Term paper

Of

Performance management.

Topic: prepare a model for performance

management and controlling for 21st century.

Submitted to: submitted

by:

Ms. Jaschetan deep kour simranmeet

kour

Roll no. RT 1903 B44

Class : MBA 3rd sem.

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 Acknowledgement:

The odyssey of making this term paper was fantastic. To start my

acknowledgement I would first like to thank GOD who has been my
biggest strength throughout my life. I also take this opportunity to thank
my parents for their guiding support always.

I also take this opportunity to thank my teacher Ms. Jaschetandeep kaur

for her every time support and help. She has been ma guiding star
throughout the process and also helped me whenever a doubt lerked in
the back of my mind. Thank you for giving me a topic that helped me to
gain more knowledge.

My acknowledgement would be incomplete without thanking my friends

and roommates for their all time support and help, they have given me in
spite of their own term papers.

At last I would like to extent my heartiest thanks to the Lovely

Professional University. I am proud to be a small part of India’s largest
University.

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 Contents:
1) Introduction:

1.1 performance management.

1.2 Controlling.

2) Performance management and control process.

3) Performance management and control problem in oil industry.

4) Model for the performance management and controlling for 21st century.

5) Conclusion

6) References.

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 Introduction:

Performance management:

Performance management (PM) includes activities to ensure that goals are consistently being
met in an effective and efficient manner. Performance management can focus on the
performance of an organization, a department, employee, or even the processes to build a
product or service, as well as many other areas.

There are many ways and methods to measure employee performance but one of the most
effective ways is using automated tools. The following are the advantages for using an
automated performance management systems:

 Automation of Processes: Organizations can improve their

HR Reporting and analytics with the automation of their performance measurement process.
It also saves time and money.
 Goal clarity and alignment: Everyone in the organization is clearly aware about the
common organizational goals and objectives. Once the goals are clearly defined, everyone
works for the growth of the organization.
 Remote Workers (out of office operations): Technological advancements have lead to the
growth of alternate working arrangements. With an EPM, employees working out of offices
can coordinate their efforts with their managers.
 Flexibility and customization: The employee performance management solutions can be
customized according to the needs of the organization.
 Competency management: Every organization has some competencies around which
their business operations revolve. An efficient and effective employee performance
measurement solution ensures that the competencies are managed well.
 Talent management ( retention and growth): Employee performance management is an
important factor for Talent Management. It helps identify known competencies, develop
succession plans, notice talent gaps and establish compensation scales based on employee
assessment.

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This is used most often in the workplace, can apply wherever people interact — schools,
churches, community meetings, sports teams, health setting, governmental agencies, and even
political settings - anywhere in the world people interact with their environments to produce
desired effects. Armstrong and Baron (1998) defined it as a “strategic and integrated approach to
increasing the effectiveness of organizations by improving the performance of the people who
work in them and by developing the capabilities of teams and individual contributors.”

It may be possible to get all employees to reconcile personal goals with organizational goals and
increase productivity and profitability of an organization using this process. It can be applied by
organizations or a single department or section inside an organization, as well as an individual
person. The performance process is appropriately named the self-propelled performance process
(SPPP)

First, a commitment analysis must be done where a job mission statement is drawn up for each
job. The job mission statement is a job definition in terms of purpose, customers, product and
scope. The aim with this analysis is to determine the continuous key objectives and performance
standards for each job position.

Following the commitment analysis is the work analysis of a particular job in terms of the
reporting structure and job description. If a job description is not available, then a systems
analysis can be done to draw up a job description. The aim with this analysis is to determine the
continuous critical objectives and performance standards for each job.

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Organizational development:

In organizational development (OD), performance can be thought of as Actual Results vs

Desired Results. Any discrepancy, where Actual is less than Desired, could constitute the
performance improvement zone. Performance management and improvement can be thought of
as a cycle:

1. Performance planning where goals and objectives are established

2. Performance coaching where a manager intervenes to give feedback and adjust
performance
3. Performance appraisal where individual performance is formally documented
and feedback delivered

A performance problem is any gap between Desired Results and Actual Results. Performance
improvement is any effort targeted at closing the gap between Actual Results and Desired
Results. Other organizational development definitions are slightly different. The U.S. Office of

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Personnel Management (OPM) indicates that Performance Management consists of a system or
process whereby:

1. Work is planned and expectations are set

2. Performance of work is monitored
3. Staff ability to perform is developed and enhanced
4. Performance is rated or measured and the ratings summarized
5. Top performance is rewarded

Benefits:

Managing employee or system performance facilitates the effective delivery of strategic and
operational goals. There is a clear and immediate correlation between using performance
management programs or software and improved business and organizational results.

