A study conducted by Vlerick Business School, titled Research, has found that AI exceeds human capabilities in financial planning when provided with clear strategic guidelines. Businesses that utilize AI in their budgeting processes experience significant improvements in accuracy and efficiency compared to human decision-making.

The primary objective of the study was to examine the role of AI in corporate budgeting, assessing its performance in making financial decisions and determining whether its choices align with a company’s long-term strategies. The researchers, Kristof Stouthuysen, Professor of Management Accounting and Digital Finance at Vlerick Business School, and PhD researcher, Emma Willems, investigated both tactical and strategic budgeting approaches.

Tactical budgeting involves making quick, data-driven decisions aimed at improving short-term performance, such as adjusting spending based on market trends. On the other hand, strategic budgeting is a more comprehensive approach focused on future planning, aligning various resources with a business’s vision.

According to the study, AI excels in tactical budgeting processes, including cost management and resource allocation. However, human insight remains crucial for ensuring accurate and strategic financial planning over the long term.

To achieve the controlled experiment, the researchers ran a management simulation where experienced managers allocated budgets for a hypothetical automotive parts company. They then compared these human-made decisions with those produced by an AI algorithm using the same financial data.

The results showed that AI outperformed humans in optimizing budgets when a company’s strategic financial planning was clearly defined. Nevertheless, AI struggled to make budgeting decisions when key performance indicators (KPIs) did not align with the company’s financial goals.

Stouthuysen and Willems emphasized the importance of collaboration between humans and AI. “As AI continues to evolve, companies that leverage its strengths in tactical budgeting while maintaining human oversight in strategic planning will gain a competitive edge. The key is knowing where AI should lead and where human intuition remains indispensable.”

According to the study, AI can theoretically replace humans in tactical budgeting, providing more precise and efficient outcomes. Stouthuysen and Willems believe that companies need to clearly define their strategic priorities and implement AI for tactical budget-making decisions to maximize financial performances and achieve sustainable growth.

The findings challenge the widespread misconception that AI can completely substitute the need for humans in budgeting. Instead, this research highlights the importance of taking a balanced approach, utilizing both AI and humans, and assigning tasks according to their proven abilities.

(Image source: “Payday” by 401(K) 2013 is licensed under CC BY-SA 2.0.)

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