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I would like to have a brief explanation of beyond budgeting, what is it ? Is it a model ? What are the benefits? Can it be examined as question requiring calculations or purely written.
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Got slight idea over this.
Beyond Budgeting is a modern style of budgeting aimed to reduce time over budgeting and maximising potential. So instead of making lengthy budgets and giving a target that later becomes the aim of the manager of that department/division, the aim is to make similar depts compete.
So managers basically have a division or department that they are competing with and their progress/ results is expected to match the benchmark division/ department. The benefit is that it creates competition and people look to maximise potential rather than achieving a number.
The absence of a similar division can result in a comparison or benchmarking against a similar division of another company or competitor.
I would still like to read more over it.
What sohall says is correct.
Traditionally managers performance is measured against a budget. However the budget is never going to end up being accurate and in some ways the comparison is meaningless.
Just one tiny example – in ordinary budgeting, you may budget for a certain sales volume. However a huge factor often is the state of the economy, and this is impossible to forecast. If the economy turns out to do really well, and as a result sales are higher than budget, is it really ‘fair’ to reward the manager when it was not really due to him? (And similarly if the economy collapses next year, it is not really ‘fair’ to blame the sales manager for selling less than budget)
Beyond Budgeting suggests that it would be much more sensible to compare the manager with other similar managers – whether in the same company or in other similar companies.
The previous examiner wrote a good article on it – you can download it from the ACCA website. Also there have been couple of questions on it and the examiners answers are good to read (see the pilot paper for one of them).
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