The longer I work, the more I get the feeling that even the best people waste their time 'delivering the budget'. I suppose that has to happen, but the whole budgeting process just seems so senseless. What's your opinion?

Name Withheld, Prague, Czech Republic

A

Senseless? Not really. Counterproductive is more like it. Some form of financial planning is obviously necessary. Companies have to keep track of numbers. But you're on the right track.

As it stands at most companies, the budgeting process does exactly what you'd never want. It hides growth opportunities. It promotes bad behaviours, in particular when market conditions change midstream and people still try to 'make the number'. And it has an uncanny way of sucking the energy and fun out of an organisation. Why?

Because most budgeting is, simply put, disconnected from reality. It draws its authority from the mere fact that it's institutionalised, as in: "Well, that's just the way it's always been done". It just doesn't have to be that way!

But before we go into the better way to budget, think about what's wrong with the standard approach. The process usually begins in early autumn. That's when the people in the field start the long slog of constructing the next year's bottoms-up, highly detailed financial plans to make their case to the Company Bigs in a few weeks' time.

The goal of the people in the field, of course, is unstated, but it's laser-like. They want to come up with targets that they absolutely, positively think they can hit . . . after all, that's how they're rewarded. So they construct plans with layer upon layer of conservatism.

Meanwhile, back at headquarters, executives are also preparing for the budget review, but with the opposite agenda. They're rewarded for big increases in sales and earnings, so they want targets that push the limits. You know what happens next. The two sides meet in a windowless room for a day-long wrestling match. The field will make the case that competition is brutal and the economy is tough, therefore earnings can increase just 6%.

Headquarters will look surprised and perhaps a bit irate;

their view of the world calls for the team to deliver 14%.

Fast-forward to late in the day. Despite the requisite groaning and grumbling along the way, the budget number will be settled right down the middle: 10%. And soon after, the meeting will end with pleasantries and handshakes. Later, when both sides are alone, that they will crow among themselves about how they managed to get the other guys to exactly the targets they wanted.

What's wrong with this picture? First, what you see: an orchestrated compromise. But more important, what you don't: a rich, expansive conversation about growth opportunities, especially the high-risk ones. That conversation is usually missing because of the wrongheaded reward system we mentioned above. People in the field are literally paid to hit their targets. They get a stick in the eye (or worse) for missing them. So why in the world would they ever dream big? They won't. That is, unless a new reward system is put in place, one in which bonuses are based not on an internally negotiated number but on real-world measures: how the business performed compared to the previous year and how it did compared to the competition.

With those kinds of metrics, watch out. Suddenly, budgeting can change from a mind-numbing ritual to a wide-ranging, anything-goes dialogue between the field and headquarters about gutsy, 'what-if ' market opportunities. And from those conversations will spring growth scenarios that cannot really be called budgets at all. They're operating plans, filled with agreed strategies to expand sales and earnings, not all of them sure bets.

Of course, operating plans are not all wishing and fluff, lacking any financial framework. They should always contain an upside number . . . the best-case scenario . . . and a number below which the business is not expected to go.

The main point is, though, that this range will be the result of a dialogue about market realities. And because they're part of a dialogue, operating plans can be flexible, changing with market conditions if need be.

In fact, the only rigid thing about this form of budgeting is the core value it requires of an organisation, and that is trust. People in the field have to believe they won't be punished for not reaching their 'stretch targets', and executives have to honour that confidence. Executives, meanwhile, have to believe that people in the field are giving their all to achieve those big goals, and people in the field have to uphold that good faith with their efforts. With that contract in place, the budget dynamic takes on a whole new life.

So don't give up on budgeting at your company yet.

You're right to be frustrated by it now, but given how much is to be gained, maybe it's time to start a conversation about changing the process. Are you ready?

Jack and Suzy Welch are the authors of the international best-seller, Winning. You can email them questions at Winning@nytimes. com. Please include your name, occupation, city and country.