Beyond budgeting definition
*An idea that companies need to move beyond budgeting because of the inherent flaws in budgeting especially when used to set contracts. It is argues that a range of techniques, such as rolling forecasts and market related targets, can take the place of traditional budgeting.
*It uses adaptive management processes rather than the more rigid annual budget.
Examples of Beyond budgeting
- Rolling budgets - Traditional annual plans tie managers to predetermined actions that are not responsive to current situations. Instead, managers should plan on a more adaptive, rolling basis, but with the focus on cash forecasting, rather than purely on cost control.
*Resource allocation/adaptability. Rolling budgets will be more up to date and should lead to more forward-looking budgets that help improve resource allocation and allow a business to adapt to changes more quickly.
*Focus on external factors: Performance is monitored against world-class benchmarks,
competitors and previous periods.
*Wide range of performance measures: Rather than just evaluating performance compared to targets (for example, using variance analysis), the focus of ‘Beyond Budgeting’ is to use a wide range of key performance indicators (KPIs). This can help monitor progress towards achieving objectives more effectively.
What are the advantages of beyond budgeting?
*Encourages adaptability/innovation.
*Increases motivation via personal responsibility.
*More up-to-date budget allows faster response to threats and opportunities.
*Improves resource allocation.
*Improves performance measurement.
Disadvantages of beyond budgeting?
*May be resistance to change from employees or management in adopting the Beyond Budgeting culture.
*Need to plan, even if there are lots of uncertainties in the future.
What are common features of a beyond budgeting system?
- Rolling budgets
*Range of performance measures
*Benchmarking
*Future Focus
*Innovation is encouraged and rewarded
