Going Beyond Budgeting? Then Read This!

Going Beyond Budgeting? Then Read This!

Going beyond budgeting as experienced by Anders Liu-Lindberg.

Most finance professionals can agree that budget season is not their favourite time of the year and while alternatives exist most companies are still using traditional budgets for their planning and management operating model. It’s kind of a paradox because when no one likes to do something or like when a company’s products are not in demand then typically over time better alternatives will take their place. Yet, with budgeting, this still hasn’t happened. In my mind, the best alternative is going beyond budgeting which I have written about in several articles previously, however, few companies have been truly successful transitioning to beyond budgeting and I think I know why. Hence, to make a real push for companies to take the leap and be successful let’s discuss the issues with beyond budgeting based on my own experiences.

Here’s how it went when I took a company Beyond Budgeting

Back in 2010, it was decided that Maersk should go Beyond Budgeting which meant that I was given the task of taking Maersk Drilling down that road during 2011. It was a very interesting project that involved a lot of senior management exposure which was great for me in my early career. The project seemed somewhat straightforward despite touching upon a completely new management operating model. Find a way for the company to do rolling forecasts, target setting and resource allocation in a new way aligned with the principles of Beyond Budgeting. Here’s what we came up with.

  • Rolling forecasts: Quarterly forecasts with a five-quarterly outlook where we asked our entities for a bottom-up forecast of a bit more than 10 accounts.
  • Target setting: Based on the Q3 forecast which contained the first full view of the next year we would discuss how this was aligned with our strategic ambitions and adjust if necessary.
  • Resource allocation: As we were dealing with large assets in the form of drilling rigs there would be two project accounts that contained significant projects that wouldn’t be capitalized. Essentially, here’s where resources needed to be allocated and as the development on the two accounts was not too dynamic we could do with a quarterly update and allocation of resources as part of the rolling forecast process.

This might seem very simple and no big deal, however, it meant a substantial change for our operating managers as in the past they would do budgeting on a very detailed level and now they would only update a few accounts every quarter. It left them with little control over every subaccount i.e. when the drilling rig had spent some money on paint or pipes the operating manager couldn’t really say whether that was appropriate. Before they knew exactly how much was budgeted for on every single account. I think we can agree that command and control is an outdated management model yet this is where the implementation project failed and I think this is where many of these implementations fail. We didn’t plan and prepare for the cultural change needed for this to happen!

It’s not just a process it’s a culture and mindset paradigm shift

Most implementations of new ways of working typically only plan for the new process or system to be implemented but don’t tackle the people that have to operate it. That was also the case for our Beyond Budgeting implementation. We did not provide any meaningful support to the operation managers for changing their way of working. That meant that they continued to work in the old ways and got frustrated because they had let go of a lot of control and had no visibility to have the right discussions with the crew on the rigs for how to spend money. It wasn’t just the operation managers that needed support though. So did the finance managers who had not been part of the project. They were the ones who should act as change agents with the operation managers yet had no real support to do so. All in all, we changed a process but didn’t manage to change the way the company operated. That meant that the push to go Beyond Budgeting failed and nothing really changed.

There’s a lesson in this for all companies looking for a new planning and management operating model be it Beyond Budgeting or something else. Implementing the process is easy but creating a real change is really hard. Especially if you don’t plan on doing some serious change management. In fact, I’d go so far as to argue that change management is the most important aspect of project management and is what will ultimately decide if you succeed or fail with your project.

What’s your take on this? Has your company gone Beyond Budgeting or tried a similar shift in management operating model? If so, what were the learnings? What do you think is the most important aspect of project management?

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