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Summary
Purpose - Traditionally, budgeting is considered to be one of the most important management tools to steer the organisation, evaluate its performance and motivate its people. However, criticism of the budgeting process has increased considerably in the past decade. This paper aims to examine an alternative to budgeting known as "beyond budgeting", comparing it to traditional budgeting.
Design/methodology/approach - Examines some of the literature regarding budgeting and describes the beyond-budgeting entry scan, a tool which helps organisations to assess whether they are ready to start the powerful change process of abandoning the budget.
Findings - There are many possibilities, on the scale of traditional budgeting to beyond budgeting, to modernise the budgeting process. However, the beyond-budgeting model deserves serious consideration because it enables an organisation to look with a fresh view at its budgeting process, other planning processes, and organisational structure.
Originality/value - Each organisation should at least explore the benefits of introducing one or more beyond-budgeting principles. This is especially interesting because research has shown that the more beyond-budgeting principles an organisation implements, the better it performs.
Keywords Budgets, Behaviour
Paper type Research paper
Introducing beyond budgeting
The Beyond Budgeting Round Table (BBRT) consortium[1] has worked since 1998 on developing an alternative to the budgeting process. After conducting research at several organisations that fully or partly abandoned their budget, the BBRT developed a generic model that is based on 12 principles. In the "ideal' beyond-budgeting organisation, all 12 principles have been fully implemented. The first six principles concern creating a flexible organisational structure in which authority is devolved to employees. Principles seven to 12 deal with designing an adaptive management process for a flexible organisational structure. The 12 beyond-budgeting principles are described underneath (Hope and Fraser, 2003; de Waal et al., 2004).
Creating a flexible organisational structure (principles 1 through 6):
1. A self-governance framework. In the beyond-budgeting organisation the hierarchical organisational structure is subdivided into smaller, self-managing units. The traditional central control system with many rules and procedures is thus abandoned. Managers have the authority to run their unit as they see fit. The hierarchical structure is used only if decisions have to be taken that affect all units. Because the self-managing units are small, the organisational structure is less complicated...