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Security Management
home page > Unit 11: budgeting
Alternatives:
"Beyond
budgeting"
a performance management system created by Hope and Fraser, which gives budgeting decisions to the line managers, who are those most affected by budgets.
They point out that the traditional system emphasizes compliance and control, while modern companies must be flexible and innovative. "Only by overcoming the constraints of the traditional budgeting approach can managers build a business model that operates at high speed; is self-questioning, self-renewing, and self-controlling; and rewards innovation and learning."
Elements of the process:- eliminate annual budget cycle, because it limits long-term planning and is deterministic
- goal is to support self-governing business units
- give more responsibility and accountability top more business units to create value. "devolution."
- create autonomous profit centers. These will be able to continuously adjust their strategies and encourage team performance at various levels.
- Doing this requires training managers well, plus giving them freedom and responsibility to deliver results. (my emphasis)
- "Rolling
budgets"
review quarterly rather than just once a year.
Benefits:- helpful in planning, because you can work with "real-time" information
- can shift priorities more rapidly if external conditions change
- requires that managers be more
intimately involved in the process
- Multi-year budgeting
Benefits:- involves a 2-yr. or longer budget (up to 5).
- improves long-term planning and priority-setting.
- lets departments link long-term plans and priorities with budgets and decision making.
- reduces amount of time annually devoted to budgeting
Problems:
- lack flexibility
- makes forecasting difficult, especially in fast-changing times
- Balanced scorecard:
combines traditional accounting with non-financial measures in both long and short-term. "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."
4 measures for success:- financial factors
- customers (factors such as product image, service quality, cost
- internal factors (employee skills, productivity, quality
- learning and growth (can company change and be innovative?) -- this measures employee satisfaction.
Links performance to the company's overall mission: are these expenditures and efforts helping achieve it?
To learn more: "Better Budgets"