Agile Planning with the Beyond Budgeting Method

The idea for agile planning arose in response to the ever more rapidly changing environment. The still common practice of a fixed budget, as usually prepared in the fall of each calendar year for the coming calendar year, fails to recognize the volatility of opportunities and risks. It even results in opportunities and risks not even being perceived. Managers and employees are caught up in the mission to meet their budget. This creates the risk that they actually fail to pick up on opportunities that are within reach, and are exposed to risks without protection.

Example: A good example is a perception test that was conducted in the USA with many test persons. The spectators are asked to count the number of passes performed by a basketball team wearing a white jersey. To their surprise, there are two balls in play. Nevertheless, many spectators answer the question correctly. What they have not noticed is a black “moonwalking bear” walking through the picture and even waving both arms at the spectators. The example vividly shows that our perception completely ignores other aspects for a given mission. This is a well-known phenomenon that also occurs in business.

Executives often see the future as a continuation of the past. This is another reason why they largely ignore new things. Instead, they sometimes frantically try to do what their company is doing even more efficiently in the future. If these same executives were thinking together about a new business, they would consider very different possibilities. They would also be much freer to identify opportunities and risks and prepare accordingly.

The remedy can be an open-ended approach to the future. In concrete terms, this means dispensing with budgeting and introducing rolling planning instead. Because budgeting is dispensed with, this alternative approach is called “Beyond Budgeting”. Rolling planning has the advantage that new information can and should be used at any moment to adjust the planning. Whereas budgeting in practice is always about absorbing deviations through countermeasures, rolling planning is about making the best decisions at each point in time – without being tied to what has gone before. This completely different approach encourages agile action. It also encourages free thinking and free decision making at every point in the organization at every moment. This makes the Beyond Budgeting method superior to the classic budgeting routine, especially in changing markets and times. In changing markets, budgets are merely an illusion of control. They get in the way of agile adaptation and are therefore more of a hindrance than a benefit. Rolling planning with a higher level of detail in the respective current month, for which the framework conditions are already largely known, is much more suitable. Beyond budgeting should be underpinned by a foresight dialog in order to keep the business close to market developments at all times.

However, agile planning also contradicts fixed objectives. This is because the objectives can also change with changes in planning. Relative goals are appropriate, i.e. goals in comparison to other companies in the industry, such as an “above-average yield for the industry”, as well as goals that are sufficiently general, such as a “flexibilization of contracts” or a “professional qualification” or a “contribution to collaboration”. Set goals that your customers would set, that your customers are interested in meeting. These are not the contribution margins that your customers are sure to grant you, but aspects such as innovative ability and design competence, but also the ability to deliver and a top service. Customers are meaningful.

A beyond budgeting approach can develop the full benefit when the way of working in the company is agilely aligned. Agile working in projects can be supported by Scrum. Becoming agile is necessary for continuous adaptability. This requires completely different leadership qualities than top-down leadership according to the principles of order and obedience. Agile work needs “the license to experiment”, the testing of hypotheses. Experiments differ from project work in what is expected of them: The outcome of experiments does not necessarily have to be a marketable product or a working process. The expectation is a gain in knowledge, and that will be had in any case. Experimentation increases the adaptability of organizations.

The success of a beyond budgeting approach can also be supported by intensive intra- and inter-organizational networking. This is because networking creates opportunities. Through communicative exchange, ideas are honed until they become marketable.

Beyond Budgeting also suggests staying flexible and adaptable with products. A modular design can help adapt to changes in needs.

A Beyond Budgeting planning approach also suggests a suitable organization that supports agile action. Depending on the market, business area and business model, a process-oriented form of organization, a project organization or even a fractal organizational structure may be suitable.


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