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
No comments:
Post a Comment