Believing that Beyond Budgeting is just about budgets is as wrong as believing that agile is just about software.
How do we define performance and how can we best enable the organization to deliver that performance? That's what Beyond Budgeting boils down to.
How do we define performance and how can we best enable the organization to deliver that performance? That's what Beyond Budgeting boils down to.
It addresses both leadership principles and management processes, and the importance of the coherence between the two.
Beyond Budgeting separates the budgeting purposes and solve them in three different processes because they are about different things. We can then let each process run on a rhythm much better suited to each purpose and to the kind of business we are in.
Target
An aspiration, what we want to happen. Difficult when there is a lot of uncertainty. You must make assumptions.
Beyond Budgeting separates the budgeting purposes and solve them in three different processes because they are about different things. We can then let each process run on a rhythm much better suited to each purpose and to the kind of business we are in.
Target
An aspiration, what we want to happen. Difficult when there is a lot of uncertainty. You must make assumptions.
It doesn't help to hit 12.7% if most competitors are delivering better. What we want is the best possible performance, given the circumstances.
A football team will not state that the ambition for the next season is to score 45 goals and reach 39 points. It is all about performing well against, and hopefully better than, the other teams.
Forecast
What we think will happen, whether we like what we see or not.
Forecast
What we think will happen, whether we like what we see or not.
The purpose is to support decision making. The further ahead we look in forecasting, the more uncertainty there is. We then need to forget precision and think more in terms of scenarios and ranges.
Sometimes we must also accept that we don't have a clue about what lies ahead. Focus on creating options and agility so that we can move fast when the fog clears.
Resource allocation
Optimization of scarce resources, what does it take to make it happen?
Resource allocation
Optimization of scarce resources, what does it take to make it happen?
We want to move from questions like "Do I have a budget for this?" towards "How much value will this create?" and "Can we afford this as things look today?".
Leave behind a myopic focus on low cost in favor of a more value-oriented thinking. There are both "good" and "bad" costs. Good costs create value, and bad costs don't. Spending is fine, wasting is not.
Separating target setting, forecasting and resource allocation should never be done sequentially. It must happen simultaneously.
How do we evaluate performance?
Performance evaluation must be holistic. Not everything that counts can be counted, and not everything that can be counted counts.
Separating target setting, forecasting and resource allocation should never be done sequentially. It must happen simultaneously.
How do we evaluate performance?
Performance evaluation must be holistic. Not everything that counts can be counted, and not everything that can be counted counts.
The "I" in KPI stands for "Indicator", not "Truth".
- How did we achieve our results?
- How ambitious were the targets?
- Was there a headwind or tailwind?
- Which risks were taken?
- How sustainable are the results?
These evaluation questions require more effort than comparing two numbers.
Hitting a target does not necessarily mean that this was the best performance possible because it assumes that the "right" target was set.
Beyond Budgeting is a journey where the direction is clearer than the destination, if there is one.
Changing what we do helps little unless we also change how we think. That is the hardest part.
"This is Beyond Budgeting" by Bjarte Bogsnes
