Planning vs. Budgeting

Openly, I get annoyed when people use the term planning to describe budgeting.

While the terms planning and budgeting are often used interchangeably, they’re not the same thing. Budgeting is how you allocate resources (typically financial) to reach specific objectives. Budgeting helps you create an estimate of income and expenses for a specific time period. Budgeting manages money but it doesn’t manage performance.

Planning describes the objectives – what you want to accomplish, not how. The plan includes the financial budget but it should also include non-financial resources, an outline of major activities, and timeframe to accomplish the goals. Many people talk about flavors of planning: sales planning, headcount planning, trade promotion planning, financial planning. It’s the latter they usually refer to as budgeting.

Maybe because planning is so closely related to performance management that practitioners have started distinguishing between versions there as well: financial performance management, workforce performance management and other operational performance management.

To me this is a troubling trend; we don’t want these sub-disciplines. We want integrated planning that includes sales, headcount, trade promotion, and lots of other operational issues. And we want (adjective-deleted) performance management that holistically considers finance, customers, operations, and employees.

Companies are often dangerously siloed. Let’s not use the planning process to reinforce the silos.