Beyond Budgeting: A new approach to budgeting and how xP&A Platforms can support it

Dynamic leaders are shifting away from traditional approaches to budgeting. Beyond Budgeting, an established alternative to traditional budgeting is continuously gaining traction among global leaders. Companies that have adopted this emerging approach report improvements across the board.

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What is Beyond Budgeting

Beyond Budgeting is a management approach that challenges the idea of using budgets as a primary means of planning and monitoring organizational performance. It proposes a set of principles and practices designed to empower organizations to become more agile, responsive, and resilient – an idea that is particularly attractive in a post-Covid economic environment.

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A core benefit of the Beyond Budgeting approach is that it resolves a longstanding issue – of three seemingly conflictual goals that traditional budgeting is unsuccessful in balancing:

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1. Target Setting

Target setting exists to motivate and communicate strategies to stakeholders. Beyond Budgeting sets directional, ambitious, and relative goals.

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2. Forecasting

Forecasting seeks to communicate an expectation of the future, which can only be accurate if they are unbiased and realistic. Beyond Budgeting aims to make forecasting lean using unbiased processes, disconnected from resource allocation and targets.

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3.Resource Allocation

Budgets establish guard-rails surrounding spending which drive stakeholder behaviors. Beyond Budgeting fosters a cost-conscious mindset and makes resources available as-needed, not constrained by annual budget allocations.

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By disconnecting from these traditional goals, Beyond Budgeting can empower businesses to operate more effectively across the board.

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The Beyond Budgeting movement has established 12 principles that define the approach. Key principles of the approach include:

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• Transparency and accountability
  • Organizations should be open and honest about performance. Stakeholders should receive a continuous flow of information to respond with agility and purpose.

• Decentralization and empowerment
  • Providing employees with the authority and autonomy to make decisions and take actions that are in the best interests of the business

• Continuous improvement and learning
  • Shifting away from fixed goals or targets, and instead redirecting focus to continuous improvement of processes, products, or services

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What is xP&A and how can it help

xP&A stands for "extended Planning and Analysis," and xP&A platforms are software tools that are used to help organizations manage and analyze their data. The link between Beyond Budgeting and xP&A is simple – one of the core principles of the approach is that information should be open (to allow for self-regulation, accountability, drive efficient processes, etc).

There are no prizes for guessing that SMART information is a necessity for a successful CFO and finance function. Organizations, broadly speaking, of all sizes suffer from reporting inconsistencies and inefficiencies. Country controllers customize their reporting, plant controllers customize their reporting, freight forecasters customize their reporting – the list goes on. Organizations which rely on the base reporting of their ERP system and excel face a monumental task as it relates to data integrity and distribution. Even ignoring the redundancy cost – the cost of under-utilized information is taxing.

This is where an xP&A platform can be useful, as these platforms are designed to provide a comprehensive view of an organization's data and help businesses make better data-driven decisions.

Comprehensive, in this context, means that the tools aim to consolidate financial and non-financial metrics holistically – they offer a platform that can intermingle financial data with non-financial data such as production, HRIS platforms, or other sources.

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A well-deployed xP&A Platform can offer the following benefits:

• A holistic view of the Company and its KPIs
• Single-source-of-truth for financial and non-financial information
• Accessible and distributable standardized reporting
• Readily accessible input-based forecasting and budgeting
• Ability to budget continuously and rapidly

These benefits enable organizations to be agile, foster innovation and accountability, and achieve true scale in a way that many organizations, large and small, struggle to attain.

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Additional benefits of certain xP&A platforms include the following capabilities:

• Consolidation tools
• Close management tools
• Analytics and automation tools
• Predictive (AI) capabilities

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In conclusion, xP&A platforms are powerful tools that can help organizations manage and analyze their data. Further, these platforms can be a catalyst for any organization seeking to shift to a more holistic, and increasingly effective, approach to budgeting.

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How Solaris Can Help

Solaris’ team of dedicated consultants have deep expertise in FP&A, management accounting, and project management. Our consultants are genuine business partners – their depth of expertise complements them as they work with both Finance and non-Finance stakeholders to achieve business goals.

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