For employee performance management, using integrated software, rather than a spreadsheet
based recording system, may deliver a significant return on investment through a range of direct
and indirect sales benefits, operational efficiency benefits and by unlocking the latent potential in
every employees work day (i.e. the time they spend not actually doing their job). Benefits may
include:

Direct financial gain

 Grow sales
 Reduce costs
 Stop project overruns
 Aligns the organization directly behind the CEO's goals
 Decreases the time it takes to create strategic or operational changes by communicating
the changes through a new set of goals

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Motivated workforce

 Optimizes incentive plans to specific goals for over achievement, not just business as
usual
 Improves employee engagement because everyone understands how they are directly
contributing to the organisations high level goals
 Create transparency in achievement of goals
 High confidence in bonus payment process
 Professional development programs are better aligned directly to achieving business level
goals

Improved management control

 Flexible, responsive to management needs

 Displays data relationships
 Helps audit / comply with legislative requirements
 Simplifies communication of strategic goals scenario planning
 Provides well documented and communicated process documentation

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 Controlling:

According to Henri Fayol,

Control of an undertaking consists of seeing that everything is being carried out in accordance
with the plan which has been adopted, the orders which have been given, and the principles
which have been laid down. Its object is to point out mistakes in order that they may be rectified
and prevented from recurring.

According to EFL Breach,

Control is checking current performance against pre-determined standards contained in the plans,
with a view to ensure adequate progress and satisfactory performance.

According to Harold Koontz,

Controlling is the measurement and correction of performance in order to make sure that
enterprise objectives and the plans devised to attain them are accomplished.

According to Stafford Beer,

Management is the profession of control.

In 1916, Henri Fayol formulated one of the first definitions of control as it pertains to
management:

Control consists of verifying whether everything occurs in conformity with the plan adopted, the
instructions issued, and principles established. It object(s) to point out weaknesses and errors in
order to rectify [them] and prevent recurrence.

Robert J. Mockler presented a more comprehensive definition of managerial control:

Management control can be defined as a systematic effort by business management to compare

performance to predetermined standards, plans, or objectives in order to determine whether
performance is in line with these standards and presumably in order to take any remedial action
required to see that human and other corporate resources are being used in the most effective and
efficient way possible in achieving corporate objectives.[2]

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Also control can be defined as "that function of the system that adjusts operations as needed to
achieve the plan, or to maintain variations from system objectives within allowable limits". The
control subsystem functions in close harmony with the operating system. The degree to which
they interact depends on the nature of the operating system and its objectives. Stability concerns
a system's ability to maintain a pattern of output without wide fluctuations. Rapidity of response
pertains to the speed with which a system can correct variations and return to expected output. [3]

A political election can illustrate the concept of control and the importance of feedback. Each
party organizes a campaign to get its candidate selected and outlines a plan to inform the public
about both the candidate's credentials and the party's platform. As the election nears, opinion
polls furnish feedback about the effectiveness of the campaign and about each candidate's
chances to win. Depending on the nature of this feedback, certain adjustments in strategy and/or
tactics can be made in an attempt to achieve the desired result.

From these definitions it can be stated that there is close link between planning and controlling.
Planning is a process by which an organisation's objectives and the methods to achieve the
objectives are established, and controlling is a process which measures and directs the actual
performance against the planned objectives of the organisation. Thus, planning and control are
often referred to as siamese twins of management.

Characteristics of control:

 Control is a continuous process

 Control is a management process
 Control is embedded in each level of organizational hierarchy
 Control is forward looking
 Control is closely linked with planning
 Control is a tool for achieving organizational activities

The elements of control:

The four basic elements in a control system — (1) the characteristic or condition to be
controlled, (2) the sensor, (3) the comparator , and (4) the activator — occur in the same
sequence and maintain a consistent relationship to each other in every system.

