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.
As far as I know, we are not legally required to forecast. So why do we do it? My sense is that forecasting practitioners rarely stop to ask themselves this question. This might be because they are so focussed on techniques and processes.
As we know a simple matter of spotting bias – systematic under or over forecasting – can get surprisingly tricky in practice if our actions are to be guided by scientific standards of evidence – which they need to be if we are actually going to improve matters.
The average level of MAPE for your forecast is 25%. So what? Is it good or bad? Difficult to say. If it is bad, what should you do? Improve…obviously. But how?
In this blog, the author offers his insights on some of the challenges faced by practitioners in making sense of data and communicating it within organisations, and his ideas on how these shortcomings can be overcome. A few decades ago everything seemed so straightforward. When it came to planning and controlling businesses annual budgets were the only show in town. Things are very much different now.
Pagination
Author's Articles
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:
In the last blog, I described how it is possible to implement Beyond Budgeting in a step-by-step fashion. If you choose to go down this route you will become increasingly uncomfortably aware of a disconnect between Beyond Budgeting style processes and the rules and routines that govern normal business life in a traditional organisation. In the brave new world I have described, senior managers perched high in the organisational pyramid can no longer use targets and incentives to remotely control the activities of their subordinates and measurement systems no longer highlight deviations from pre agreed plans and budgets and trigger ‘corrective action’. Resources are allocated continuously and an annual set piece planning ritual cannot effectively coordinate activities in an organisation that is continuously adapting to events.
I’d like to claim that I am not easily annoyed….but that would be untrue. And one of the things that are guaranteed to irritate me is glib statements from people who claim to be experts – particularly if it is part of an act to get people to buy something.
It is difficult to think of another business process that is as universally detested as annual budgeting. The list of complaints will be familiar to anyone who has run a budget process or has been subjected to one…and that probably means everyone reading this article.