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Beyond Budgeting

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Beyond Budgeting

Beyond budgeting is a leadership philosophy that relates to an alternative approach to budgeting. Beyond budgeting supporters suggest that traditional annual budgeting should be eliminated rather than simply be improved as it is fundamentally flawed (Hope and Fraser, 2003). This approach has drawn worldwide attentions. In this essay, I will explain principles of the beyond budgeting and evaluate its usefulness in practice.

In order to conduct beyond budgeting, five principles are proposed. Firstly, the beyond budgeting suggests applying rolling budgets to replace annual budgeting. Rolling budgeting breaks down annual budget by months for the first three months, and by quarters for the remaining nine months.

The beyond budgeting employs wider range of non-financial measures as well as some financial measures for control. Non-financial measures include consumer satisfaction, environmental contamination and so on. For example, OilCo, an oil company, set targets linked to stakeholders’ expectations and focused on avoiding accidents. This helped the company to be more customer-orientated rather than being preoccupied with meeting sales targets only, delivering a long-term growth of profits and shareholder value. Moreover, key performance indicators could be utilised in this case. Because management performance will be evaluated based on those indicators, beyond budgeting could be better linkage with strategies than traditional budgeting (Hope & Fraser). Kaplan and Norton (2001) observe that the majority of firms they have worked with fail to link their budgeting systems to achieving strategic objectives. However, it is arguable that traditional budgeting fails to link budget with strategies because Libby and Lindsay (2010) found about half of respondents agreed budget is explicitly linked to strategy and about 2/3 say steps are being taken to…...

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