In a year when interest rates, supply routes, and the cost of running an AI model can turn a business case upside down between two board meetings, the annual budget makes an odd request. It asks managers to commit a full year of assumptions in a single autumn, then to spend the next twelve months defending numbers that were obsolete by February. The reform movement known as Beyond Budgeting starts from that mismatch, and its most concrete practical proposal is not to abolish planning but to unfreeze it.
Why the calendar stopped matching the market
The core complaint is timing. A budget is a photograph taken once and hung on the wall for a year. Markets do not hold still for the portrait. Henttu-Aho and Jarvinen (2013), studying the emerging practice inside Finnish industrial firms, describe companies loosening the fixed annual budget and shifting weight onto continuous forecasting, so that the plan updates as conditions do rather than expiring on a fixed date. Their institutional reading matters for anyone expecting a clean switch. Adoption was gradual and mediated by context, a series of hybrid transition states rather than a single decision to turn budgeting off.
Bourmistrov and Kaarboe (2013) put a sharper edge on why the timing change is more than administrative housekeeping. Studying two multinationals applying Beyond Budgeting ideas, including the Norwegian energy group Statoil, they found that replacing fixed budget targets with relative, outside-in targets moved managers out of what they call the comfort zone of the budget and into a stretch zone. A fixed number, once agreed, invites you to manage toward the number and stop looking outward. A forecast that refreshes against competitors and current reality forces you to keep negotiating with the environment. The mechanism is attention, not arithmetic.
What actually replaces the plan
Skeptics assume that removing the annual number removes financial grip. The evidence says the grip relocates. Matejka, Merchant and O'Grady (2021), in the largest quantitative study in this literature, compared 80 organizations that had adopted Beyond Budgeting with 121 that had not, drawn from a survey of 201 organizations. Adopters leaned on decentralization, relative targets, and flexible resource allocation released without a fixed annual schedule. In other words, money still gets committed and performance still gets steered. What changes is that resources flow on the cadence of the business instead of the cadence of the calendar, and targets are set against a moving benchmark instead of a static promise.
That is the practical heart of the rolling-forecast argument. The annual budget bundles three jobs into one ceremony: predicting what will happen, deciding what to spend, and setting what people are held to. A rolling forecast pulls the prediction out and lets it update honestly, because no bonus rides on it. Spending decisions then attach to opportunities as they appear rather than to a slot claimed eleven months earlier.
The honest complication
The reform literature has a triumphalist strain, and the most useful recent work pushes back on it. Bukh, Ringgaard and Sandalgaard (2024), tracing the dynamic interplay between budgets and forecasts in a single firm, found the boundary far more fluid than the slogans suggest. Forecasts, once they carry weight, start absorbing budgetary functions. People begin to treat the forecast as a commitment, gaming it and padding it exactly as they once gamed the budget. Their caution is worth stating plainly: idealizing the total abolition of the budget misreads what happens on the ground, where hybrids and control tensions are the norm.
This does not rescue the annual budget. It sharpens the actual reform. The goal is not to rename the budget a forecast and keep every old habit. It is to protect the forecast from the incentive pressure that corrupts the budget. The moment a rolling forecast becomes the thing your pay depends on, it stops telling you the truth about the future and starts telling you what is safe to promise.
The practical read for a leadership team is narrow and demanding. Move to rolling forecasts if, and only if, you are willing to sever prediction from reward. Keep the number people are paid against relative and external, so the internal forecast stays free to be accurate. Firms that do the first half and skip the second have not escaped the annual budget. They have simply made it update more often while carrying the same lie.
Sources
- Henttu-Aho, T. & Jarvinen, J. (2013). A Field Study of the Emerging Practice of Beyond Budgeting in Industrial Companies: An Institutional Perspective. Finds adoption of continuous forecasting in place of the fixed annual budget is gradual and hybrid, supporting the case that unfreezing the plan is a transition, not a switch. https://doi.org/10.1080/09638180.2012.758596
- Bourmistrov, A. & Kaarboe, K. (2013). From comfort to stretch zones: A field study of two multinational companies applying beyond budgeting ideas. Shows relative outside-in targets move managers from the budget comfort zone to a stretch zone, explaining why the timing change alters behavior. https://doi.org/10.1016/j.mar.2013.04.001
- Matejka, M., Merchant, K. A. & O'Grady, W. (2021). An Empirical Investigation of Beyond Budgeting Practices. Compares 80 adopters with 121 non-adopters and finds adopters use flexible, non-calendar resource allocation and relative targets, showing where financial control relocates. https://doi.org/10.2308/JMAR-19-010
- Bukh, P. N., Ringgaard, A. & Sandalgaard, N. (2024). Moving beyond Beyond Budgeting: A Case Study of the Dynamic Interrelationships between Budgets and Forecasts. Documents forecasts absorbing budgetary functions, cautioning against idealizing full abolition. https://doi.org/10.1080/09638180.2024.2362681