized that decades or centuries have nothing to do with ongoing events, yet periodization appeals to many people. A time period like six months may be illogical but it is easier to adhere to than “through filing of the motion for summary judgment” or “first sit-down negotiation session.”

A second way to handle budgets that is not locked into the passage of time would be to set an expenditure amount and require a budget as your firm draws near to that amount. By this method a law department might request a budget every $100,000, and based on the burn rate – or the law firm’s projection of when it will exceed the $100,000 figure it is working under – it creates an obligation to prepare in a new budget.

We welcome comments

Your email address will not be published. Required fields are marked *