Budgets Should Be Geared for Rapid Response

Article excerpt

Byline: By Hugh Coombs

Businesses thrive when they can respond with speed to unexpected events, writes Hugh Coombs, Professor of Accounting at the University of Glamorgan Business School. So why, he asks, are we letting old-fashioned budgeting practices slow us down?

THE essence of entrepreneurship is the ability to react quickly and positively to a given situation.

And this is an ability which should not only be confined to the individual entrepreneur but to managers within an organisation.

The speed of competitive change shows no sign of slowing down, yet many businesses use budgetary processes locked in the past. The question raised then is whether the processes associated with traditional budgeting are relevant to the needs of today's businesses?

Budgets prepared under these methods add little value to business processes since they are based on control and potentially limit the ability to react quickly to events, confining the competitive response. By their nature they focus on past events.

The alternative is a budget model that creates and fosters a performance climate. The 'beyond budgeting' model empowers managers as drivers to improve performance and achieve positive results. Managers are accountable for results and, under this system, are unable to blame the budget process for failure. A culture of entrepreneurship is thus encouraged further down the decision chain.

Growth in knowledge-based companies requires new budgetary methods if they are to succeed as competitive advantage is even more quickly eroded.

Today's business environment is increasingly complex, filled with uncertainty and dynamic. …