Renè Peter, Vice President Controlling ADS EMEA at Kaba Group, talked about the innovative budgeting approach at Kaba at an event hosted by the Fachhochschule Zürich HWZ together with the IMA (Institute of Management Accountants) Swiss Chapter.
“Budgeting is always a journey”, as René Peter, Vice President Controlling ADS EMEA at Kaba Group, stated in his presentation “Paradigm shift in budgeting at Kaba” on November 5 at the Fachhochschule Zürich HWZ. “As finance managers we strive to get to an ideal state.” However, there is a discrepancy between myth and reality in general when it comes to budgeting, Peter explained further. “The overall myth is that budgeting is a bottom-up process and everybody in a company is loyal, fully committed and in agreement with the targets being set.”
In practice budgeting is usually different. René Peter: “Even though the political environment and macro-economic parameters are changing rapidly, many companies are still using extrapolation of prior years’ performances when it comes to budgeting.” Common budgeting processes do also result in challenges – often driven by mistrust – that need to be overcome on practically all management levels. “There’s one certainty in the whole budgeting process”, explained René Peter, “and that is that we can’t precisely anticipate the future.” The budget process often affects how the organization’s decision-making process is perceived by lower-level managers, how information is distributed or the middle management’s level of involvement in reaching the organization’s objectives.
New budgeting approach at Kaba
The Kaba Group mainly focuses on two strategic pillars – “Access & Data Systems” and “Key Systems” and generates a total revenue of around CHF one billion a year. In the past, the company used the same budgeting approach that many companies use – the bottom-up-approach. “That method resulted in several budget adaptations every year”, as Peter mentioned.
Since January 2014, Kaba has implemented a new streamlined budgeting process – a process that focus much more on strategic initiatives and continuous improvement. Their new approach is based on a top-down roll-out of targets and is more flexible. In top-down budget targets, senior management outlines the overall figures and middle and lower-level managers plan accordingly. The process enables managers to set their budget targets for each department in line with the needs of overall company revenues and expenditures. There’s another advantage of the top-down approach compared to the old one, as René Peter points out. “The budget is the result of the strategy and mid-term planning and therefore incorporates the expectation set by the Board of Directors and the Executive Committee from an early stage in the process. This results in a reduced risk that the budget does not meet the overall Group expectations at the end of the planning cycle.”
On behalf of the IMA Swiss Chapter, IMA Europe thanks René Peter for his presentation and the interesting insights he gave on the budgeting process at Kaba.