As conditioned as they are to a tight focus on success, corporate finance executives might be better off if they paid more heed to failure.

In fact, one of the most important roles finance can play is defining the criteria for abandoning investments, according to David Axson, a business consultant and co-founder of The Hackett Group. “The concept of failure is alien to Americans,” says Axson, a Briton who has lived in the United States for 20 years. But with the current hypervolatility of markets and other economic indicators likely to be long lasting, companies must be ready to pull the plug if a project’s business case becomes moot.

Axson says Toshiba showed “great courage” in 2008 when, after a $2 billion investment, it gave up its battle with Sony and other electronics manufacturers that backed the Blu-ray high-definition video format. In a well-known example of the opposite, disastrous behavior, Sony kept pouring money into the Betamax videocassette recording format for more than a decade after it became clear in the late 1970s that JVC’s VHS format had won that war.

Abandonment criteria for investments are “the equivalent of a stop-loss limit for your shareholders,” says Axson, who presented in New York last week at the 2010 Corporate Performance Management Conference, hosted by CFO. But many companies fail to set such parameters, and even those that do often convince themselves to keep a failed project going and that “things will turn around,” he says.

Investments are not the only thing finance executives should consider letting go in a volatile environment. For one, preparing a typical annual budget makes little sense, contends Axson. “It completely mystifies me why companies still have the same number of line items in their budgets for December as they do for January,” he says. “Is the predictability equivalent? You’re deluding yourself.” Instead, there could be budgets for each month in the first quarter with 15 to 20 lines of detail, and quarterly budgets for the rest of the year with far fewer line items.

“If you lay out a plan to sell x nine months from now and that number has no basis in reality, and your people start entering into purchase agreements based on their confidence in that number, there’s a big risk that you will miss your target,” says Axson.

Prioritizing risks and opportunities is another area where the conventional mind-set may no longer apply. Axson tells of one client, a company in Western Europe, that invests worldwide according to three criteria: GDP growth, market size, and political risk. Until recently the company assessed those factors every other year; now it does so quarterly. Similarly, last year McDonald’s began updating its restaurant-opening plans in the United Kingdom every two weeks, based on unemployment data for individual postal codes, instead of twice annually as before.

“We’re not going back to the stable, predictable view of the future that we lived with for 40 or 50 years after World War II,” says Axson. With commodity prices, investment returns, real estate values, consumer spending, exchange rates, and employment all in constant flux, company management must adapt its practices with regard to resource allocation, budgets, and investment priorities. “That’s the reality of the world we live in,” he says.