Corporate Spending Budgets In Flux Over Uncertain Recovery Pace

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Add the annual corporate budget to the list of pre-COVID-19 institutions upended by the pandemic, The Wall Street Journal reports.

Instead of issuing blueprints looking 12 months into the future, corporate finance heads increasingly are adopting spending plans that can be updated quickly as events warrant, according to the paper.

COVID-19 disrupted corporate forecasts for companies battered by the pandemic as well as for those whose business were boosted by it, the Journal reported. The battered include companies in sectors such as travel and hospitality that all but collapsed during the first weeks of shutdowns and have yet to recover. The boosted include businesses sectors such as online shopping and groceries that saw sustained surges in business.

On the other side of corporate ledgers, spending on everything from payroll to utilities to corporate travel has plummeted at many companies.

Underlying the problem, the Journal reported, is that a business budget begins with a look in the rear-view mirror.

“If we start from last year with the pandemic, comparing your actuals to your budget [was] pretty much meaningless,” Gina Gutzeit of FTI Consulting Inc., a business consultancy, reportedly told the Journal.

According to the Journal, companies are responding by turning to rolling forecasting, which often entails frequently updating spending plans and looking more than 12 months into the future.

As an example of an institution that has adopted a new budgeting model due to COVID-19, the Journal cited St. Louis-based Ascension, which runs 145 facilities including hospitals, clinics and treatment centers for senior citizens.

At Ascension, the Journal reported, annual budgets have been replaced by dashboards executives use to track procedures, equipment and inventories in real time. Spending plans now look 18 to 24 months forward.

“We feel like it gives us the opportunity to really continue to focus on the future and what we can do, versus looking in the rear-view mirror all the time,” the Journal quoted Chief Financial Officer Liz Foshage as having said.

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