Setting realistic operational targets is impossible. Or?

It’s budgeting time again. All of us in operations are asked again what our targets are for next year. How do we go about this? Best practice is the so-called bottom-up budgeting. So we are approaching all our managers and ask them the very same question. What do we get back? More or less well educated guesses. Because they cannot know better (so far). Now the token is back with us who are in charge of a certain P&L. What do we do now? Typically we are lowering the received bottom-up targets in order to build us some cushion for the remaining budget talks. And then we try to sense as early as possible what the top-down guidance is gonna be in order to massage our targets accordingly. Sounds familiar? We are doing it this way for ages. So why should we change it? Because it is broken. It is broken when it comes to shifting budgets. Case in point are our never-ending budgeting meeting series with all sorts of arguments back and forth. Actually it is not uncommon that budgeting takes significantly more than half a year in organizations of a certain size. How come? In essence there are two questions which we cannot answer nowadays: (a) Should we allocate more dollars to activity A? and (b) What’s the penalty for taking dollars away from activity B? In order to be able to answer these questions we need to know the “value” of activity A versus activity B in our company. And if we would know the “value” we would need to know how much we can change our operations realistically. Where realistically...