BEYOND BUDGETING

- Hope & Fraser (2003) suggests that budget should be

replaced with a combination of financial and nonfinancial measures, with performance being judged
against world-class benchmarks.
- Business units can also measure their performance
against comparable units in the same organization.
- This, it is argued, shifts the focus from short-term profits
to improving competitive position year after year.
(sustainability)
Two fundamental differences:
- more adaptive way of managing. In placed of fixed annual
plans and budgets that tie managers to pre-determined
actions, targets are reviewed regularly and based on
stretch goals linked to performance against world class
benchmarks and prior periods.
- BB enables a more decentralized way of managing. In
place of the traditional hierarchy and centralized leadership,
it enables decision making and performance accountability
to be devolved to line managers and creates a self-managed
working environment and a culture of personal responsibility.
This leads to increase motivation, higher productivity and
better customer service.

CRITICSM OF TRADITIONAL BUDGET

1.
2.

3.

4.
5.

Annual budgeting adds little value and takes too much

valuable management time.
Too heavy reliance on budgetary control in managing
performance has an adverse impact on management
behaviour.
The use of budgeting as a base for communicating
corporate goals, setting objectives, assisting
continuous improvement, evaluating performance, is
seen as contrary to its original purpose as a financial
control mechanism.
The process has insufficient external focus from
which to derive targets or benchmarks.
Less focus on knowledge of intellectual capital
through competent managers, skilled workforce,
effective systems, loyal customers and strong brands
that will yield improved business effectiveness.

EXTERNAL FACTORS DRIVING THE BEYOND BUDGETING CASE FOR CHANGE

SHAREHOLDER
S ARE
PRESSING FOR
PERFORMANCE
INCREASE
PACE OF
INNOVATION:
REQUIRES
CONTINUOUS
RENEWAL

SCARCE AND
TALENTED
PEOPLE ASK
FOR MORE
FREEDOM

COMPANY

DEMAND FOR
HIGHER STD OF
ETHICAL AND
SOCIAL
RESPONSIBILIT
Y

GLOBAL
COMPETITION
REQUIRES
OPERATION
EXCELLENCE
CUSTOMERS
ARE IN
CHARGE:
FIRM MUST
RESPOND TO
CHANGING

NEEDS