The general sentiment shaping this year’s budget season is a conservative one, as CFOs go through the annual process of setting spending, profit and investment goals for 2026, according to McKinsey & Company senior partner Kevin Carmody.
As global leader of McKinsey’s CFO & Finance Excellence service offering, Carmody said he’s seeing disruption as a top theme affecting finance leaders this year. Executives are grappling with continuing geopolitical and economic uncertainty following U.S. tariffs, questions around budgeting for AI and fast-changing technology and the drive to upskill workers and build a competitive talent pool.
“What you’re finding is CFOs in the budgeting cycle and in the business are protecting the downside,” Carmody said. The risks that companies need to protect against can take many forms, such as costs going up or the direction of consumer or customers’ demand for products.
It’s a particularly difficult time to make projections in the wake of the absence of all but a few pieces of federal economic data during the 43-day government shutdown, with Federal Reserve Vice Chair Philip Jefferson saying in a Monday speech that “casting a wide net for information on the economy is especially important at this moment,” CFO Dive previously reported.
Some of the dialogue that Carmody says he is hearing at companies is around protecting the downside by embedding in the budget ways to preserve cash. That means more scrutiny and care being taken with how CFOs are spending their investment dollars.
“They’re being really careful about what they must spend versus what is a ‘nice-to-have’ and how they prioritize that in a very analytical way,” Carmody said. “In some cases it’s very different than how they’ve run the business historically.”
Carmody said he also thinks it’s important in times like these for CFOs to set realistic stretch targets. For example, companies have many inputs that are rolled into their budget plan and it’s the CFO’s job to look across the whole company and determine what the components are and what the likelihood is of all of them hitting the target. Finance leaders need to look granularly and exercise judgment, in some case, potentially reducing the targeted EBIDTA for a given unit.
“If you’re rolling out a product and you think the ramp curve has a slope…does it make sense to flatten that curve a little bit because you’re introducing new product?” Carmody asked. “Typically, they’re not all run flawlessly. There is something around using judgments to make sure that what you put out there is a stretch goal but it’s also realistic.”
To be sure, setting growth targets and forecasting demand and what customers are going to buy is usually among the hardest elements to compile in a budget, while he said estimating costs has generally been viewed to be easier because you have a historic track record to follow for items like labor costs, SG&A and purchasing.
“Adding growth assumptions in a way that is credible, that’s the hardest because you can’t forecast with the geopolitical uncertainty,” Carmody said.
Yet amid all the change, the process and push to finalize budgeting plans sometime in the fourth quarter, typically in November, has stayed constant. Despite technology that enables continual closes or instant data updates, Carmody said companies continue to set formal “static” budgets, a process which he views as a valuable and important practice.
“If you put a lot of thought into an annual operating plan that starts with [the] CFO…people understand that they’re all rowing in the same direction,” Carmody said. “You put a stake in the ground.”
