Beyond Budgeting ARAY Julia NAUMOVA Anna Rogoza Olesya

Beyond Budgeting ARAY Julia NAUMOVA Anna Rogoza Olesya I. Baranov

Beyond budgeting is…. a positive idea that uses the abandonment of budgeting as a trigger for improving the entire management control process. Extract from the Foreword by Dr. Charles T. Homgren, Professor of Accounting, Stanford University.

So-called model Beyond Budgeting Model has been developed by the organization with same name Beyond Budgeting Roundtable, abbr. BBRT, based the Great Britain in 1998. It includes 60 companies from the Great Britain, the Europe and the USA.

The Beyond Budgeting Model is designed to: overcome traditional barriers create a flexible, adaptable organization That gives to local managers the selfconfidence and freedom to think differently, make decisions rapidly, and collaborate on innovative projects with colleagues in multifunctional teams both within company and across its borders.

Twelve principles of BB

The Beyond Budgeting Model is a new approach to budgeting, and also a holistic approach to strategy management, business planning, target setting, rolling and eventdriven forecasting, and businessperformance management based on financial and non-financial key performance indicators.

Traditional versus Beyond Budgeting

Traditional Budgeting Pro: • Part of control system • Fixed financial targets • Financial incentives • Annual plans- the best ways to max market opportunities • Leaders are the best placed in resource allocation Contra: • Budgets lack sufficient strategic orientation • Budgets ignore the turbulence of markets • Budgets lead to inappropriate (unethical) management behavior

Relations among different budgeting concepts Increasing radical changes Beyond Budgeting Advanced Budgeting Better Budgeting Traditional Budgeting Potential number of users

Beyond budgeting Pro: • • Contra: • Problems relating to its small circle of potential Faster response users Innovative strategies • The difficulty of managing Lower costs without budgets More loyal • Not justify the associated customers high costs • Fear of Change • The lack of empirical evidence concerning its use

References Robin Fraser, Jeremy Hope. Beyond Budgeting(Hardcover, 2003) Beyonв Budgeting: boon or boondoggle? , Robert C. Rickards Investment Management and Financial Innovations, Volume 3, Issue 2, 2006 62 Beyond Budgeting or Better Budgeting? , Bytheresalibby, Ca. and R. Murraylindsay, Strategic Finance, 2007 Beyond Budgeting: questions and answers, Jeremy Hope, Robin Fraser, 2001 www. bbrt. org

√ to base goals on the EXTERNAL performance indicators; √ to set HEIGHTENED goals To make planning a constant and overall process To coordinate actions according to the demand Constant adaptive process To provide an accessibility of the resources needed To coordinate reward with the RETROSPECTIVE evaluation To base control on the effective managerial principles and a set of the performance indicators

Svenska Hendelsbanken Deutsche Bank Southwest airlines Borealis Ahlsell Rhodia Toyota Volvo IKEA

goals key performance indicators in comparison with the market indicators • disposal of the influence of the uncontrollable input factors • measurement of the managerial improvements Managers: - reward is based on KPI; - more freedom in actions (and more responsibilities)

• Enterprise Resource Planning: fluent reaction to the demand (the center – operations, not departments & functions) • Forecasts: - are made according to the results of previous quarters - separated from the evaluation of efficiency and control - based on the moving average Internal reporting of Borealis Cost Current The same Cumulative Moving center month total for the average last year current year for 12 months % changes of the moving average for the last year