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The first element is the characteristic or condition of the operating system which is to be
measured. We select a specific characteristic because a correlation exists between it and how
the sytem is performing. The characteristic may be the output of the system during any stage of
processing or it may be a condition that has resulted from the output of the system. For example,
it may be the heat energy produced by the furnace or the temperature in the room which has
changed because of the heat generated by the furnace. In an elementary school system, the hours
a teacher works or the gain in knowledge demonstrated by the students on a national examination
are examples of characteristics that may be selected for measurement, or control. The second
element of control, the sensor, is a means for measuring the characteristic or condition. The
control subsystem must be designed to include a sensory device or method of measurement. In a
home heating system this device would be the thermostat, and in a quality-control system this
measurement might be performed by a visual inspection of the product.

The third element of control, the comparator, determines the need for correction by comparing
what is occurring with what has been planned. Some deviation from plan is usual and expected,
but when variations are beyond those considered acceptable, corrective action is required. It is
often possible to identify trends in performance and to take action before an unacceptable
variation from the norm occurs. This sort of preventative action indicates that good control is
being achieved.

The fourth element of control, the activator, is the corrective action taken to return the system to
expected output. The actual person, device, or method used to direct corrective inputs into the
operating system may take a variety of forms. It may be a hydraulic controller positioned by a
solenoid or electric motor in response to an electronic error signal, an employee directed to
rework the parts that failed to pass quality inspection, or a school principal who decides to buy
additional books to provide for an increased number of students. As long as a plan is performed
within allowable limits, corrective action is not necessary; this seldom occurs in practice,
however.

Information is the medium of control, because the flow of sensory data and later the flow of
corrective information allow a characteristic or condition of the system to be controlled. To
illustrate how information flow facilitates control, let us review the elements of control in the
context of information.

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Relationship between the elements of control and information

Controlled Characteristic or. Condition The primary requirement of a control system is that it
maintain the level and kind of output necessary to achieve the system's objectives. It is usually
impractical to control every feature and condition associated with the system's output. Therefore,
the choice of the controlled item (and appropriate information about it) is extremely important.
There should be a direct correlation between the controlled item and the system's operation. In
other words, control of the selected characteristic should have a direct relationship to the goal or
objective of the system.

Sensor

After the characteristic is sensed, or measured, information pertinent to control is fed back.
Exactly what information needs to be transmitted and also the language that will best facilitate
the communication process and reduce the possibility of distortion in transmission must be
carefully considered. Information that is to be compared with the standard, or plan, should be
expressed in the same terms or language as in the original plan to facilitate decision making.
Using machine methods (computers) may require extensive translation of the information. Since
optimal languages for computation and for human review are not always the same, the relative
ease of translation may be a significant factor in selecting the units of measurement or the
language unit in the sensing element.

In many instances, the measurement may be sampled rather than providing a complete and
continuous feedback of information about the operation. A sampling procedure suggests
measuring some segment or portion of the operation that will represent the total.[2]

Comparison with Standard

In a social system, the norms of acceptable behavior become the standard against which so-
called deviant behavior may be judged. Regulations and laws provide a more formal collection
of information for society. Social norms change, but very slowly. In contrast, the standards
outlined by a formal law can be changed from one day to the next through revision,
discontinuation, or replacement by another. Information about deviant behavior becomes the
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basis for controlling social activity. Output information is compared with the standard or norm
and significant deviations are noted. In an industrial example, frequency distribution (a
tabulation of the number of times a given characteristic occurs within the sample of products
being checked) may be used to show the average quality, the spread, and the comparison of
output with a standard.

If there is a significant and uncorrectable difference between output and plan, the system is "out
of control." This means that the objectives of the system are not feasible in relation to the
capabilities of the present design. Either the objectives must be reevaluated or the system
redesigned to add new capacity or capability. For example, the traffic in drugs has been
increasing in some cities at an alarming rate. The citizens must decide whether to revise the
police system so as to regain control, or whether to modify the law to reflect a different norm of
acceptable behavior.

