Skip to main content
Home
The Online Resource for Modern FP&A Professionals
Please register to receive the latest FP&A news, updates and tips Login

Main menu

  • Home
  • FP&A Insights
    • FP&A Trends Digest
    • FP&A Trends Research
    • FP&A Trends Insight Paper
    • FP&A Trends Survey
    • Short Videos
    • Our Contributors
  • FP&A Events
    • International FP&A Board
    • FP&A Trends Webinars
    • Digital FP&A Circles
  • AI/ML Committee
    • Introduction
    • Members
    • Resources
    • Meetings
  • FP&A Tools
    • FP&A Trends Maturity Model
  • About Us
    • Company Policy
    • Privacy Policy
    • Editorial Guidelines
    • Our Ambassadors
    • Our Sponsors & Partners
    • Contact Us
image
Beyond Budgeting without the Tears
September 19, 2017

By Steve Morlidge, Business Forecasting thought leader, author of "Future Ready: How to Master Business Forecasting" and  "The Little Book of Beyond Budgeting"

FP&A Tags
Financial Planning and Analysis
Beyond Budgeting

In my last blog, I promised to give you some tips about how to introduce some Beyond Budgeting ideas into your business to help make it more flexible and reduce the gaming behaviour associated with the budgeting game.

Traditional budgeting has three major weaknesses:

  1. It is rigid and inflexible because every process element – targets, plans, and resource budgets are tied to a single budget number which is also used to measure performance and coordinate activities.
  2. It forces management to work within the narrow constraint of a financial year.
  3. Its reliance on negotiated fixed targets fosters dysfunctional behaviour and an internal focus.

A good way to set about introducing Beyond Budgeting is to tackle each of the weaknesses progressively.

First, introduce flexibility by relaxing the ties between process elements.

Rather than tying everything to one number, recognise the differing purposes of different processes by using different numbers. Base targets on aspirational stretch goals, but make sure that plans – or forecasts – are realistic expectations grounded on fact. Allocating resources in a way that encourages people to use them efficiently and effectively while breaking the link between bonuses and targets reduces the incentive to game the target-setting process. Finally, find ways to coordinate activities and measure performance that does not rely on budgets.

Freeing the business from the straightjacket of traditional budgeting provides freedom to move without the loss of control.

The second straightjacket to escape from is that which ties everything to the financial year. The fact that results need to be reported to shareholders annually does not mean that the business has to be managed on this basis.

Rather than tying everything to the financial calendar, align processes with the natural rhythm of the business. Adopt perpetual targets based on KPIs or trends and Rolling Forecasts linked to decision-making lead times. Allocate resources based on need rather than on an annual calendar and continuously coordinate activities based on ‘one set of numbers’.

Breaking the tyranny of the financial year eliminates the annual budgeting ritual and frees management to engage with the world as it is rather than the way we would like it to be.

Finally, seek out ways in which you can bring the outside world and market-based thinking into your management processes.

Use benchmarks - ideally based on external reference points - as targeting mechanisms and the reference point for performance measurement and use market-like mechanisms to guide resource allocation and the organisation and coordination of activities. Use formal planning and forecasting processes only when they are needed to support specific decision-making processes rather than as the central pillar of a bureaucratic control system and base rewards on the principle of sharing the fruits of collective success.

Borrowing concepts from markets and adapting them to the needs of your business helps to create a lean control system that adapts quickly and effectively and fosters an externally focused, self-motivated mindset.

Beyond Budgeting isn’t a magic pill that cures all ills, nor is it a prescription for how you should run your business. It is a set of guiding principles that helps you build an effective and efficient control system tailored to the needs of your own business, in place of the ‘one size fits all’ approach of traditional budgeting.

None of the unique ideas I have just shared are in themselves revolutionary. At various times, various authorities have advocated most of them. What is different about Beyond Budgeting is that they are tied together as part of a coherent set of practices underpinned by a guiding philosophy.

The only unique feature of Beyond Budgeting is that these process principles are explicitly tied to a complementary set of organisational or leadership principles.

