A 'traditional' planning and budgeting process has an annual cycle that involves the preparation, negotiation, approval, and monitoring of detailed plans and budgets by department, business unit, division, and group - all consolidated into the 'master plan and budget' for the year ahead. The targets that are agreed become commitments between different organizational levels and are treated as 'fixed performance contracts' against which managers' performance is evaluated and incentive bonuses often paid. Actual performance is controlled throughout the year with reports that analyse variances against plan. Through its extensive case based research the Beyond Budgeting Round Table (BBRT) has identified the ‘fixed’ performance contract as the root cause of the problems listed above and a significant source of competitive disadvantage.
