Archive for May, 2010

Beyond Budgeting

31/05/2010

Staying true to my Personal Kanban, I am obliged to blog about all books I read. Fortunately it will be a pleasure to blog about this book I have been reading lately.

Beyond Budgeting is all about the negative impacts of budgets and how several organizations have flourished without them. Getting rid of budgets, that’s a drastic change, and clearly no serious organizations would ever dream of doing that, you might be thinking now. However, the best example from the book is probably the Swedish bank, Handelsbanken, which have been doing very well without budgets for more than 30 years. Furthermore, I have worked for an organization without budgets myself.

There are several drawbacks with budgets:

  • Cost – They cost a lot, many organizations might spend up to 6 months every year on creating budgets for the following year. There might be far better ways to spend your accountants’ time.
  • Politics and bureaucracy – Budgets can make people lose focus, and a lot of time might be spent playing political games and fighting bureaucracy.
  • Lost opportunities – Your budget targets might say you have to increase revenue by 10%. Well, that might force you to work hard, however, it might also distract you from grabbing an opportunity to increase revenue by 50%.

Removing budgets would typically allow you to empower your frontline workers, make information more visible to everyone, defer decisions until a more responsible moment (no more planning 1 year ahead), reduce waste and utilize your accountants’ competence in a much better way as well as grab more opportunities as they come along. This all is clearly music to lean and agile ears.

If you want to know more about how to move on beyond budgeting, I would highly recommend reading the book. It contains several case studies from different organizations that have replaced budgets successfully in more or less similar ways.

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