Moving Beyond Budgeting: Lean Companies Can Avoid the Dysfunctional Consequences of Budgeting by Using Hoshin Kanri and SOFP

• In Event: Managerial Issues and International Standards

Abstract

The inherent conflicts between the major roles of operational budgeting lead to dysfunctional consequences when a single budgeting system is used. Dissatisfaction with traditional budgeting practices led Jeremy Hope and Robin Fraser to form the Beyond Budgeting Roundtable and in 2003 propose an alternative approach to planning and control. Nevertheless, in a recent survey of North American companies, Theresa Libby and Murray Lindsay reported that the vast majority of companies continue to use traditional budgeting practices. One reason for the continued popularity of conventional budgeting practice may be a lack of familiarity with alternatives to conventional budgeting. This paper uses two hypothetical business units to show how a company adopting lean management can use Hoshin Kanri and SOFP (Sales, Operational and Financial Planning) in place of conventional budgeting to obtain better information and avoid many of the dysfunctional consequences associated with conventional budgeting.

Authors

• Lawrence P Grasso, Central Connecticut State University

• David Fearon, Central Connecticut State University