According to Kevin Carmody, senior partner at McKinsey & Company, the overall tone of this year's budgeting season has been conservative, with chief financial officers reflecting this tendency as they set spending, profit, and investment targets for 2026.

As the global leader of McKinsey's CFO and financial excellence services line, Carmody said he has noticed that "disruption" is the top theme facing financial leaders this year. Executives are navigating ongoing geopolitical and economic uncertainty triggered by U.S. tariffs, budget questions surrounding AI and rapidly changing technology, and the drive to upskill employees and build a competitive talent pool.

"You'll find that CFOs are protecting downside risk in both the budget cycle and business operations," Carmody said. The risks companies need to guard against come in various forms, such as rising costs or shifts in the direction of consumer and customer demand for products.

During the 43-day government shutdown, the absence of most federal economic data—except for a few items—made forecasting particularly difficult. Federal Reserve Vice Chair Philip Jefferson said in a speech on Monday that "at this moment, it is especially important to gather economic information broadly," as previously reported by CFO Dive.

Carmody said some of the discussions he has heard within companies revolve around protecting downside risk by embedding cash reserves into budgets. This means CFOs are being more prudent and meticulous with investment spending.

"They are very careful to distinguish between must-have spending and 'nice-to-have' spending, and they prioritize in a highly analytical way," Carmody said. "In some cases, this is quite different from how they have historically operated."

Carmody also believes that in such times, it is crucial for CFOs to set realistic yet challenging goals. For example, a company's budget plan includes many inputs, and it is the CFO's role to look across the entire company to determine the components and the likelihood of all of them being met. Financial leaders need to scrutinize and apply judgment, potentially lowering EBITDA targets for specific business units in some cases.

"If you launch a product and think its ramp-up curve has a certain slope... then, because you are introducing a new product, should you flatten that curve a bit?" Carmody asked. "Typically, not everything runs perfectly. The key is to apply judgment to ensure the goals set are both challenging and achievable."

Admittedly, setting growth targets, forecasting demand, and predicting customer purchasing behavior are often the hardest parts of budgeting, while Carmody noted that cost estimation is generally considered relatively easier because it can be based on historical records, such as labor costs, selling, general and administrative expenses, and procurement.

"Adding growth assumptions in a credible way is the hardest, because you cannot forecast amid geopolitical uncertainty," Carmody said.

However, despite the volatile environment, the process and momentum of finalizing budget plans in the fourth quarter (typically in November) remain unchanged. Even though technology enables continuous close or real-time data updates, Carmody said companies still set formal "static" budgets, a practice he believes holds value and is important.

"If you put a lot of thought into the annual operating plan, starting with the CFO... people understand they are all working toward the same direction," Carmody said. "You have essentially set a benchmark."