Implementer

The activator unit responds to the information received from the comparator and initiates
corrective action. If the system is a machine-to-machine system, the corrective inputs (decision
rules) are designed into the network. When the control relates to a man-to-machine or man-to-
man system, however, the individual(s) in charge must evaluate (1) the accuracy of the feedback
information, (2) the significance of the variation, and (3) what corrective inputs will restore the
system to a reasonable degree of stability. Once the decision has been made to direct new inputs
into the system, the actual process may be relatively easy. A small amount of energy can change
the operation of jet airplanes, automatic steel mills, and hydroelectric power plants. The pilot
presses a button, and the landing gear of the airplane goes up or down; the operator of a steel mill
pushes a lever, and a ribbon of white-hot steel races through the plant; a worker at a control
board directs the flow of electrical energy throughout a regional network of stations and
substations. It takes but a small amount of control energy to release or stop large quantities of
input.

The comparator may be located far from the operating system, although at least some of the
elements must be in close proximity to operations. For example, the measurement (the sensory
element) is usually at the point of operations. The measurement information can be transmitted
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to a distant point for comparison with the standard (comparator), and when deviations occur, the
correcting input can be released from the distant point. However, the input (activator) will be
located at the operating system. This ability to control from afar means that aircraft can be flown
by remote control, dangerous manufacturing processes can be operated from a safe distance, and
national organizations can be directed from centralized headquarters.

Process of controlling

 Setting performance standards.

 Measurement of actual performance.
 Comparing actual performance with standards.
 Analysing deviations.
 Correcting deviations.

Process of controlling.

Performance management and controlling:

Performance Management and Control Systems
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• The most extensively implemented performance management and control practices are “control
activities” and “performance reporting”, with approximately two-thirds of organizations having
implemented both to a moderate or great degree.
• The least frequently implemented practices are “planning”, “risk management”, and “control
assessment”, with slightly in excess of one-fifth of organizations having completed only a
minimal or some degree of implementation of each of these practices.
The most widely implemented specific practices in all categories, with at least 50 percentof
organizations implementing them to a moderate or great extent, are the following:
(a) Planning—financial planning, operational planning, and strategic planning;
(b) Control Activities—comparing actual and targeted results, authorizing expenditures,
protecting systems integrity, segregating duties, and reconciling expenditures;
(c) Performance Evaluation—evaluating operational performance; and
(d) Performance Reporting—reporting to management, reporting of board of directors, and
reporting to regulators.

Performance Management and Control Problem of Oil Industry

Performance management and control is one of the key functional areas of management. This
activity is essential for the proper and systematic working of businesses across verticals.
Performance management calls for reviewing and assessing the status of various key
performance parameters in the organization on a continuous basis. The main idea is to see that
targets have been set accurately and results achieved are in line with them. Performance
management is followed by controlling the deviations and finally correcting them. However
before performance management can be initiated one needs to choose the performance
parameters first. A lot of research and application in needed in determining these parameters
which tend to vary from industry to industry.

Specific Criteria for Oil Industry. Oil Industry has a number of parameters against which
performance has to be measured and controlled. Measuring performance, both internally and
externally, is critical for the well being of the organization and its stakeholders. Performance
management is a difficult task but it is what lets companies control costs, assets and processes.

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As far as oil industry is concerned it is worth noting that the industry has seen some important
fundamental changes over time. Increasingly larger oil companies because of the economies of
operation, introduction of cost cutting, increasing demands, discovery of new reserves and rising
costs etc have all put pressure on their performance. Another important problem experienced by
oil industry is its distributed nature which makes it extremely difficult to bring in consistency in
operations.

Key Challenges. Major hurdles in performance management and control of oil industries are
factors such as size of the industry, time span of the projects, distributed operations across
geographies, consolidations happening in the industry and contradictory views of the experts.

Oil companies are generally big entities operating on large scales and on projects which have
long completion periods. As a result huge costs are involved and there is a possibility that the
current project is highlighted and the broader company objectives are shadowed. Moreover, oil
companies operate across the globe wherever they find adequate resources. Though
diversification has its own advantages, it can pose coordination and alignment problems between
local and central managements leading to a disruption in the management and control of
performances. Another problem is posed by an ever increasing number of consolidations
happening in the industry. Every time a merger or acquisition happens companies have to work
towards aligning their plans, strategies and operations to suit the new entity. It can pose various
problems if not managed properly. Also, the very nature of the industry is technical and complex.
As a result it has seen the rise of many experts who have differing views regarding risks and o
ppo

rtunities in the industry. All these make effective management and control a huge task that has
myriad challenges.

