Beyond Budgeting

Introduction

One of the problems with budgets is that they can have conflicting roles. On one hand managers use budgets in order to plan production volumes, costs, processes and profitability, and for this reason budgets need to be as accurate as possible. On the other hand, budgets can also be used to motivate staff, presenting them a target that staff ought to try to beat. A single budget system can’t serve several purposes with planning and motivating roles potentially in conflict.

Beyond budgeting is an alternative management model based on the decision making needs of front line managers. In this model, the nature of performance responsibility is transferred from the centre. The work place culture has a significant impact on successful implementation of beyond budgeting because the participation in decision making and authority is suggested to motivate employees to act in the best interests of an organisation and its shareholders.

Beyond budgeting requires goal setting, rewarding employees, planning action, resources and co-ordination.  Goal setting needs to base targets on key performance indicators and relative benchmarks to ensure that managers pursue strategic and financial goals. Medium term goals typically include financial performance expectations, wastage reductions, new product introductions and customer satisfaction ratings. Setting targets based on internal and external benchmarks helps remove internal political negotiations.

Managers’ performance bonuses can be linked to key performance indicators both at corporate and business unit level.