Monday, April 28, 2014

Beyond Budgeting



CIMA Article: Beyond Budgeting: As traditionally budgets used to be rigid, the concept of beyond budgeting is to add flexibility in management performance for the period budgeted. It provides freedom to management to act with discretion to cope problems where and when faced. Beyond budgeting helps overcome the problem of budgeting like, ossification (unwillingness for change), tunnel visioning (only do things what are measured) and myopia (focusing on short time period).

Synopsis from CIMA Article
Beyond budgeting is: ‘An idea that companies need to move beyond budgeting because of the inherent flaws in budgeting especially when used to set contracts. It is argued that a range of techniques, such as rolling forecasts and market related targets, can take the place of traditional budgeting.’
CIMA Official Terminology, 2005

BB uses a range of tools and techniques as a replacement for the traditional budgeting process. For example, BB might combine the Balanced Scorecard with rolling forecasts and shareholder value models. BB offers an implicit performance contract to managers, with reward based on relative performance achieved. The targets which replace budgets must be aligned with incentives to support a new culture of accountability within the organisation.

Characteristics of Beyond Budgeting:
Ø  Combine rolling budget on quarterly or monthly basis inputs flexibility and proper and timely allocation of resources
Ø  Link performance measure to strategy based on balanced scorecard
Ø  Incorporate external benchmarking to business activities
Ø  Provides managerial freedom in issues which maximize shareholders value
Ø  Link target performance to reward which promotes new culture and accountability

Drawbacks of beyond budgeting
Ø  Difficulty in aligning budget goal with strategic position
Ø  Difficult to change organisational fabric and culture to fit with beyond budgeting
Ø  Difficult to adopt BB required culture of decentralisation

Forecasting
Ø  Regression analysis

ACCA Article: Beyond budgeting



ACCA Article: Business forecasting and strategy
 

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