There are several performance parameters specific to the oil industry against which the
performance can be judged and controlled. These include exploration success rates, finding and
development costs, O&M spending, energy intensity, fatalities, gross refining margins, spills,
properties held for exploration etc. Though these indicators can provide a significant measure of

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performance, they are not exhaustive in nature. Many other intricate parameters may be involved
that based on specific operations of a company.

Therefore, the very nature of oil industry is a hindrance in performance management control in
oil industry. It is a complex task but can be achieved to a great extent by identifying and setting
up several performance indicators.

Model for performance management and controlling

for 21st century

.Beyond Budgeting: A Model for Performance Management and

Controlling in the 21st Century?

To overcome all these problems related to performance management and controlling, the
following model is being formulated

How much sense does the budgeting effort make if budgets are already out-of-date after a
few weeks?
Traditional budgeting as an instrument of corporate management is increasingly seen as an
obstacle to progress by managers. Typical statements are “too complex”, “takes too long”, “too
inflexible, we cannot adapt quickly enough to the market”, “does not motivate you to set yourself
ambitious targets”, or even “the budget is the bane of corporate America” (Jack Welsh, General
Electric), and “the budget is a tool of repression” (Bob Lutz, Chrysler). But controllers also
complain “a lot of effort, no-one is really interested in it”, “we mould the figures long enough
until we are in agreement internally but that does not help us much on the market” – and the list
goes on.

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In contrast to that, the time managers and controllers spend creating the budget is enormous.
According to a study by Hacket Benchmark, enterprises spend on average 25,000 person days on
planning and performance measurement per US$ 1 billion turnover. According to another study
(by KPMG) the budgeting process takes up 20-30 percent of managers’ and controllers’ time.
Consultants at Horvath & Partner in Germany estimate that controllers use at least 50 percent of
their capacities for planning and budgeting. At the same time, budgets are quickly losing their
relevance today and are outdated by reality, which makes them appear even more questionable.
While the budget as the central element of the corporate management system until now, above all
focuses managers and controllers on keeping budget targets and limits that were agreed once, in
today’s dynamic economic environment increasingly the opposite is expected of companies. By
adapting operational plans and measures, managers and their companies should be able to react
quickly to market changes.

Traditional budgeting has had its day – companies need new tools today
The highly dynamic environment for companies will continue to increase. Today’s knowledge
and service-oriented economy results in a dominating role for soft success factors, for intangible
assets, and thus increases not only the dynamics on the macro level but also creates new
challenges for companies internally: Company activities become more complex and internal
dynamics also increase. If you consider that budgeting emerged as a management instrument in
the 1920s of the last century, it becomes clear that there is a need for action. Compared with
companies 30, 40, or even 50 years ago, the task of today’s companies is no longer only to
produce and sell products. Nowadays, companies must no longer compete successfully in a
seller’s market but in a buyer’s market. To be successful and remain so, they must keep bringing
new products onto the market in shorter time intervals, form systematic long-term workable and
profitable relationships with customers and business partners, constantly develop the company’s
human capital, and keep the good employees, and not least satisfy the more demanding investors
with good financial results. Therefore, today they have to do very different things at the same
time: Develop the right products (in the long-term), form good relationships with customers,
employees, and business partners (medium-term), and operate profitably (short-term). This
increases the “trade-offs” in the business system and results in the increased need for regular

