- Hope & Fraser (2003) suggests that budget should be
replaced with a combination of financial and non- financial 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. Annual budgeting adds little value and takes too much
valuable management time. 2. Too heavy reliance on budgetary control in managing performance has an adverse impact on management behaviour. 3. 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. 4. The process has insufficient external focus from which to derive targets or benchmarks. 5. 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
SCARCE AND INCREASE
TALENTED PACE OF PEOPLE ASK INNOVATION: FOR MORE REQUIRES CONTINUOUS FREEDOM RENEWAL
COMPANY
GLOBAL DEMAND FOR
COMPETITION HIGHER STD OF REQUIRES ETHICAL AND OPERATION SOCIAL EXCELLENCE RESPONSIBILIT Y CUSTOMERS ARE IN CHARGE: FIRM MUST RESPOND TO CHANGING NEEDS