When the market and the opportunities are changing at a high pace, mere budget-based performance management may reduce companies’ competitiveness. The solution lies in more agile and holistic management tools that go beyond budgeting.
Traditionally, the budget has been the basis of most companies’ performance management. But in today’s fast-changing world, it is becoming increasingly important for companies to be able to adjust to new changes in their environment. Already in the 1960s, budgeting was criticized for being time-consuming and not providing sufficient management information. The Swedish bank Svenska Handelsbanken started managing without a budget already in the 1970s and is today known as one of the early pioneers in this field.
In the last 10-15 years, many companies have followed in their footsteps to avoid that following a strict budget will prevent them from making the right decisions at all times. In Right People Group, we are facing an increasing demand for independent consultants and contractors that can help our clients improve their performance management in order to become more agile and flexible.
It is important to underscore that financial elements are in most contexts still vital in measuring performance, and that numerical and non-numerical measurements are supplementary means of performance measurement rather than substitutes.
Beyond Budgeting, rolling forecasts and balanced scorecard
Beyond Budgeting, rolling forecasts and balanced scorecard are among the management models which have received the most attention. These models are to a large extent based on the companies’ goals and overall strategies. One of the challenges with these models is therefore to translate the company’s goals and strategy into key performance indicators (KPIs) which are used to measure the progression of the company. These KPIs provide the management with faster feedback and better predictions of future results, and in this way a better basis for continuous change.
Beyond Budgeting is not about disregarding the budget completely, but about using leadership and management principles to create an agile and human organisation which is more reality-oriented. Economic control is ensured through KPIs or benchmarking, either internally or externally.
Rolling forecasts with shorter time frames
A rolling forecast is a realistic prediction of the future value creation. These forecasts are often estimated on a monthly or quarterly basis, and the shorter time horizon gives the management a better basis for decision making as their environment changes.
Balanced scorecards – a holistic approach to assessing success drivers
Already in the 1990s, balanced scorecard were introduced in the USA. This is a management model which also includes non-financial aspects of strategic importance to the company’s overall goals, for example quality, efficiency and customer satisfaction. In this way companies can improve their performance through focusing on the actual drivers of future success.
Does your company need help to improve your performance management?
We have several independent consultants in our network with strong competence and experience in performance management. Send an e-mail to [email protected] for a CV and an hourly rate for a management consultant that matches your exact needs.