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internal reconciliations. At the same time, change dynamics are increasing in the environment
and force companies to balance their activities in shorter intervals with external developments.
The traditional corporate management instruments budgeting and monthly target/actual
comparison prove to be too inflexible and have therefore long since had their day as the only
basis of the management system.
The introduction of new management instruments such as the Balanced Scorecard (focus: better
internal coordination of strategic targets and their realization) and value based management
(focus: better orientation of the company to external expectations – here of the investors) has
created the framework for a more flexible performance management geared towards strategy and
the capital market. Though what is often missing is a transition to flexible operational planning
and measure management. The Beyond Budgeting model wants to fill exactly this gap. As a
result, the planning and management process should be simplified and become more flexible, the
effort should be reduced at the same time. Beyond Budgeting, partly taken very far as “managing
and controlling without budgets”, opens new possibilities for strategic enterprise management
with the transition to flexible resource allocation.
Svenska Handelsbanken – A company that has been managed for over 30 years without
budgets
Is it at all possible – managing without budgets? Svenska Handelsbanken, a Swedish bank with
branches all over Northern Europe and in Great Britain, has shown that it is possible. They have
had no budgets, no absolute targets, and no fixed plans since 1970. Nevertheless, it is one of the
most successful banks in Europe and has outperformed all Scandinavian competitors with regard
to the important performance measures such as return-on-equity, cost-to-income ratio and
customer satisfaction – and this consistently over 30 years. Svenska Handelsbanken wrote in
their annual report 2001 “It is possible to combine the highest profitability in the banking sector
with the most published in the German newsletter: “Controlling & Finance, July 2002 issue

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This is achieved by every employee constantly examining all costs, and the loss of receivables
outstanding are extremely low since credit decisions are only made on the spot where they know
the customers.
You can probably guess from the description that the enterprise management system at Svenska
Handelsbanken works in a completely different way to how it typically is in many companies
today: At the bank, controlling is not done by the controllers but by the managers and employees
on the spot. More than 50% of Handelsbanken staff has some form of lending authority. The
business responsibility is decentralized to a great extent in the branches that are managed as
profit centers. The targets for the profit centers are defined relatively, as relative targets to the
market. Performance measurement takes place using benchmarking with the competitors. Profit
center managers have free access (within certain agreed performance parameters based on the
cost-to-income ratio) to resources ad-hoc when they are needed. Internal service areas must
“sell” their services competitively to the operational units, there is no “political” pricing.
Therefore, the focus at Svenska Handelsbanken is on the market or beating the competitor, and
producing the necessary flexibility for this - not on meeting a budget agreed on in the past. Of
course there is also a central controlling department at Svenska Handelsbanken, but its task is
only to monitor the portfolio of the branches regarding a few performance indicators. If a branch
exceeds the defined acceptable bandwidth of variation of certain KPIs, the branch is informed
and they are offered support with analysis and measure planning. But the branch still makes the
decision about the measures.
Two elements are of considerable importance that create the prerequisite for the high level of
freedom of operational managers and employees: The management culture in the company and
the availability of a cleverly devised information system as the basis for performance
management processes. This system determines the total performance of the branches on the
basis of a few KPIs and makes this information available to all managers at the same time. In
addition, customer behavior is recorded and analyzed in detail and customer profitability is
monitored regularly. As a result, it is always possible for every manager to make a direct
comparison with colleagues. The company uses this to encourage sporting, internal competition
with performance league tables.

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The Beyond Budgeting concept – the principles
In addition to Svenska Handelsbanken, which is the most extensive example, the Beyond
Budgeting Round Table (BBRT) of the Consortium for Advanced Manufacturing International
(CAM-I) founded in 1998 in London, has analyzed 13 other companies that operate completely
or almost without budgets. The results are the 12 Beyond Budgeting principles that not only
describe performance management and controlling processes that support a management concept
“Beyond Budgeting” but also the required new leadership principles:
The Leadership Principles:
1. Creation of a performance management climate that measures success against the competition
and not against an internally focused budget
2. Motivation through challenges and transferring responsibility within clearly defined enterprise
values
3. Delegation of responsibility to operational managers, who can make decisions themselves
4. Empowerment of operational managers by giving them the means to act independently (access
to resources)
5. Organization based on customer-oriented teams, who are responsible for satisfied and
profitable customers
6. Creation of a single “truth” in the organization with open and transparent information systems

The Performance Management Principles:

7. The target setting process is based on the agreement of external benchmarks
8. The motivation and reward process is based on the success of the team compared to the
competition
9. Strategy and action planning is delegated to operational managers and takes place
continuously
10. The resource utilization process is based on direct local access to resources (within agreed
parameters)
11. The coordination process coordinates the use of resources on the basis of internal markets
12. The measurement and controlling process provides quick and open performance information
for multilevel control

