Budgeting and forecasting when moving Beyond Budgeting

Following dissatisfaction with traditional budgeting, it has been suggested that organizations should abandon the budget. This discontent relates in particular to the inability to capture unpredictable environmental changes, the time required in budget negotiations, and the potential for incentivizing dysfunctional behaviour. However, rather than completely abandoning budgets, organizations generally attempt to improve budgeting by complementing budgets with the forward-looking properties of forecasts, relative performance evaluation tools such as internal and external benchmarks, and authority-delegating structures.

Even case studies of organizations claiming to have gone Beyond Budgeting showed that companies seem to preserve budget-like control elements as primary planning and control mechanisms. While budgets remain essential in most organizations, their interrelationships with other control elements may evolve when practitioners attempt to accommodate for their deficiencies.

Firms implementing Beyond Budgeting may reintroduce budgets. This may be more than a “failed” Beyond Budgeting implementation and studying companies that have experienced both situations can provide new insights into budgeting evolution. Consequently, we studied how budgets and forecasts were used in a Scandinavian bank, BankCorp that abandoned and reintroduced the corporate budget within a short period.

Despite its listing on the stock exchange and demands for predictable financial performance, BankCorp operated without a corporate budget for almost two years. Therefore, during our case study, we were interested in understanding how budgeting changed after the reintroduction. With the reintroduction of the corporate budget, the budgeting process had taken a new form in the bank. Realising the benefits of the forecasting model, forecasts were used to create the corporate budget, which was established using a macroeconomic projection and decoupled from the decentralized budgets. As a traditional budget, it was fixed for the calendar year and used to control costs. Meanwhile, the forecasting model continued to provide updated information each quarter within the fixed time horizon of the calendar year. It was also used to control revenues.