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Accountability relative to an annual budget submitted to the board vs rolling budgets

Can you speak to the accountability relative to an annual budget submitted to the board vs the idea of rolling budgets and/or changes to the budget during the year?


Jeff Taylor
Title: CFO
Company: Communications Co.
(CFO, Communications Co.) |

Rolling plans are forecasts. There is only one budget. Unless, in unusual circumstances (e.g. a tsunami just took out our mfg plant), you actually do a re-budget.

As you can imagine, the executive team is entirely accountable for the budget it put on the table during the budget cycle. If you fall short, it's on you. If you exceed, it's on you (and congrats). Rolling forecasts are how you keep your team and your board informed of how things are going as they are happening and you are executing.

You will always be held accountable for those original numbers. Even if you buy a company, for reporting purposes you would pull that out via pro formas so that the board can see apples to apples vs. the budget. So i don't know whether it's good or bad for you and your team, but you own it.

Does that get at what you were after, or did i misunderstand?

Steve Player
Title: Program Director
Company: Beyond Budgeting Round Table
(Program Director, Beyond Budgeting Round Table) |

As stated above, for many in finance, the annual budget submitted to and approved by the Board is what "you own." But this traditional budgeting game is why many companies have broken finance functions that minimize results rather than optimize outcomes. Under this type of system "prudent" managers work hard to make sure that they never sign up for any more than they can safely deliver. With everyone focused on setting minimal expectations, the corporate planning department goes through multiple rounds of budgeting negotiations (rework) to finally get to the minimum acceptable budget target. As Jack Welch states "What a waste!" (see his comments in the two books Winning and Jack: Straight from the Gut).
Even worse, all of these budgets must be based on assumptions about the economy, key commodity prices, competitor actions and reactions, and a hundred other things. In today's volatile world, why should management teams rely on a system that requires you to predict the future when it is impossible to do?
This is why organizations are abandoning budgets in favor of rolling forecasts (see cover story article "Let It Roll" in CFO magazine's May 2011 issue). As members of the Beyond Budgeting Round Table have learned, you want to shift accountability to what is actually delivered (where as traditional budgeting systems reward the best budget negotiators rather than best performers).
Beyond Budgeting companies shift their focus to achiving the 3-5 year targets identified in their strategic plan. They measure accountability by measuring progress toward those strategic goals but progress is judged on a relative basis - relative to their internal peers, their competition, and ultimately to world class best practices. The targets stay based on the strategic plan. Rolling forecasts are then used to project the progress and direction of improvement.

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