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Therefore, 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. The new leadership principles should unlock the full
potential of managers and employees in order to enable the organization to react in an
appropriate way and as quickly as possible to new chances and risks in the market environment.
The CAM-I BBRT also calls this “devolution”. Adaptive management processes are not based
on fixed targets and resource plans like under the budgeting model. Instead, they enable an
organization for a high degree of flexibility (see diagram 1).
Is Beyond Budgeting practicable?
Thus, the CAM-I BBRT Beyond Budgeting Model goes much further than a pure controlling
perspective, it is much more a management concept. Rolling forecasts, flexible operational plans,
continuous performance monitoring are the controller’s tools to support this. Thus, Beyond
Budgeting presents a radical approach, the implementation of which requires the commitment
and backing of the whole management team. If you want to be successful, the project team must
be made up of

Diagram 1: The CAM-I BBRT Mission

Not every company is able and prepared to get such a project under way. Therefore, at my last
meeting with CAM-I BBRT it was conceded that there could also be a possible interim step that
presents a more evolutionary approach and is the responsibility of controlling: “Better
Budgeting” or “Advanced Budgeting”. The objectives of Better Budgeting are more efficient
controlling processes, speeding up planning and (still existing) budgeting or operational planning
processes, and the transition to rolling processes in comparison to a one-off annual budgeting
action. Already as a result, the adaptability of the company would clearly increase, as internal
reconciliation and a comparison with external market developments would take place regularly.
The whole organization is then always “on track” and managers and controllers must not
familiarize themselves with the planning task again when the new annual planning is on the
agenda. The following measures or improvements are possible to support Better Budgeting:

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- Reduction of the level of detail of planning / level of detail dependent on the planning area and
the situation

- Continuous rolling forecasting instead of only annual planning

- Rolling strategic planning that can lead also to mid-year strategic plan adjustments if required

- Non-financial performance measures (output-oriented) flow into the operational plan / budget,
which are geared to relative (external) targets

- Changes in the operational business or of strategic targets lead to mid-year plan/budget

adjustments

- All operative areas are taken into account, as a result trade-offs within a company’s business
system, such as between short term profit targets and long term innovation objectives, become
transparent early enough in order to be managed actively

- Clear top-down targets, but decentralized, operational planning

- Use of software-based planning and performance management systems

Conclusion

Most organizations have implemented various performance management and control

practices, with control activities and performance reporting having been implemented to the
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greatest extent. On the other hand, control monitoring, control assessment, and risk
management may still be in the process of being implementing in some organizations.
Enterprise systems, particularly the integrated master data and advanced reporting features,
have played key roles in these implementations. Nonetheless, organizations have experienced
technical, financial/resource, and managerial/cultural challenges, most notably the lack of
coordination among existing systems and the high cost of consultants. On a positive note,
many organizations have achieved, or could potentially achieve, various operational,
strategic, governance-related, and behavioral benefits, with operational benefits being the
most prevalent benefits. Many organizations appear to have successfully overcome their
challenges and are already reaping benefits, while others remain optimistic regarding
potential future benefits.

References:

1. Daniels, Aubrey (4th edition, July 2004). Performance Management: Changing

Behavior that Drives Organizational Effectiveness.

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 2. A Handbook for Measuring Employee Performance, by the US Office of
Personnel Management.
3. Henri Fayol (1949). General and Industrial Management. New York: Pitman
Publishing. pp. 107–109. OCLC 825227.
4. Robert J. Mockler (1970). Readings in Management Control. New York: Appleton-
Century-Crofts. pp. 14–17. ISBN 0390644390 9780390644398. OCLC 115076.
5. Richard Arvid Johnson (1976). Management, systems, and society : an introduction.
Pacific Palisades, Calif.: Goodyear Pub. Co.. pp. 148–142. ISBN 0876205406
9780876205402. OCLC 2299496.
6. Samuel Eilon (1979). Management control. Boston, Mass.: Harvard Business School
Press. ISBN 0080224822 : 9780080224824 0080224814
9780080224817. OCLC 4193519.

Websites:

 http://en.wikipedia.org/wiki/Performance_management.

 http://en.wikipedia.org/wiki/Control_(management).

 http://www.strategy2act.com/solutions/performance-management-and-
control-problem-of-oil-industry.htm.
 http://www.juergendaum.de/articles/beyond_budgeting.en.pdf.

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