more on budgets

Hat tip to Thomas who pointed me to this article at accountingweb.

It's based on a talk at the 2006 CFO conference in London by Bjarte Bogens of Statoil, another Norwegian I might add.

As you need to register allow me to quote some of my favourite parts:

"I don't like budgeting and I don't like performance management either. I don't think you can manage performance. What you can do is create the environment and conditions for good performance to take place."

Statoil has dropped budgeting altogether as of 2006, and

"Svenska Handelsbanken abandoned traditional budgeting in the 1970s. The bank has consistently topped international tables for profitability. And it has done just as well at managing its costs without budgets. "That puts a hole in the budget myth," he told the audience."

Regarding performance goals he goes:

"Along with the total shareholder return, the ultimate measure of success for Statoil is how it compares with the competition. "Corporate performance is not absolute, but relative," he said. "It's about out-performing the opposition."

For example, he pointed out that Manchester United does not set out at the beginning of the season with a target to score 45 goals and achieve 39 points. It aims to top the league table. "We do that with return on capital employed. We have a league table of 11 oil companies and set targets of where we want to be on that table.""

So if you need some arguments for your next management meeting, go register and read the whole thing! Good stuff.

Comments

[Niko Nyman]

This is a bit of a ramble but here goes...

I just came from a seminar where the MD of SonyBMG Finland mentioned they're aiming to get 10% of their profits from online/digital sales in 2007. He constantly talked about the "budget".

Maybe a more accurate word would have been "target" or "estimate", but that semantic is what I find hard to swallow in this "budgeting is dead" talk. It leads to analogies like that football one above. It sounds like "if everybody loses ten million this year, we'll be just fine if we lose only nine million. We'll be the winners!"

It also sounds like we should just work as hard as we can, and then see afterwards if we did well or if we're dead. Of course that's not how it would work, in reality you would check real-time status on Thingamy and adjust constantly... ;)

In my one-man enterprise I couldn't do without estimates. I have an Excel sheet where i can see an approximation of how long I can slack and work on my artsy hobbies before I run out of money. If it looks like there's less than 3 months left, I scramble for any work I can get. Many people would call this budgeting. Maybe it isn't. But whatever it is, it's not "dead".

[sig]

Niko,

I like the football club analogy a lot - then add the actual game: You see the goal on the other side, you look for openings and free players to punt to, that's where your short-term / daily planning in excel comes in, it's a bit like a virtual-game-tester for "hmm, if I kick the ball to Peter over there, wonder what will happen".

Sounds though that you forget about the goal sometimes and slack off :D - fair enough and a gameplan good as any for the bigger game, life!

:)

[Niko]

Well, you're right (as often is the case ;). Playing each game as well as you can is the tactics. Keeping the league table in mind is the strategy. And thinking of the number of goals in the strategy is kind of silly. Right? ;)

[sig]

Yep, and you cannot score more than one goal at a time, and each goal is dependent on every little step.

Thus focus on "how many goals you shall score today" would be silly, while focus on every little step is what results in the goal.

A bit like Eric Fromm's book from the 70's "To have or to be" - focus and enjoy the process, let the result just come.

"Be" in the process instead of the craving to "have" which could be the biggest scourge in our (western?) society. More efficient it is too... :)

(Now we're stretching the budget theme a bit, but why the heck not :D)

[Earl Mardle]

While we are on football, somnetimes 1 is enough, other times 6 doesn't make it.

Strangely, if a team is up 3 goals with 20 minutes to play they often rest their star players, even while "there is money (goals) on the table" and give their bench a run and some time in the fray.

Its interesting actually, although goal differential can come into the calculation at the end of the season, not utterly humiliating your opponent's scoreline is also important.

Bizarre stuff social negotiation.

[sig]

Good point Earl, and one sees precisely that among the best in business too I think.

Do not push too hard, play with your counterpart, let him/her get out of a really bad situation without pie on his face etc.

Time to change sports now - pro cycling is a better metaphor when it comes to the individual give and take. We've seen Armstrong do it just before the finish line many times - give away the victory to somebody who deserves it. And in the peloton all knows that you help one day, you get help the next.

Try budget that! (Heh, a feeble effort to flip to topic :D)

[Earl Mardle]

In fact the ABC here in Australia is running his reading of "It Not About the Bike" and yesterday's episode was on the politics of the peloton.

There's another example in NASCAR racing where you cannot win without drafting and slingshotting but if you only draft you will get locked out.

The process of negotiating relationships at 200 mph when any miscommunication can kill you and all you have to signal with is 2000 kilos of race car, is very instructive.

Maybe we need to oput more managers in racecars, or on racing bikes, at least whiel they are out there keeping their hide intact they aren't getting in the way of the actual business.

[Annerose]

These comments have been invaluable to me as is this whole site. I thank you for your comment.