Knowledge Exchange

Manage Performance Better Without A Budgeting Process - Friday, December 05 2008

Summary of Talk by Mitchell Max. Shares Insights From the Beyond Budgeting Round Table
By Zayna A. Khayat, The Boston Consulting Group
"The budget is a relic from an earlier age. It is expensive, absorbs far too much time and adds little value", comments Mitch Max of the specialist management consultancy The Performax Group. At a recent SLF research briefing entitled "Slaying the Dragon: Managing Performance Better Without Budgets", Mitch Max shared stimulating research findings from the Beyond Budgeting Round Table, of which The Performax Group is an associate member.

Budgeting Controls Performance

Four fundamental processes underline the budgeting process that nearly all organizations endure annually:

Set strategic goals
Set business targets/allocate resources/make plans
Generate the budget
Control performance to keep results on track with the budget

The result? A performance contract that is fixed. Results are expected to be achieved within a fixed period (normally one year), with a pre-defined ceiling on revenues and floor on costs. Controls to ensure results are on track occur at predefined time points (i.e. monthly, quarterly). And rewards for performance are predetermined through a negotiation process with senior management. In all, more than a year in advance of executing on a plan, employees commit to saying ‘I will deliver X for someone else by a stated period of time, and will get Y in return’.

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