Beyond Budgeting – Are You Ready?

A growing number of organizations are moving away from the annual budgeting process and finding better ways to plan and control their resources.

Get the Best Practices Guide

Recently, I had the opportunity to attend the 2015 Beyond Budgeting Round Table Conference.  There, I heard case study presentations from a few organizations who have moved “beyond budgeting.”  They have successfully adopted rolling forecasts to create a continuous approach to planning and managing their resources.

As a result, most of them either eliminated the annual budget completely or revamped the annual budgeting process to make it less onerous and more useful.  How did they get there?

Evolution (vs. revolution) is clearly the preferred approach to moving beyond budgeting.

Beyond Budgeting Round Table Conference – 2015

The 14th Annual Beyond Budgeting Round Table (BBRT) Conference, held on June 17 – 19th in Austin, Texas, was attended by roughly 70 FP&A leaders and practitioners looking for help on how to improve the organizational budgeting and planning process.   The conference provided some useful insights.

BBRT Chair Steve Player kicked off the conference with an introductory briefing on the Beyond Budgeting concept and key principles.  The Beyond Budgeting movement started in 1997 with initial research & book by Jeremy Hope and Robin Fraser.  It was positioned as a way to rethink the entire performance management process and provide a better way to plan and control.

The movement received a big boost after the 2008 global financial crisis, which caused every company to toss out its annual budget and rethink how it planned and managed resources.

Since then, the Beyond Budgeting concept has steadily gained momentum, with increasing recognition in financial publications, such as CFO Magazine and the Journal of Accountancy.  In 1998, the Beyond Budgeting Round Table was formed as a community of practice, membership network, and extended community to evangelize the principles.  It now has two active communities in North America and  Europe.

Beyond Budgeting Principles

At the core of the BBRT is the recognition that running a business on an annual budget is flawed.  It’s a fixed performance contract that doesn’t adopt to changes in the economy or business.  The process drives bad behavior – including gaming and sandbagging by department managers.  Most organizations spend 80% of their time collecting and validating data and 20% doing value-added analysis. There’s something wrong with this picture.  The mix should be reversed.

Beyond Budgeting is driven by 12 principles that enable a more dynamic and agile approach to planning.  Here’s a breakdown of the most important principles:

  • Goals – set ambitious medium-term goals, not short-term fixed goals
  • Rewards – based on relative performance, not meeting fixed targets
  • Planning – continuous and inclusive, not top-down annual event
  • Coordination – dynamically, not through annual budget/planning cycle
  • Resources – make resources available as needed, not through annual allocations
  • Controls – fast, frequent feedback, not on budget variances

Revolution vs. Evolution

Organizations can take either a revolutionary or evolutionary approach to Beyond Budgeting. There were some cases documented in early BBRT research of success with the revolutionary approach.  In more recent BBRT research, though, the evolutionary approach is getting more traction.  This is especially true in North America, where they see more gradual adoption – starting with rolling forecasts.

At the BBRT Conference, attendees got to hear some of these examples, including detailed case studies delivered by MD Anderson Cancer Center, Ossur, Dimensional Fund Advisors, Stanford Health Care, and Southwest Airlines.

In the case of MD Anderson, since they are part of the University of Texas and state-run, they must submit budgets to the State of Texas.  However, they recognized that the annual budget process was outdated, rigid, disconnected, and encouraged sandbagging by managers.  Now, they drive the annual budget off a rolling forecast.  Targets move as conditions change.

At Stanford Health Care, they took an evolutionary approach to adopting the Beyond Budgeting principles by implementing quarterly rolling forecasts.  Then they eliminated the annual budget and revamped performance reporting across the organization.  They still, however, maintain a central committee to approve hiring requests.  They also maintain an annual capital budget.

Southwest Airlines, which has become the biggest and most profitable US airline, has adopted a more continual planning process.  Here’s what their process looks like:

  • Mid-term plan – which is more strategic, with business area plans and 5-year financial forecasts
  • Annual operating plan – master plan for portfolio, which refines the mid-term plan, and includes a bottoms-up forecast from all areas, with targets and management incentives
  • Quarterly budgets – which is really a rolling forecast and refinement of the annual plan, aligns to quarterly goals, and reflects changes in the business/economy
  • Weekly flash reporting

Key Takeaways and More Information

My takeaway from the conference was that the evolutionary approach makes sense.  Many companies have already embraced rolling forecasts in some fashion. This can be a great stepping stone to eliminating or reducing reliance on the annual budgeting process.  You cannot change organizational culture overnight. Thus, paying attention to change management is important.

Raise awareness of the problem.  Communicate your plans to change.  Involve everyone to get their buy-in.  Take a longer term view of the business and its intended direction.  Track and manage based on the right KPIs.  And at the heart of a smooth process?  Make sure you have the right technology in place to support a more dynamic planning process.


Latest Posts


Interviews, tips, guides, industry best practices, and news.

Get Started with Planful

  • LinkedIn
    How much time will you save?
  • LinkedIn
    How will your finance team evolve?
  • LinkedIn
    Where will technology support you?