Chapter 2 Performance management and control of the organisation,Ho Xin,Content,Traditional budget modelsBudgeting in not-for-profit organisationsBeyond budgeting,1. Strengths and weaknesses of alternative budget models,Incremental budgetingZBBRolling budgetsFlexible budgetsABB,1.3 The future of budgeting,80% of companies are dissatisfied with their planning and budgeting processes.Time consuming and costlyMajor barrier to responsiveness, flexibility and changeAdds little value given the amount of management time requiredRarely strategically focusedMakes people feel undervaluedReinforces department barriers rather than encouraging knowledge sharingBased on unsupported assumptions and guesswork as opposed to sound, well-constructed performance dataDevelopment and updated infrequentlySome companies have abandoned budgeting completely.,1.3 The future of budgeting,Ways to adapting planning and budgeting processesRolling forecastsSeparation of the forecasting process from the budget to increase speed and accuracy and reduce management timeFocus on the future rather than past performanceUse of the balanced scorecard,2. Budgeting in not-for-profit organisations,Public sector organisations2.1 The link between funding and achieving objectivesFunding tends to come direct from the government, not from those using the public service.Obtaining funds, or additional funds, can be a complex political process. There is not necessarily a link between providing more service and obtaining more funds.In fact, in much of the public sector, there is no link between success at achieving objectives and funding received. In some instances poor performance against non-financial objectives leads to higher levels of funding.,2.1 The link between funding and achieving objectives,The level of service provided, which effectively determines the funding, is a political decision.Public sector organisations have to provide the best service possible with the allocated funding.,2.2 Planning,Planning in the public sector is inhibited by the political system.Public sector organisations have limited control over the level of funding they received and the objectives they can achieve.,2.2.1 Budgeting in the public sector,In the public sector, the budget process inevitably has considerable influence on organisational processes, and represents the financial expression of policies resulting from politically motivated goals and objectives. Establishes the level of income and expenditureAuthorise that expenditure, once agreed, out of the planned incomeActs as a control on expenditure and incomeCommunicates policies and plansFocuses attention on the futureMotivates managers and staff,2.2.1 Budgeting in the public sector,Traditional methods of budgeting in the public sector centre on the bid system and incremental budgeting. Budgets in the public sector tend to concentrate on planning for one financial year ahead.,E.g.,A government objective may be to improve attendance in schools. A budget may be prepared with measureable objectives and would include funding forSchools to improve record keeping and follow up procedures.Social services to provide home visits.The local police authority to increase visible policing as a deterrent.,3. Evaluating the organisations move beyond budgeting,Basis of the argument (Hope & Fraser, 2003)Information ageIntellectual assetsBusiness environment is constantly changingBudgeting system is too rigidPlanning should be based on maximising valueTQM, business process re-engineering, decentralisation, balanced scorecard,3. Evaluating the organisations move beyond budgeting,Much if this debate revolves around whether traditional models can operate effectively in a changing environment.Recent surveys (Jurgen, 2002; Lyne, Dugdale, 2010)Article in March 2005 Student AccountantBenefits of beyond budgeting model3.2 Hope and Frasers weaknesses of traditional budgeting processes(2003)Little value and more management timeManagement behaviourContrastProtracted bargainingNot compatible with continuous improvementInsufficient external focus,Commitment and bureaucratic.Barriers between departmentsRestrict flexibilityTop-down control,3.1 Beyond budgeting,Is about releasing capable people from the chains of top-down performance contract and enabling them to use the knowledge resources of the organisation to satisfy customer profitably and consistently beat the competition.The BBRT is at the centre of a new movement that is searching for ways to build lean and adaptive organizations that can sustain superior competitive performance. the two fundamental elements of the Beyond Budgeting model are new leadership principles based on the principle of the empowerment of managers and employees, and new more adaptive management processes.,3.3 Beyond budgeting,Rolling, or perhaps monthly, budgets is an attempt to keep ahead of change or, strictly speaking, to be more in control of the response to the challenges facing the orginisaiton.The Beyond budgeting model in the private sectorThe Beyond budgeting model in the public sector,