Beyond Variance Analysis – Part 1
Why We Need a New Way of Measuring Performance
This first paper in a series of four on the subject of variance analysis sets out the reasons why conventional approaches to performance measurement don’t work, so building the case for alternative approaches that will be described in subsequent papers.
In the Beyond Budgeting community we have a particular interest in finding better ways to measure and analyse performance. Variance analysis (‘how are we doing against plan?’) is a cornerstone of traditional management and budgeting. It is one of the reasons why budgeting is so hard to eradicate and why we need to find alternatives. If the only tool we have to analyse performance is a variance, then we have to have budgets even if we do not believe in budgeting itself. Therefore, finding a better way to measure and analyse performance removes one of the biggest obstacles to the adoption of Beyond Budgeting.
The paper is authored by Steve Morlidge who has spent most of his professional career in designing and running performance management systems in Unilever. Steve co-authored ’Future Ready: Mastering business forecasting’ (John Wiley, 2010) and has written many papers on business forecasting. Steve is the former Chairman of the BBRT.