Beyond BudgetingCIMA - P2Problem Weseemtobeabitunusual.Wehavetaken stridesdowntheempowermentpath.Wehave truly embraced customer service. And we know lotaboutcustomerproftability.Yetthe planning and budgeting is still at the core ofperformancemeasurement.Andit causesusimmenseproblem.Forastartit failstosupportourstrategicobectivesandit rewards the wrong behaviour and at !"# pages and$.#kginweight%ourbudgetmanualisa maor cause of deforestation&$'()'(*)'! +ompiled by, -aira Anees *Problem .here are thousands of budget centres andittakesninemonthstoput togethersoakingaround*)/of managementtime.0fwedon1tmeet thebudgetcontracttherooffallsin. Welosebonusesofupto!)/ofthe salaryandgetoverlookedfor promotion and new opportunities. $'()'(*)'! +ompiled by, -aira Anees $Problem 23cuses are not tolerated. 2ven a sudden currency change% the collapse of a country1s economy% social unrest% war and natural disasters are no e3cuse. People will move heaven and earth to achieve their numbers. But you have to wonder they are real. 0n other words% how much has been 4borrowed1 from future periods5 0t all amounts to a huge distortion of people1s behaviour and complete waste of time6$'()'(*)'! +ompiled by, -aira Anees !Major issues with traditional budgetsFi3ed fnancial targets in budgets limits feibilit! and acts as table of stone0t re7uire fnance personnel to spend too much time on relatively low value activities.oo heavy a reliance on the 8agreed8 budget has an adverse impact on management behaviour $'()'(*)'! +ompiled by, -aira Anees #Major issues with traditional budgets+ompliance to budget is not seen as compatible with a drive towards continuous improvement. .raditional budgeting processes have insu9cient e3ternal focus. Allocation of resources $'()'(*)'! +ompiled by, -aira Anees :"etting targets ;nder BB% targets are based on high level key performance indicators . .hese include return on capital% free cash ?ows or cost to income ratios. @oals are set to ma3imise short and medium term proft potential. #eported bene$ts% .he BBA. argues that this is much faster than budgeting. .he benchmarking bar is constantly raised to encourage ma3imum proft potential. $'()'(*)'! +ompiled by, -aira Anees "#ewarding peopleBB rewards team success based on relative performance% not f3ed annual targets. #eported bene$ts% .he best performers are recognised and rewarded% not ust the skilled budget negotiators. $'()'(*)'! +ompiled by, -aira Anees BAction planning BB devolved responsibility for strategy review to business units or front line teams. .hese are responsible for reviewing the medium term outlook annually and the short term outlook every 7uarter. #eported bene$ts% BB argues that this continuous and open process allows teams to create value. .hey can respond to changing demand and anticipate business threats and opportunities. $'()'(*)'! +ompiled by, -aira Anees CManaging resourcesBB make resources available to front line teams as and when re7uired. Dperational resources are managed by setting goals based on =P0s. #eported bene$ts% Aesource decisions are devolved to front line teams% making them more responsive. Eanagers are more accountableF there is greater ownership and less waste. $'()'(*)'! +ompiled by, -aira Anees ')Co-ordinating action BB +oGordination occurs through crossGcompany interaction. #eported bene$ts% Dperating capacity rises and falls according to demand. .here is less waste as fewer items are made for stock. .he organisation acts like an integrated unit.$'()'(*)'! +ompiled by, -aira Anees ''Measuring and controlling performance ;nder BB% e3ecutives and managers see the same information simultaneously. #eported bene$ts% .here is a greater focus on trends and forecasts. $'()'(*)'! +ompiled by, -aira Anees '*