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  • DOES SIL NEED BUDGETS?

    by

    DONALD P. BUHLER B.COMM., The University of Calgary, 1984

    CMA, The Society of Management Accountants of Alberta, 1990

    A MAJOR PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF

    MASTER OF ARTS IN LEADERSHIP

    in the

    SCHOOL OF GRADUATE STUDIES

    We accept this major project as conforming to the required standard

    ___________________________________________________ Kirk Kauffeldt, Faculty Advisor

    ___________________________________________________ Stan Remple, Program Director

    TRINITY WESTERN UNIVERSITY

    September, 2005

    Donald P. Buhler, 2005

  • Budgets ii

    EXECUTIVE SUMMARY

    DOES SIL NEED BUDGETS?

    This paper discusses Beyond Budgeting and the feasibility of implementing the

    model in SIL. The first chapter begins with discussion of the traditional budgeting system

    and why many organizations are dissatisfied with it. It then moves on to a brief

    explanation of Beyond Budgeting and why organizations would benefit from it. Chapter

    two selectively highlights aspects of leadership that are important to consider if Beyond

    Budgeting is used. The next two chapters provide a detailed explanation of the twelve

    principles of the Beyond Budgeting model. Chapter three examines six principles that

    organizations should adapt in order to function without the traditional budget. The fourth

    chapter discusses six principles of effectively devolving the decision-making to the

    lowest level. The last three chapters discuss the implementation of Beyond Budgeting in

    SIL. Chapter five lists the benefits to SIL if they were to implement the model, and also

    discusses the six processes that SIL would need to implement if the traditional budget is

    removed. The sixth chapter is about SIL implementing six principles to effectively

    decentralize the decision-making and responsibility. The last chapter concludes with

    some other aspects of implementation, including arguments against Beyond Budgeting,

    key people who would need to be involved to make the change, and some suggestions for

    implementation. The conclusion suggests that SIL could implement Beyond Budgeting,

    but there must be a high level of urgency for such a change to take place.

    Donald P. Buhler

  • Budgets iii

    SUPPLEMENTARY SUMMARY

    DOES SIL NEED BUDGETS?

    This paper is about Beyond Budgeting and the feasibility of implementing the

    model in SIL. The first chapter begins with the history of the traditional budgeting

    system. After years of reasonable success with this system, the last decade or two has

    seen many organizations become dissatisfied with it. Therefore companies are looking for

    new ways to allocate resources in a rapidly changing world.

    Beyond Budgeting is more than just a budgeting function, it is a total management

    philosophy. There are two elements to the Beyond Budgeting approach. The first element

    is how the organization must change its processes in order to function without the

    traditional budget. The second element describes what an organization must do to be

    effective in decentralizing its operations. The following paragraph contrasts a few

    differences between the traditional budget and Beyond Budgeting.

    The traditional budget was not designed for a fast changing, highly competitive

    market, therefore companies react slowly to change. Using the Beyond Budgeting model,

    organizations are able to react better to a fast changing environment. The traditional

    budget is usually developed annually and can be outdated very quickly, often by the start

    of the fiscal year. Beyond Budgeting uses rolling forecasts for a period of 18 to 24

    months or more, which are updated on a quarterly basis. This allows the organization to

    make adjustments as the environment changes. The traditional budget looks at past

    performance rather than looking to the future. As a result, managers are tied to the past

    and can miss out on potential opportunities. By eliminating the budget and using rolling

  • Budgets iv

    forecasts, Beyond Budgeting focuses on the future. Managers look to see that the

    organization is on track and changes are made as needed.

    Chapter two selectively highlights aspects of leadership that are important to

    consider if Beyond Budgeting is used. For the Christian there is clear instruction from the

    Bible regarding this important topic. Mark 10:42-45 says that there is a difference

    between worldly and servant leadership. Leadership for the servant leader begins with the

    heart as stated in 1 Samuel 16:7.

    A change to Beyond Budgeting will require leadership, not management.

    Management works best in a stable environment, but leadership is needed to drive

    change. In todays competitive market it is not possible to only rely on the expertise of

    those at the top of the organization. Many organizations are finding that the expertise of

    all employees is needed to be competitive in a global market. Related to employee

    empowerment is the decentralization of decision-making and performance accountability

    to the lowest level. Those on the front-line are in the best position to see changes that are

    happening in the market.

    John Kotters book, Leading Change, provides an eight step plan for change. The

    first and most important step is that there must be a sense of urgency. Change is hard

    work so strong motivation is needed to overcome the complacency of the status quo. The

    world that we live in requires that people have a lifelong learning attitude. Team

    leadership works on the strengths of all the different individuals. It is impossible for one

    person to have all the gifts and abilities that a group would have. A team of leaders will

    achieve far more than the sum of the individuals. Servant leaders are concerned that the

    organization does well, so they will ensure that leadership succession is given priority.

  • Budgets v

    Finally a leader recognizes that the bottom-line should not be the primary concern.

    Mutually enabling relationships should be the main priority and profits and efficiency

    will follow.

    The next two chapters provide a detailed explanation of the twelve principles of

    the Beyond Budgeting model. Chapter three examines the six principles that

    organizations should adopt in order to function without the traditional budget. The first

    principle is that goals be set relative to industry, direct competitors, internal performance,

    or last years performance and not against a fixed target. This is to ensure a high level of

    performance and not so a manager achieves a positive performance evaluation because of

    an easy to reach target. Principle two ties into the first in that rewards should be linked to

    goals that ensure a high level of performance. The third principle is planning that

    devolves to the lowest level and is continuous. Top management responsibility is to set

    boundaries and then to monitor and challenge front-line staff to perform at a high level.

    Principle four deals with the allocation of resources. If managers are meeting

    agreed upon parameters, then they should continue to have access to the resources needed

    for their area of responsibility. The fifth principle is the coordination of work which is

    organized around customer oriented teams that are accountable for profitable customer

    outcomes. These teams interact across the organization as needed unlike hierarchical

    companies where the communication is up and down. The sixth and last principle listed

    in the third chapter is good governance and a good information system. Front-line

    managers develop strategies within boundaries that they are given by top management.

    For these managers to make good decisions, they need information that is fast and

  • Budgets vi

    relevant. Since the traditional budget is removed, rolling forecasts and key performance

    indicators are used to provide information that is needed.

    Chapter four discusses six principles of effectively devolving the decision-making

    to the lowest level. People at all levels must be used to compete in todays market. The

    seventh principle is that employees must know what boundaries they have, and then

    given the freedom to operate within those boundaries. The responsibility of top

    management moves from being directive to being coaches and mentors. Principle eight

    puts a high expectation on the manager to perform. However, good performance in one

    department is not at the expense of the organization or other departments.

    The ninth principle is related to the seventh principle in that managers are given

    the freedom to act. Senior Management must not intervene, but challenge and encourage

    the managers. The tenth principle is about teams that focus on processes and not

    functions. Principle eleven is about meeting customer needs through good relationships.

    Finally the last principle is about openly sharing information. An atmosphere of trust is

    required, to know that the information will not be used negatively.

    The last three chapters discuss the implementation of Beyond Budgeting in SIL.

    Chapter five lists the benefits of SIL implementing the model and also discusses the six

    processes, listed in chapter three, that SIL wou