Beyond Budgeting: An interview with Bjarte Bogsnes (part 2)

Bjarte Bogsnes, Vice-President – Performance Management Development, StatoilBjarte Bogsnes, Vice-President – Performance Management Development, Statoil, talked about a new way to budget forecast, lead, and manage at Nordic Project Zone. I spoke to him about the ideas he would be sharing. The first part of the interview can be viewed here.
Bjarte, it sounds a lot like rolling forecasting. What makes it different?
A rolling forecast is a forecast that is made at a fixed frequency and with a fixed time horizon for the company. It is usually quarterly and five quarters in advance. This was also being considered for Statoil. We realized that rolling forecasting, while much better than traditional “against-the wall” forecasting, still has a fixed frequency and time-horizon. This might be too frequent or too long for some people and vice versa for others. We wanted the forecasts to be updated based on events and not a daily calendar. This would allow them to be relevant for each unit at any time. This was called Dynamic Forecasting.
A unit one level above may require a forecast with a longer horizon. They should be responsible for “filling the hole” with a “good” forecast. Why should teams be forced to look 10 years ahead when aggregated this is a relevant timeline for an oil company? Three weeks is too long for oil traders, and three years is too short for those involved in bringing new oil or gas discoveries into production.
Targets can now have shorter or longer time frames, ranging from months to years. Again, this is driven by lead times, complexity, and other factors.
It is important to note that “dynamic” does not necessarily mean more often. It can also refer to the right time. It could mean less often for some.
Imagine a bank telling customers that it has changed its hours. If you need to borrow money, we will now be only open from October to October. Although it sounds absurd, this is what companies go through every year when they are preparing their budgets.
We want the bank to remain open twelve months a year. We might be denied funding, but we should be equally comfortable saying no. We still need to consider cost. Why should we make all of our cost decisions in the fall before we have to? Is it not better to make these decisions as late as possible when we have more information, not only about the project or activity being considered but also about our ability to fund or staff it.
That makes sense! Let me know how Statoil evaluates project performance.
We have adopted a holistic performance evaluation that includes hindsight insights and has resulted in 50% of our business results. How can we claim to have a values-based company if our people, values, and leadership principles are absent from target setting and performance appraisal?
Some might argue that this requires too much subjectivity and that it is better to set targets in stone. Let’s not be fooled. Target setting is more subjective than it seems. There’s a lot of uncertainty about how good performance will look 15 months down. This subjectivity doesn’t magically become objectivity when we hit the target at “29.2”. Why should we not apply subjectivity when we are more qualified to do so, after the fact, when uncertainty is becoming certainty?
It was a major shift in mindset to change your budgeting model.
Yes. It can lead us to important discussions, regardless of whether we want them or not. How can we find targets that inspire and stretch without feeling stretched? How can we make simple, unbiased forecasts that are both accurate and fair?