7 Things to Know About Going “Beyond Budgeting”

Money. It seems like nothing gets off the ground without it. In business, budgets are the traditional way of ensuring the right work gets financial funding. But over the years the Beyond Budgeting movement has made it much clearer that businesses need to rethink budgeting: how work – projects and products alike – get funding, how leaders lead, how organizations continuously learn and improve, and more.

Nevine White and Mike De Luca are members of the North American Beyond Budgeting Round Table, and the duo shared with Agile Amped listeners some key takeaways about this movement and how business can – and should – get started.

1. “Business isn’t static,” so your budget can’t be either.

White: You’re constantly changing your business. Your business isn’t static, so your model can’t be static or you fall behind again. You’re constantly tweaking, adjusting, figuring out ways to do things better.

De Luca: We’re talking about moving to a planning, control, leadership and management that’s more effective at getting better results… We have to be really clear about where we’re replacing the budget with something more dynamic, more relevant for your organization and its markets, [and] that helps more effectively plan, control and support [your organization].

2. There is no out-of-the-box solution to your budgeting problems.

White: We had a pretty dramatic little event in our CFO’s office where he literally threw the budget in trash can and said, “I can’t work with this. Figure out a better way to do this.” I went to my desk and I Googled, “What do you do when you don’t do budgets?” And the [original] Beyond Budget book had just been published, so I bought it, read it and I was like, “Okay, some of this could probably work.” We came up with our own version of this – because you have to… It’s not a one-size-fits-all kind of thing. You have to figure out which of these principles really apply and which ones of them you may implement in a slightly different way.

3. “Executive sponsorship is crucial.”

White: Part of it is having some kind sponsorship within your organization. For me, it was tremendous helpful to have a CFO that was visionary enough to understand that – even though everything he’d ever learned in school, in his career, how he got to be a CFO – was all based around budgets, that was currently his biggest obstacle. You need to have somebody who’s willing to sponsor that out-of-the-box thinking.

I think this is very difficult to do as a grassroots effort, from within the finance organization, for example. I think you really need that executive sponsorship. At least, critical mass on the executive team to pull the organization on, because it does require your executives to be willing to give up some power.

De Luca: Executive sponsorship is critical. If you don’t have clarity and alignment at the executive level that you’re going to run the organization differently and that you’re modeling that behavior at the executive level, you’re going to be really challenged.

Lacking Active Executive Sponsorship?

Executive sponsorship and financial support are critical enablers of Agile transformation, specifically the organizational adaptability demonstrated through evolving continuous portfolio, budgeting, and planning approaches to be lean and responsive. In this webinar, the third installation in our Business Agility Webinar Series, Brent Barton and Mike De Luca dig into this important topic and provide actionable next steps.

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4. Empowering people means removing power from leadership and management and giving it to people who are closest to the problem.

White: Beyond Budgeting advocates that you push your decision-making process as close to the frontline as you can. Well, that does require people to be willing to let go, trust and be transparent about not just how they make decisions but also around how they look at people and processes. You need transparency throughout your organization to be able to this kind of thing. That’s a different mindset: when a lot of organizations have and, especially executives who have a long career and have done things a certain way the entire time, so it requires that willingness to be open, the willingness to really be sincere about a shift, and to challenge your cultural norms because they’re not all going to fit, and then yeah, there’s mindset shifts.

5. With empowerment comes accountability.

White: One of the biggest hurdles that I hit with our frontline management was everybody was always screaming, “I want to be empowered.” [Then, I was] like, “Okay, you’re empowered.” They’re like, “That comes with accountability, and now what?”

Just because you have the authority to make a decision, it doesn’t mean you have to make it in a vacuum. You’re still allowed to go talk to your boss. You can call me and we can chat about this. We can run models. We can figure this out. But yeah, you actually have to manage now; you have to do your job.

6. You can’t force change on people.

White: One of things, in this organization, that we were really not very strong at was change management… We learned this through some really ugly IT implementations… We had just hired somebody who was good at [change management], and so I brought him along, I said, “You need to help me with this” … This isn’t a finance thing. This is an organizational thing, and so you need that organizational support – that change management – which as a finance person I knew nothing about – to really to bring that skillset to the table of how do you get people to enroll in this. Because you can’t force this down somebody’s throat. It’s not going to stick, if you try to [force it].

7. Budgeting serves many purposes, so identifying which purposes it serves in your organization can be the first step to improving the involved processes. De Luca offers four purposes that budgeting serves: forecasting, setting targets, allocating resources and human effort, and controlling variance.

De Luca: One of the things that we’re doing with the budget is we’re trying to forecast: we look ahead, often, for a year. Sometimes maybe in some organizations, we’ll look forward more than a year, but we’re looking forward for a calendar year or a fiscal year and saying, “We think this is what’s going to happen.” Now, what we would do differently that really effectively serves the purpose of forecasting?

Another thing that a budget tries to do is to set targets. “We need to be this profitable next year, or we need to generate this much revenue, we need to have our costs be this low in order to be profitable…” We’re setting targets as well. What can we do now to help us effectively set targets?

We also need to be able to look at allocating both human capital as well as dollar capital whether it’s for a one-time capital purchase or on-going operations and maintenance and running of the business. “How much human capital do we need for this particular line of business, this particular project and we need to be able to do that?” Now, how are we going to do that in a really effective way that’s more dynamic, more adaptive, more real-time?

Finally, a budget tries to help us control. Now, we’re looking budget reports and saying, “What are our variances?” But is that the most constructive way to gauge how we’re doing as an organization? Are there other measures – even non-financial – that we can look at on a daily, weekly, monthly basis [and] that are much more tangible for people who are actually running the business to manage?…

As an organization, think about what’s the problem you’re trying to solve? What’s your business case for changing the way you think about financial planning and financial management? Once you’re clear on the problem that you’re trying to solve, that will help you [get started].


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