Taking a Realistic Approach to Budgeting

Executives at Norwegian oil and gas company Statoil were looking for ways to make it more nimble and more realistic about its goals. So they adopted a new approach to year-end budgeting, which breaks it out into three different sets of numbers. These included targets (“what we want to happen”), forecasting (“what we think will happen, whether we like what we see or not”), and resource allocation (“trying to use our resources in the most optimal and efficient way”). Separating the numbers gave managers the freedom to be realistic about each. For example, they can present ambitious sales targets without compromising the integrity of their forecasts.

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