Going Beyond Budgeting? Then read this!
Most finance professionals can agree that budget season is not their favourite time of the year and while alternatives exist most companies are still using traditional budgets for their planning and management operating model. It’s kind of a paradox because when no one likes to do something or like when a company’s products are not in demand then typically over time better alternatives will take their place. Yet, with budgeting, this still hasn’t happened. In my mind, the best alternative is going beyond budgeting which I have written about in several articles previously, however, few companies have been truly successful transitioning to beyond budgeting and I think I know why. Hence, to make a real push for companies to take the leap and be successful let’s discuss the issues with beyond budgeting based on my own experiences.
Here’s how it went when I took a company Beyond Budgeting
Back in 2010, it was decided that Maersk should go Beyond Budgeting which meant that I was given the task of taking Maersk Drilling down that road during 2011. It was a very interesting project that involved a lot of senior management exposure which was great for me in my early career. The project seemed somewhat straightforward despite touching upon a completely new management operating model. Find a way for the company to do rolling forecasts, target setting and resource allocation in a new way aligned with the principles of Beyond Budgeting. Here’s what we came up with.
- Rolling forecasts: Quarterly forecasts with a five-quarterly outlook where we asked our entities for a bottom-up forecast of a bit more than 10 accounts.
- Target setting: Based on the Q3 forecast which contained the first full view of the next year we would discuss how this was aligned with our strategic ambitions and adjust if necessary.
- Resource allocation: As we were dealing with large assets in the form of drilling rigs there would be two project accounts that contained significant projects that wouldn’t be capitalized. Essentially, here’s where resources needed to be allocated and as the development on the two accounts was not too dynamic we could do with a quarterly update and allocation of resources as part of the rolling forecast process.
This might seem very simple and no big deal, however, it meant a substantial change for our operating managers as in the past they would do budgeting on a very detailed level and now they would only update a few accounts every quarter. It left them with little control over every subaccount i.e. when the drilling rig had spent some mo