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Alternative Retirement Income Options in 2005
A very wise and good friend of mine told me once: "One good investment is worth a 'lifetime' of labor." After reading this article, the wisdom behind this statement will be clear to you. The big question we should all be asking ourselves is "how...
Basics About Writing A Business Plan
Just about every nine to fiver has dreamed of leaving the world of office politics or the factory floor behind and starting a business of his or her own.
There are many reasons why owning a business is such a common dream. For one thing, owning a...
DANCE ON YOUR BRAIN TONIGHT FOR A BETTER TOMORROW
Mark Twain once said, “You have to take your brain out and dance on it.” In other words, you need to give your mind some downtime tonight, if you want to have a more productive tomorrow. With that said are you a person who spends weekends and...
Leadership by Persuasion - Four Steps to Success
As a leader, your success depends upon your ability to get
things done: up, down and across all lines. To survive and
succeed, you must learn four essential skills of persuading
people. You must convince others to take action on your behalf
even...
Theodore Roosevelt, the Original Rough Rider
Weakness, struggle, fear, knowledge, growth, courage, leader
...
Theodore Roosevelt was one of the most remarkable men in the
history of the world. As a boy he wanted the boldness of his
father. As a child he wanted to be a naturalist, but...
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Beyond Budgeting: A New Approach to Annual Budgets
In their book, Beyond Budgeting, Jeremy Hope and Robin Fraser
highlight the inadequacy of traditional annual based budgeting
and argue passionately for a new management model that can cope
with the volatility of today's business environment. Their model
embraces 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.
Hope and Fraser analysed many companies of various types that
have abandoned traditional annual budgeting in favour of their
new model and found that management gained a new sense of
empowerment and a "can do" attitude. In addition, they benefited
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).
The new model replaces annual budgeting and centralized control
systems with multilevel controls that include effective
governance, fast financial actuals, trend analysis, rolling
forecasts, key performance indicators, performance ranking, and
management by exception.
Its probably no surprise that annual budgeting is expensive and
time consuming, but just how much time companies are spending on
the process and how useful are the results, should be of concern
to all senior executives. Hope and Fraser found that the budget
process typically starts at least four months prior to the year
to which it relates and grinds its way through countless
meetings where managers negotiate targets and resources. An
estimate of 20 to 30 percent of senior executives' and financial
managers' time is absorbed in the process, while the Ford Motor
Company concluded that they spend $1.2 billion per year on
forecasting and budgeting.
Quite apart from the cost, the
budgets this process produces are
often meaningless. 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, which is
covered in commendable detail in their book, the control systems
clearly needed in today's volatile world must be fast and
flexible to be relevant. In the companies that successfully
implemented their model, Hope and Fraser say: "All our case
examples use rolling forecasts in one form or another to provide
a fast, high-level view of future performance".
Our budgeting software product, Budget
Controller was design to do just that. We believe it's the
ideal tool to help managers move from the cumbersome traditional
budgeting process to one of fast rolling forecasts based on
business modelling techniques that can help mangers to
continually adapt their strategy in an unpredictable world.
For more information on budgeting and to purchase Jeremy Hope's
and Robin Fraser's excellent book, Beyond Budgeting, visit www.markitquest.com.
About the author:
Mark Ritsema is the founder of Markitquest, developers of the the
Controller Series; a set of Excel based financial modelling
software tools for business. Mark has over 20 years experience
in financial management, having worked in various industries as
Controller and Financial Director for companies both large and
small.
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