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 better ways to measure, analyse and communicate performance will remove a serious obstacle to the adoption of Beyond Budgeting.
Steve Morlidge has just completed his fourth and last working paper on variance analysis. In the previous papers, Steve addressed these important issues: Why conventional approaches to performance measurement don’t work, understanding the patterns of behaviour and establishing dynamic measures, and the problems we face when trying to make meaning of large quantities of data. In this last paper, Steve introduces a ‘tracking signal’, the process of measuring performance against a dynamic target or benchmark. Steve also asks us to consider if we need targets at all.
Click here to read the paper.
Steve has spent most of his professional career in designing and running performance management systems. He is the former Chairman of the BBRT and remains a tremendous support of our network for which we are most grateful.