Denise Daniella Hidajat

041911333179
AML Week 8
Beyond Budgeting

- Beyond budgeting is a specific idea which regards the abolition of the traditional budget
process to improve management control within organisations by a fundamental re-
examination of how they might be managed better.
- introduced by the Consortium of Advanced Management International
- Main advantages of Beyond Budgeting
1. It is a more adaptive process than traditional budgeting.
2. It is a decentralised process, unlike traditional budgeting where leaders plan and control
organisations centrally.
- Drawbacks on traditional budgeting
1. rarely focus on strategy and are often contradictory
2. are time consuming and costly to put together
3. constrain responsiveness and flexibility
4. often deter change
5. add little value, especially given the time taken to prepare them
6. focus on cost reduction rather than value creation
7. strengthen vertical command and control.
- Why traditional budgeting is still commonly used
1. A framework of control
✓ Budgeting provides an overall framework of control without which it would be
difficult or impossible to manage. Arguably, they provide a level of stability that
could not be achieved using the BB approach
✓ Large companies might struggle to plan, co-ordinate and control their affairs without
a budgetary framework
2. Large companies might struggle to plan, co-ordinate and control their affairs without a
budgetary framework
✓ budgeting is so deeply ingrained in an organisation’s culture that it may not be
possible for the organisation to move away from such a fundamental method of
operating
3. The need to decentralize
Denise Daniella Hidajat
041911333179
AML Week 8
✓ It is recognised that banks and other financial institutions are more appropriate
candidates for decentralisation than other types of businesses.
- Beyond Budgeting Principles
SIX LEADERSHIP PRINCIPLES → focus on management structure
1. Values/Vision → Bind people to a common cause; not a central plan
2. Governance → Govern through shared values and sound judgment; not detailed rules and
regulations
3. Transparency → Make information open and transparent; don’t restrict and control it
4. Teams → Organize around a seamless network of accountable teams; not centralized
functions
5. Trust → Trust teams to regulate their performance; don’t micro-manage them
6. Accountability → Base accountability on holistic criteria and peer reviews; not on
hierarchical relationships

SIX PROCESS PRINCIPLES → focus on technical aspects of performance control

7. Goals → Set ambitious medium-term goals, not short-term fixed targets

8. Rewards → Base rewards on relative performance; not on meeting fixed targets
9. Planning → Make planning a continuous and inclusive process; not a top-down annual
event
10. Coordination → Coordinate interactions dynamically; not through annual budgets
11. Resources → Make resources available just-in-time; not just-in-case
12. Controls → Base controls on fast, frequent feedback; not budget variances
- Six shared common principles used by all the companies which have chosen BB as an
alternative to traditional budgeting
1. A governance framework based on clear priorities and boundaries
2. A high performance climate based on visible and relative success at all levels
3. Front line teams with the freedom to take decisions in line with the company’s
governance principles and strategic goals
4. Teams given responsibility for value creating systems
5. Teams focused on customer outcomes
6. Open and ethical information systems
Denise Daniella Hidajat
041911333179
AML Week 8
- Necessary criteria for a successful Beyond Budgeting implementation
1. there needs to be a clear case for change, with the benefits fully explained
2. managers should consider carefully the degree of decentralisation that might be possible
within their organisation
3. there must be a governance framework with clear priorities and boundaries
4. a high performance ethos based on visible and relative success at all levels will be
necessary
5. front line teams need the freedom to take decisions within agreed parameters
6. trust and openness at all levels of the organisation will be paramount.
- Drawbacks on Beyond Budgeting approach
1. Without a budget, there is no overall framework of control which allows companies to
plan, co-ordinate and control their activities.
2. There is a lack of a road map which details where a business is and where it wants to go.
3. Budgets may be very deeply ingrained in an organisation’s fabric and operating culture.
4. It may be very difficult or impractical for organisation