beyond budgeting

Your ultimate guide to Agile lingo

Circle rep


Before his famous book Organize for Complexity, published in 2014, Niels Pfaelging, a researcher, wrote his first book in 2003, laying the foundations of agile management as he would later develop it. This book, Beyond Budgeting, is an opportunity for him to apply his thinking to a fundamental element of a company's operations: its budget management, i.e. his ability to project into the future.

Forecasting results, anticipating expenses, setting objectives... all these historical management principles, according to him, are concepts that need to be reconsidered in order to offer the company the agility imposed by an increasingly dynamic market.

Niels Pfaelging's central thesis is the almost instantaneous obsolescence of any fixed projection system. As soon as they are established, these projections turn out to be outdated in the face of unforeseen developments in the global market. The control over the future provided by the series of forecasts prepared each year by companies around the world is illusory. The future will always be unpredictable, and for this reason the author advocates for the systematic establishment of relative rather than fixed objectives.

For example, establishing relative target performance ratios, proportionate to market averages, is infinitely more relevant than projecting precise ratios, which will not allow the company to place itself in its competitive environment. Indeed, a company could well exceed the fixed objectives it has set for itself, while doing infinitely less well than its competitors. Management would then be inaccurate when assessing the company's results. Finally, each performance indicator of an organization must be assessed in relation to any benchmarks to which it may be linked to.

But beyond the irrelevance of studying a firm's performance in purely absolute terms, Niels Pfaelging points to another pitfall of these rigid projection systems. In his view, the narrowness and lack of flexibility of these systems criminally stifles initiative within the company. Judged and monitored less on their efforts than on their results, employees subject to such objectives will act with the sole vision of these outcomes, leaving themselves no latitude on how to achieve them.

Niels Pfaelging therefore builds his thesis on the fundamental idea that the key to a company's success does not lie in its (always illusory) ability to predict the future, but in its ability to build its operations in such a way that it can prosper in all possible future configurations. Finally, the author summarizes his thinking as follows: good forecasts have never guaranteed good results - despite all that we are inclined to believe in. Good preparation alone guarantees good performance.

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