Ask a manager what their budget number means and you will get three incompatible answers in one breath. It is the target they are chasing. It is their best guess at what will actually happen. And it is the pot of money they are allowed to spend. The annual budget welds these three functions to a single figure, and then everyone acts surprised when the figure lies. The most durable idea in the Beyond Budgeting movement, associated with the practitioner Bjarte Bogsnes, is not that budgets should vanish. It is that these three jobs should never again share a number.
The conflict hidden inside a single figure
The three functions pull in opposite directions, and the incentive math is unforgiving. If the same number is your target and your forecast, you are punished for honesty. A truthful prediction that you will beat plan invites a higher target next year, so you predict lower. If that same number is also your resource claim, you are punished for thrift. Underspend and next year's allocation shrinks, so you spend to the line whether you need to or not. A single figure asked to be aspirational, accurate, and a spending entitlement will end up none of the three. It becomes a negotiated compromise that no one believes and everyone games.
Libby and Lindsay (2010), surveying budgeting practice across medium and large North American organizations, found the tension baked into how firms actually use budgets. Managers rely on the same budget simultaneously to motivate people and to evaluate their performance, two roles that quietly undercut each other, since a target set high enough to stretch is a target you will be blamed for missing. Their survey is a useful corrective to reform hype, most managers considered their budget value-added rather than something to abolish, but it also exposes precisely the overload that reformers are reacting to. The problem is not the budget's existence. It is that one artifact is doing too many jobs.
What separation looks like in practice
Pull the three functions apart and each can finally do its job. The target becomes a relative, ambitious aim measured against peers or the market. The forecast becomes an honest, frequently updated estimate that carries no reward and therefore no reason to distort. The resource decision becomes a flow, released when an opportunity is real rather than reserved a year in advance.
Matejka, Merchant and O'Grady (2021) show this is not a whiteboard fantasy. Comparing 80 Beyond Budgeting adopters against 121 non-adopters within a survey of 201 organizations, they found adopters distinctively using relative targets and flexible resource allocation released without a fixed annual schedule, the concrete signature of decoupling the target and the resource from the calendar. Their most honest finding, though, is how hard the split is to sustain: many adopters could not fully let go of the fixed annual target for decision-making, which is exactly what you would expect when three habits have lived in one number for decades.
Why the split keeps collapsing
The danger is that the three functions creep back together. Bukh, Ringgaard and Sandalgaard (2024), tracking the interplay of budgets and forecasts inside one company, watched the forecast start absorbing budgetary functions the moment it gained weight. Give a forecast a reward or a reputation and people begin padding it, and quietly it fuses back into a target. The boundary the reform was built to create turns out to need constant defense.
That is the practical lesson for anyone tempted by Beyond Budgeting as a slogan. The win is not in the label. It is in an act of organizational discipline that runs against gravity: keeping the aspiration, the prediction, and the money in three separate places, held by different processes, on different clocks. In a period when boards demand both bold targets and reliable guidance, the fused annual number cannot deliver both, and pretending otherwise is why so many forecasts read like fiction. Separate the jobs, and each number gets to be true. Fuse them, and you have rebuilt the very thing you set out to escape.
Sources
- Libby, T. & Lindsay, R. M. (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Finds firms use the same budget to both motivate and evaluate, exposing the role overload that fusing functions in one number creates. https://bpb-us-w2.wpmucdn.com/u.osu.edu/dist/8/36875/files/2016/12/Libby-Lindsay_budgeting_survey-17bvsph.pdf
- Matejka, M., Merchant, K. A. & O'Grady, W. (2021). An Empirical Investigation of Beyond Budgeting Practices. Shows adopters use relative targets and non-calendar resource flows, the concrete form of separating target from resource, and how hard the split is to hold. 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. Shows forecasts re-absorbing budgetary functions once they carry weight, explaining why the separation keeps collapsing. https://doi.org/10.1080/09638180.2024.2362681