BEYOND BUDGETING – REALLY?
René Baumann was once asked in an interview whether he has made any decisions in his life that he regretted. «My artist’s name, of course» was his answer. Chances are, that the reader doesn’t even know who René Baumann is, but DJ Bobo will be known to most.
When I listen to the Beyond Budgeting community, I regularly hear similar voices. Several insiders are not too happy with the name. In difference to DJ Bobo who was rather lucky with his choice of name – at least from a marketing perspective – the term «Beyond Budgeting» might even stand in the movements way.
Measured by Google searches, the interest in «Beyond Budgeting» has even declined over the past ten years. Really sad, as Beyond Budgeting is more relevant today than ever before.
At least Switzerland holds a third place, after Norway and Denmark.
A probable reason are Bjarte Bogsnes (Norway) and Franz Röösli (Switzerland). Two of the five «Core Team» members of the Beyond Budgeting Roundtable.
As attendee of the Lean, Agile & Scrum conference in Zürich this year, you already had the pleasure of experiencing Franz Röösli. Bjarte Bogsnes, head of the «Beyond Budgeting» institute, will come to Switzerland in September to give the keynote at the 6th Agile Unconference, but also to deliver a course on this topic.
Reason enough to say a few words about Beyond Budgeting and maybe try to explain why the name isn’t that bad after all.
WHY «BEYOND BUDGETING»?
Beyond Budgeting does not address budgeting exclusively. You even could say budgeting isn’t the main focus, despite the name. It is much more the «Command-and-Control» culture which utilizes tools like budgeting to control people top down, which is scrutinized.
Budgets as financial instruments mostly cost a lot of time, money, and effort but these days rarely deliver on their promise to make business more efficient. Not only does it increase an organization’s decision latency (which is extremely costly in today’s fast paced world), it also often leads to mindless and regulraly even absurd behaviours. The widespread phenomenon of military spending quickly comes to mind. Towards the end of the year the military regularly has their vehicles drive around without any purpose other than to burn fuel in order to exhaust the correlated budget and thus improve the chances that the budget isn’t reduced the following year.
My cousin (Swiss Army) just told me the other day that he has experienced similar behaviour when it comes to the ammunition budget. At the end of the year they go on what can not be described as anything else but a shooting frenzy where their semi automatic rifle barrels literally turn red from the extreme heat generated by continuously shooting to get rid of as much ammunition as possible.
From these and many other similar stories, we can deduce that Parkinson’s Law not only comes true for work and time, but also for cost and budgets. My version would thus be
Cost expands so as to fill the budget available for its completion
THE ENDLESS BUDGETS TWIST
The smart CFO might now say «Let me use that law to reduce cost» and cuts the budget every year no matter whether it was used up the previous year or not. However, Parkinson already knew that his law on doesn’t work that way and neither does our variant. You can not indefinitely reduce cost through limiting budgets. Just like a rubber band can be expanded it can be contracted again, but only till a certain point, its resting condition, and no further.
At some point, when continuously reducing budgets, pressure will develop and relief valves will have to open somewhere. Many employees have experienced a whole bouquet of these valves in their daily work. Overtime, quality abandonment, fraud and many other shortcuts which often aren’t compatible with our values and thus lead to stress and burnout.
In a bank, of of the biggest in Switzerland, we urgently needed more memory for our computers in order to even be able to work. Sadly enough, the hardware budget for that particular year was already exhausted. The software budget wasn’t, but we were not allowed to touch it. The result was that we developers had to go out and buy RAM out of our own pocket. That’s also a relief valve and an ludicrous one too, if you ask me.
BUDGETS HAVE BECOME TARGETS
The military budget stories above exemplify how budgets have become targets. Budgets are no longer just an upper limit to the resources made available to implement a project or run a department (resource allocation), they have also become a destination and as such also a forecast into what will happen in the future. Franz Röösli described this very well in his keynote (only available in German) at the LAS X this year.
I have experienced high project managers proclaiming their project being «on track» and as proof showing a graph which showed how the available funds had been burned down to the predicted level exactly.
In 2011 Ken and Jeff changed a few things in the Scrum Guide. A subtle but important change was the replacement of the term «commitment» with «forecast». The team no longer is said to commit for a certain amount of work but instead forecast how much they expect to be able to do in the upcoming sprint.
That is how budgets should be lived as well – but unfortunately, they are not.
BEYOND BUDGETING = BUSINESS AGILITY
«Budgeting» in the context of «Beyond Budgeting» is to be understood as the embodiment of all «Scientific Management» instruments, tools, and patterns of thinking. Scientific Management was presented by Frederic Winslow Taylor in 1911 in his same-named book. Till this day the Scientific Management doctrine is taught in most business schools and thus lived in most organizations. Besides the yearly budgets, there are many other instruments designed to direct and control employees like for instance KPIs, bonuses, steering committees, directives, and many more such tools.
So in a way we could also have called it «Beyond Scientific Management». Today, however, most of us would say «Business Agility» and mean the same. So whenever you hear Beyond Budgeting and fail to remember what it exactly stands for, think «Business Agility». Or, if you forget what «Business Agility» means, go and read up on «Beyond Budgeting»
Beyond Budgeting is not only questioning the value of classic management tools, it also provides some answers and alternatives.
Let’s stay with the budget for a moment.
As an alternative to classic yearly budgets «Beyond Budgeting» is suggesting a so-called «Rolling Forecasts», sometimes also called «Rolling Budget».
Similar to Jeff and Ken in 2011 the Beyond Budgeting masterminds realized long time ago that the perceived «commitment» needs to be dealt with. Budgets cannot be considered targets. Therefore the name change from «budget» to «forecast». The idea ist that one makes and updates a forecast regularly.
However, this is only part of the answer and it might actually be dangerous to do just this without understanding the full picture.
If not through a budget, how then are we allocating resources and defining cost constraints? If not through a budget, how then are we setting challenging targets? This excellent article «The Rolling Forecasting Trap» by Bjarte Bogsnes goes deeper in explaining exactly this.
The alternative to bonuses is … drum roll please … no bonuses. Tada! Or – if you are a big fan of bonuses – the same bonus for everybody dependent on how the company performs compared to its industry. The reasoning is that individual rewards often lead to non-collaborative behaviours. In a complex context this should be discouraged. At the same time people should not be rewarded against absolute goals but relative ones.
Svenska Handelsbanken has been doing exactly this for a long time and is outperforming their peers almost every year.
Maybe these «fair» bonuses are a reason for not seeing any «Beyond Budgeting» within the big banks of Switzerland?
If you want to learn more about «Beyond Budgeting» and the alternative tools it proposes, if you want to hear more about companies who are doing this already today and their successes (and challenges), then you should strongly consider coming to the Beyond Budgeting Training with Bjarte Bogsnes. Us from flowdays will even help running it this year and have added a few interactive exercises. Be curious!