The Concept of ‘Beyond Budgeting’
The concept of ‘Beyond Budgeting’ has been around for nearly twenty years now. Although it has helped transform many businesses and has become part of mainstream management thinking in some parts of the world, I talk to many business people who have still not heard of Beyond Budgeting. And many of those that are aware of it find the concepts difficult to grasp.
I believe that these ideas are too important to be overlooked or ignored – so I wrote a short book to fill these gaps in awareness and understanding.
The name of the organisation itself gives some clue as to why these gaps exist. ‘Beyond Budgeting’ (BB) describes what it wants to get rid of but not what should take its place. And the alternative that it advocates is not a simple blueprint that can be copied and rolled out across an organisation. Rather BB is a set of principles that have to be interpreted in the context of the unique challenges and opportunities faced by any particular organisation
For finance professionals, Beyond Budgeting changes how they do things not what they do.
So, instead of setting fixed targets for the end of the financial year, they would set relative targets that do not expire at period ends. And forecasting across a rolling horizon would replace detailed annual plans.
Resource allocation is a continuous process, made in response to emerging threats and opportunities, rather than an annual set piece event. And performance is measured by tracking trends rather than analyzing variances to budget.
Finally, the elimination of fixed annual budgets also has implications for other, related, business processes, such as how incentives are set and business activities co-ordinated.
If BB sounds like a small idea, of interest only to the Finance community, think again. But in reality, it is a large and subtle set of concepts that have important implications for the way that work is done and how organisations are structured and governed. To use an analogy from computing, BB looks like an organisational ‘app’ but it is more like an operating system - largely hidden from view but critically important to the functioning of the entire system and how it performs for its users: its employees, customers, suppliers and shareholders.
Beyond Budgeting creates an opportunity for finance professionals to contribute to business decisions making in a positive way rather than being the guardian of a process that everybody hates and adds so little to the business. I see BB as being liberating for the business and for the people working in it - finance people included.