The model should embrace much more than just budgeting, it is more a philosophy of decentralization and a way of encouraging managers at all levels to become accountable for their performance without tying them to an annual budget straitjacket.
In addition, benefit from faster and more adaptive decision-making, reduced bureaucracy and lower costs. The companies became more competitive and customer satisfaction improved along with many of the company’s’ KPI’s (Key Performance Indicators).
Replace annual budgeting and centralized control systems with, multilevel controls that include effective governance,
- Fast financial actuals
- Trend analysis
- Rolling forecasts
- Key performance indicators (KPI)
- Performance ranking
- Management by exception
The budget process typically starts at least two months prior to the year-ending.
The forecast numbers are out of date before the budgeting round has finished. Even the numbers themselves are suspect. Having been agreed upon during countless negotiations, they are based more on politics than strategy.
A manager’s performance is often related to achieving targets set out in the annual budget, which inevitably leads to a conflict of interest. Managers will attempt to negotiate the lowest possible targets and avoid taking risks.
Without going into the whole management philosophy, the control systems clearly needed in today’s volatile world must be fast and flexible to be relevant.
Suresh Shah, Pathfinders Enterprise *********************************************************