does sil need nudgets
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DOES SIL NEED BUDGETS?
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
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
Donald P. Buhler, 2005
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
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
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.
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
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
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