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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Harlow Components uses an annual fixed budget agreed in November. By June, market conditions have changed sharply, yet managers are still judged on variances against the original budget. Which Beyond Budgeting principle most directly addresses this weakness?

Beyond Budgeting deals with outdated fixed targets by using relative targets and rolling forecasts, so managers are judged against current conditions rather than assumptions made months earlier. More detail, central approval or a longer fixed period would not fix the lack of responsiveness.

  1. AReplacing fixed annual targets with relative targets and rolling forecasts that reflect current conditionsCorrect
  2. BIncreasing the number of budget line items so variances are analysed in more detail
  3. CMoving budget approval to a single senior committee to improve consistency
  4. DExtending the budget period to three years to reduce the frequency of negotiation

Explanation

Beyond Budgeting replaces fixed annual targets with relative, stretch targets and rolling forecasts so performance is judged against the current environment. More detail or centralised approval keeps the fixed-contract problem. A longer fixed period makes the targets even less relevant as conditions change.

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