Process changes on their own will deliver incremental benefits. This is good news but probably won’t transform the performance of your business. But coupled with complementary changes to organisational behaviour, your operating model – based on BB principles - can become a potent source of competitive advantage.

I recognise this idea might make many people uncomfortable – particularly those from the finance community - since it feels like we might be straying away from the familiar, tangible world of reasonable business procedures.

In the final blog in this series, I will explain how organisational practices need to change and why it makes good business sense to explicitly factor the human dimension into the design of your business’ operating model.

The article was first published in Prevero Blog

The full text is available for registered users. Please register to view the rest of the article.
  • Log In
  • or
  • Register

Related articles

Webinar. Beyond Budgeting in Statoil - from managing to enabling performance.
April 23, 2018

A budget is often a strategic anchor rather than a tool that facilitates effective decision making...

Read more
What is Beyond Budgeting?
September 23, 2017

In this episode of the FP&A Trends TV Series, Dr Steve Morlidge, CPM Thought Leader...

Read more
Beyond Budgeting: Are we ready to abandon the traditional process?
May 25, 2017

  Demand for Financial Planning & Analytics (FP&A) thought leadership and best practice establishment is very...

Read more
+

Subscribe to
FP&A Trends Digest

We will regularly update you on the latest trends and developments in FP&A. Take the opportunity to have articles written by finance thought leaders delivered directly to your inbox; watch compelling webinars; connect with like-minded professionals; and become a part of our global community.

Create new account

image

Event Calendar

Pagination

  • Previous
  • June 2025
  • Next
Su Mo Tu We Th Fr Sa
1
2
3
4
5
6
7
The Unseen Cultural Shifts: Practical AI Case Study
 
Data Mastery in FP&A: Sharper Analytics, Smarter Decisions
 
8
9
10
11
12
13
14
Making FP&A Teams Fit for the Future
 
15
16
17
18
19
20
21
From Insight to Impact: FP&A Business Partnering in Action
 
Unlocking FP&A Analytical Transformation
 
22
23
24
25
26
27
28
Transforming FP&A with AI: Maturity, Impact, and Future Roles
 
Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments
 
29
30
1
2
3
4
5
 
 
 
 
 
All events for the year

Future Meetings

The FP&A Trends Webinar How AI is shaping the future of Financial Planning & Analysis (FP&A)
The FP&A Trends Webinar Transforming FP&A with AI: Maturity, Impact, and Future Roles

June 25, 2025

The Face-to-Face Sydney FP&A Board
The Face-to-Face Sydney FP&A Board Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments

June 26, 2025

The Face-to-Face Singapore FP&A Board: Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments
The Face-to-Face Singapore FP&A Board Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments

July 8, 2025

Webinar: FP&A Trends Survey 2025
The FP&A Trends Webinar 2025 FP&A Trends Survey: Benchmarks, Priorities, and Best Practices

July 9, 2025

Face-to-Face Oslo FP&A Board
The Launch of the Oslo FP&A Board Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments

September 16, 2025

AI/ML FP&A
AI/ML FP&A
Data and Analytics
Data & Analytics
FP&A Case Studies
FP&A Case Studies
FP&A Research
FP&A Research
General
General
Integrated FP&A
Integrated FP&A
People and Culture
People and Culture
Process
Process
Technology
Technology

Please register to receive the latest FP&A news, updates and tips.

info@fpa-trends.com​

              

Foot menu

  • FP&A Insights
  • FP&A Board
  • FP&A Videos

Footer countries

  • Amsterdam
  • Austin
  • Boston
  • Brisbane
  • Brussels
  • Chicago
  • Copenhagen
  • Dubai
  • Frankfurt
  • Geneva
  • Helsinki
  • Hong Kong
  • Houston
  • Kuala Lumpur
  • London Board
  • London (Circle)
  • Melbourne
  • Miami
  • Milan
  • Munich
  • New York
  • Paris
  • Perth
  • Riyadh
  • San Francisco
  • Seattle
  • Shanghai
  • Singapore
  • Stockholm
  • Sydney
  • Tokyo
  • Toronto
  • Washington D.C.
  • Zurich

Copyright © 2025 fpa-trends.com. All rights reserved.

0