More on Budgets

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by: Sigurd Rinde

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.