The failure of socialism to transform the world for the better didn’t come as a surprise for most people in business. Centralized command-and-control stifled individual initiative and freedom of action, leading to economic stagnation and dislocation. Yet large corporations have remained tied to hierarchical, centrally controlled structures even as executives have increasingly spoken enthusiastically of “decentralization”, “flexible planning”, and “networked organization’. A major reason for this, according to Jeremy Hope and Robin Fraser, is that the traditional budgeting system reinforces centralization, inflexible planning, and command and control culture. In its place, they propose a dynamic approach to budgeting that relies on trend analyses and rolling forecasts.

Hope and Fraser founded the Beyond Budgeting Round Table (BBRT) in 1998 with the goal of developing a superior, more adaptable replacement for traditional budgeting—a “process that disempowers the front line, discourages information sharing, and slows the response to market developments until it’s too late.” They set forth their view in a 2003 book, Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap, as well as in articles such as “Who Needs Budgets?” (Harvard Business Review, February 2003), and “Trash The Budget” (Optimize, February 2003).

Although not yet a fully deployed and proven alternative, dynamic budgeting and rolling forecasts look promising as a crucial ingredient of truly adaptive, real-time enterprises.

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