Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap

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Values: under this leadership principle, workers must govern through shared values and sound judgment. It discourages seeking values from detailed rules and regulations. In the public sector, the budget process inevitably has considerable influence on organisational processes, and represents the financial expression of policies resulting from politically motivated goals and objectives. Yet the reality of life for many public sector managers is an increased pressure to perform in a resource-constrained environment, while also being subjected to growing competition. In essence, a public sector budget: A viewpoint has emerged during recent years which challenges the traditional approach to the budgeting process that has operated in both private and public sector organisations since time immemorial. While there may be comfort in tradition, what is being proposed may be more relevant to the current business environment and the challenges that must be overcome by organisations facing increasing competitive pressures. Some of these ideas are revolutionary, particularly for the public sector, and indeed even for the private sector where tradition can provide a comfort blanket for managers in the increasingly demanding environment in which they operate. This comfort derives from the predictability of the traditional budgeting process. In this view of the world, the traditional budget is seen as the fixed plan in accordance with which all management processes are based and aligned. This determines how managers behave and the activities and objectives on which they focus. Annual budgeting is seen as absorbing considerable management time and the monthly comparisons of actual and budgeted performance are primarily concerned with control issues. Managers will not exceed their budgets by perhaps spending necessary resources outside the planned budget cycle to react to events because their bonuses or even their jobs may be put in jeopardy.

Budgets favour a rigid top-down control mechanism, often at the expense of the organisation’s potential.Starting with planning, the beyond budgeting relies on rolling budget. Flexible budgeting with a monthly or quarterly time frame. The target in each budget usually contains the sale volume and profit. Yes, the sale can increase by some aggressive strategy even it decrease the customers’ satisfaction. They think that low customer satisfaction will not impact immediately. They may move to a new company by the time it causes serious damage. As mentioned above, some businesses allow the managers of departments to make a traditional budget for their department which gives them more control over the budget than they should have.

Once both the revenues and expenses of a business are estimated, the profits of the business can be estimated. The business will subtract its estimated costs from its estimated revenues to calculate the profit. Autonomy: Under this principle, all organization members should be given freedom in how they want to act. This means that they should not be called out upon in the case where they try to do something differently. Modern organisations often depend upon teamwork, but traditional budgeting often rewards the manager to whom the team reports to. As mentioned above, businesses may allow departmental managers to prepare a budget for their respective departments. This allows the departments within a business to have greater control over their budgets, thus, promoting decentralization within the business.

The use of budgeting as a base for communicating corporate goals - setting objectives, continuous improvement etc - is seen as contrary to the original purpose of budgeting as a financial control mechanism. Since they focus on short-term financial rewards, it often makes it difficult to retain key metrics like shareholder value, and brand equity. It might not always be a feasible strategy in the long term.