UPfront Hope abandons budgets

Budgets destroy shareholder value and should be abandoned. That was the message Beyond Budgeting advocate Jeremy Hope delivered to some senior executives in Wellington and Auckland last month.
Budgets, he said, are command and control tool designed in, and possibly suitable for, management’s dark ages. “They simply aren’t relevant in today’s world,” he told his audiences of mainly chief financial officers and general managers.
Hope is the research director of the Beyond Budgeting Round Table (BBRT), UK-based independent not-for-profit international research consortium set up in 1997 to champion alternatives to conventional budgeting. And he wants to see the BBRT get off the ground in New Zealand.
According to Hope, budgets destroy value because they:
* Straightjacket managers and prevent fast response.
* Are expensive to construct, absorbing up to 20 percent of manager’s time.
* Encourage dysfunctional behaviour by encouraging managers to do anything to meet the numbers.
* Are divorced from strategy, causing managers to focus on numbers rather than create customer and shareholder value.
And all that is required to quit budgeting is change of management mindset. “It’s like smoking. You just have to kick the habit,” he says.
Research suggests that between 80 and 90 percent of companies are dissatisfied with their planning and budgeting processes. recent survey of European financial directors ranked budgetary reform as their top priority.
Hope says the number of big name companies joining the ranks of his BBRT organisation is growing. His list of current members reads like list of blue chip global enterprises and includes companies like Unilever, Volvo, Ricoh, US brewer Coors, and Philips. “Companies like the Scandinavian Handelsbank abandoned budgets 30 years ago. They are Europe’s most successful bank, and have been so for more than 20 years,” he says. “Now the World Bank, UBS and Deutsche Bank are among the financial institutions embracing the concept of Beyond Budgeting.”
The budgeting process “assumes managers can predict and control” their way to the future, says Hope. In the past it “provided rational and coherent approach to managing performance when market conditions were relatively stable, capital was the primary constraint on growth and improvement, strategy and product lifecycles were lengthy, and the management behaviour required was one of compliance with plans and procedures”.
In today’s competitive climate budgets are no longer effective, he adds.
Wellington-based consultancy Waymark Solutions brought Hope to New Zealand to spread the Beyond Budgeting gospel. Waymark CEO David Parmenter is looking to set up local chapter of BBRT. His email contact address is [email protected]

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