Beyond Budgeting - The Adaptive And Agile Management Model

Written by in Practices
- 6 min read

Beyond Budgeting has now been around for twenty years. More and more companies across the world are embarking on a Beyond Budgeting journey, from global giants to smaller ones not yet strangled by corporate controls and bureaucracy, eager to protect their start-up agility as they grow.

The financial crisis ten years ago was a stark reminder for many that businesses need something more agile and responsive than what traditional management can offer, including budgeting – a management technology invented a hundred years ago under very different circumstances.

Lately, after years of trying to scale Agile, “Business Agility“ has (finally) become a hot topic. Beyond Budgeting has been on this end of agility all the way back when Agile was only a software development thing.

Beyond Budgeting principles

The consulting businesses became interested many years ago. Some of the big firms are even active in the Beyond Budgeting Roundtable. I have always welcomed these guys to the community. We need them, just like we need academia and business schools on-board (which is also happening).

We need them, however, to come on board with a full and broad understanding of what Beyond Budgeting is. Those of you familiar with the concept, which we also call “the adaptive management model”, will know that it is about much more than budgets, as expressed in the twelve Beyond Budgeting principles:

Leadership principles

1. Purpose

Engage and inspire people around bold and noble causes; not around short-term financial targets.

2. Values

Govern through shared values and sound judgement; not through detailed rules and regulations.

3. Transparency

Make information open for self-regulation, innovation, learning and control; don't restrict it.

4. Organization 

Cultivate a strong sense of belonging and organise around accountable teams; avoid hierarchical control and bureaucracy.

5. Autonomy

Trust people with freedom to act; don't punish everyone if someone should abuse it.

6. Customers

Connect everyone's work with customer needs; avoid conflicts of interest.

Management processes

7. Rhythm

Organise management processes dynamically around business rhythms and events; not around calendar year only.

8. Targets

Set directional, ambitious and relative goals; avoid fixed and cascaded targets.

9. Plans and forecasts

Make planning and forecasting lean and unbiased processes; not rigid and political exercises.

10. Resource allocation

Foster a cost conscious mind-set and make resources available as needed; not through detailed annual budget allocations.

11. Performance evaluation

Evaluate performance holistically and with peer feedback for learning and development; not based on measurement only and not for rewards only.

12. Rewards

Reward shared success against competition; not against fixed performance contracts.

An almost overwhelming model

Some find the model very comprehensive, almost overwhelming, given the way it addresses almost all issues that need to be on the C-suite agenda, from leadership to management processes. For the consulting business, this breadth of Beyond Budgeting represents a problem.

They are typically called in to help organisations with more specific problems. Their projects are seldom about radically changing whole organisations, especially if that involves challenging fundamental executive beliefs.

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The Rolling Forecasting Trap

Some consultants have therefore tried to “carve out” elements of Beyond Budgeting as a starting point for their clients. The classic example is “Rolling Forecasting”, where forecasts are updated typically every quarter and typically with a five-quarter rolling horizon.

Actually, Beyond Budgeting does not specifically speak about Rolling Forecasting. Principle 7 and 9 recommend a dynamic, lean and unbiased forecasting process. Rolling Forecasting is one way, but not the only way.

I might, by the way, be wrong, but I believe Borealis was one of the first companies implementing such a forecasting process when we kicked out the budget back in 1995, before there was anything called Beyond Budgeting. At least, we had not heard of anyone else doing this. Fortunately, we avoided the trap described below.

Conflicting purposes

Rolling Forecasting is a tempting place to start. Not scary, not challenging any executive beliefs, and something Finance is naturally in charge of. Unfortunately, it too often becomes a dead end, or at least a detour many find it hard to return from.

The simple reason is that the budget has three different purposes:

1. Target setting – what we want to happen

The budget works as a target for production, sales, profit etc., often coupled with bonuses.

2. Forecasting - what we think will happen

The budget should provide insights into, for instance, next year’s expected cash flows and financial capacity.

3. Resource allocation - what it takes to make it happen

The budget hands out bags of money to the organisation, both opex and on capex.

This financial kinder-egg might seem very effective. Three purposes fulfilled in one process and in one set of numbers. But herein lies also the problem; the three do not go well together. How can an ambitious sales target also represent expected revenues? How unbiased is a cost forecast that is also a line manager’s only shot at getting access to resources for next year?

The problem with implementing Rolling Forecasting on its own is that it leaves an important question open; how will the two other budget purposes be solved? When I as ask this question to companies who are about to start in this “easy” way, I typically get one of these answers:

  • The Rolling Forecast will be used for target setting and resource allocation.
  • We will still make annual budgets only for these two purposes.

The first answer means that the company is implementing nothing but a rolling budget process. Four budgets a year. Much more work, and a lot of pissed off people.

The second answer implies less work, but also means that beyond the “forecasting against the December wall” problem, none of the many other budget problems are solved.

Separate the processes

These conflicting purposes can only be solved by separating the three into different processes, allowing for different numbers. The separation opens up for exciting improvement opportunities within each process.

To make a long story short, separating the budget purposes can’t be a sequential process. It must all happen in parallel. When Rolling Forecasting is introduced, Finance must at the same time provide clear and credible answers on how targets setting and resource allocation now will be solved, separately from the forecast.

If a Rolling Forecast becomes something to “deliver on”, or an application for resources, failure is just around the corner. We have unfortunately seen this happen too many times. The consultants do not carry all the blame. Finance is often just as guilty. After reading this post, you have no excuse for falling into the same trap!

Bjarte Bogsnes has a long international career, both in Finance and HR. He is currently heading up the implementation of Beyond Budgeting at Equinor (formerly Statoil), Scandinavia’s largest company. Bjarte is Chairman of Beyond Budgeting Roundtable (BBRT) and the author of “Implementing Beyond Budgeting – Unlocking the Performance Potential“, where he writes about his twenty years long Beyond Budgeting journey.

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Replies (5)

Jane Pightling

Jane Pightling

Thanks Bjerre. This is so timely as the NHS Trust I am working with has been discussing this approach and how it could support moves towards a self-managing system. Great to read your thoughts.

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Thanks, and best wishes for your journey. Let me know if I can help in any way

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Jenny Schäpper-Uster

Jenny Schäpper-Uster

Thanks for the post. Touches on something we were just discussing as a team.

| | 0 | Flag
Alejandro Ouziel

Alejandro Ouziel

Great article, will be getting your e-book. Rolling forecasts should aim to provide information fast across the organization to achieve that very much sought agility, this requires people to give more of a gut feel based on their knowledge and insight that requires little time and unnecessary use of resources. Unfortunately the lack of a clear purpose and muddled values (as defined in your points 1 and 2), far too often drive a fear of failure and a refocus on the short-term that ultimately makes it inevitable.

| | 0 | Flag
Beyond Budgeting – The Adaptiv

Beyond Budgeting – The Adaptiv

[…] Beyond Budgeting is a powerful Agile management model for budgets. The Corporate Rebels give you the low-down: […]

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