Beyond Budgeting

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Beyond Budgeting is the name given to a movement that advocates a set of practices for the managing the financial resources of organisations as an alternative to traditional financial budgeting practice. Although underpinned by financial processes, Beyond Budgeting comprises a management model that also covers the organisational context in which they are deployed. It seeks to enable organisations to become more agile and to empower rather than constrain people in contrast to the top down command and control approach associated with traditional budgeting. It claims that this helps organisations to operate in environments of high uncertainty.

The Origins of Beyond Budgeting

The Beyond Budgeting movement was started by Jeremy Hope and Robin Fraser in 1998. Originally it was a collaborative research project sponsored by 20 UK companies brought together to form the original Beyond Budgeting Round Table (BBRT).

What started as an attempt to find a better way of budgeting took a different course when Hope and Fraser were introduced to Jan Wallander the CEO of Handelsbanken, the Swedish clearing bank. Under Wallander's leadership the bank had been operated successfully since 1970 without any form of traditional budgets and with a radically decentralized management model. His experience was that budgets were an ‘unnecessary evil’ and so should be abolished rather than reformed. Hope and Fraser's early research into Handelsbanken and other companies that ran their businesses without traditional budget such as Guardian Industries, Borealis and Ahlsell, was ultimately codified in the 12 Beyond Budgeting Principles.

The principles were published in 2003 in Hope and Fraser's book: ‘Beyond Budgeting: How managers can break free from the annual performance trap’ . They have subsequently been redrafted but the substance of the original principles is largely preserved.

The Principles

Beyond Budgeting is a principles driven approach. The 12 principles are not a management recipe, rather a guide to help the construction of a management model tailored to the characteristics and needs of a particular organisation.

They are organised under two headings:

Process Principles

• Rhythm – Align management processes around the natural cadence of the organization and the environment in which it operates – not around arbitrary dates and cycles such as the financial year.
• Targets – Set aspirations based on ambitious directional goals, ideally relative to peers - avoid negotiated fixed targets.
• Plans and forecasts – Continuously plan and forecast across a rolling horizon based on realistic expectations of future outcomes with a light touch – not detailed bottom-up bureaucratic process distorted to match aspirations.
• Resource allocation – Make resources available as needed - not through a detailed annual allocation process tied to the budget.
• Performance evaluation – Judge performance holistically, over time and in context – not compared to predetermined negotiated targets or budgets.
• Rewards – Reward the contribution made by teams based on performance compared to a meaningful external benchmark - not individual achievement against an arbitrary fixed performance target

Leadership Principles

• Purpose – motivate and guide behaviour around an inspiring organisational purpose – not fixed targets
• Values – Base governance on principles and values supported by judgement – not through compliance to detailed rules.
• Transparency – Share information widely to encourage self-organisation – don’t restrict it based on ‘need to know’
• Organization – Build the organisation around accountable self-governing teams – avoid functional hierarchies based on command and control.
• Autonomy – Distribute decision making authority and trust people to act responsibly – don’t constrain everyone to deal with those that can’t be trusted
• Customer needs – Orientate behaviour around the delivery of value to the customer – not conformance to hierarchical diktat.

Recent History

There was a surge in interest in Beyond Budgeting after the first Beyond Budgeting book was published in 2003 and a wide range of organisations have subsequently implemented the model, including Equinor, Park Nicolett, Hilti, Sparbanken, Ossur, Coloplast , Nors, Sightsavers International , Danone and Reykjavík Energy. Other organisations such as Buurtzorg and Mainfreight, have applied some of the solutions advocated in Beyond Budgeting principles in their business without being aware of the fact

Although the initial enthusiasm for Beyond Budgeting waned, there has been a recent resurgence in interest accompanying the growth of the Agile movement and the appearance of new organisational frameworks such as 'Teal Organisations' and Holocracy all of whom acknowledge that the inflexibility of traditional budgeting represents a barrier to their adoption, but without prescribing a solution.

Other attempts to reform traditional budgeting through 'better budgeting' or Zero-Based Budgeting have periodically enjoyed some prominence but neither has the scope or the transformative potential of the Beyond Budgeting model.

Today the BBRT is more focused on understanding and sharing the experiences of member organisations who have chosen to adopt these practices rather than basic research, although the ideas and the methodologies associated with them have continued to be developed in books written by members of the community.

After the death of two of the original leaders of the community, the Beyond Budgeting Institute was formed to help protect the founding principles from the negative consequences often associated with the commercialisation of management ideas. More recently the Beyond Budgeting Advisory network was set up to provide support to organisations implementing the ideas.

Further Reading

• Bunce, P.; Fraser, R. (1997) 'Beyond budgeting', VOL 75; NUMBER 2; 1997, 26-27 -- CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS Part: Part 2; (pages 26-27)
• Bogsnes.B, (2016) Beyond Budgeting: Unlocking the Performance Potential. Wiley.
• Hope.J, Fraser.R, (2003) 'Beyond Budgeting : How managers can break free from the annual performance trap'. Harvard Business School Press.
• Hope.J, Fraser.R, (1999) 'Beyond Budgeting: Building a New Management Model for the Information Age' Management Accounting. VOL 77; NUMBER 1, ; 1999, 16-21 -- CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS (pages 16-21)
• Hope.J, Fraser.R, (1997) Beyond Budgeting... Breaking through the barrier to the 'third wave' Hope, J.; Management Accounting. VOL 75; NUMBER 11 -- CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS Part: Part 11; (pages 20-23)
• Hope.J, Fraser.R, (2000) 'Beyond Budgeting The traditional budgeting model isn't holding up well in today's fast-moving economy.  Hope. INSTITUTE OF MANAGEMENT ACCOUNTANTS (pages 30-35)
• Hope.J, Player.S, (2012) 'Beyond Performance Management' : Why, when, and how to use 40 tools and best practices for superior business performance. Harvard Business Review Press
• Hope.J, Reinventing the CFO (2006) : How financial managers can transform their roles and add greater value. Harvard Business School Press
• Hope.J, Player.S, Roosli.F, (2011) The Leader's Dilemma : how to build an empowered and adaptive organization without losing control. John Wiley and Sons.
• Morlidge.S, (2017) The Little Book of Beyond Budgeting : a new operating system for organisations : what it is and why it works. Matador.
• Morlidge.S, Player.S, (2010) Future Ready: How to master business forecasting. Steve Morlidge and Steve Player. John Wiley and Sons.
• Morlidge.S, (2019) Present Sense, A practical guide to the science of measuring performance and the art of communicating it. Matador.
• Player, S, Why Some Organizations Go "Beyond Budgeting" . JOURNAL OF CORPORATE ACCOUNTING AND FINANCE. VOL 14; PART 3; 2003, 3-10 -- JOHN WILEY AND SONS, INC. (pages 3-10)
• World Bank (2013) Beyond the Annual Budget : global experience with medium-term expenditure frameworks. Washington, D.C.

External links

• https://bbrt.org

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