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Beyond Budgeting Keeps Statoil Agile During a Downturn

  • By Nilly Essaides
  • Published: 3/31/2016
statoilWith oil prices plummeting in the last 18 months, AFP turned to one champion of Beyond Budgeting, Norway-based energy company Statoil, to see how the methodology served it as its market environment turned south.

The $80 billion company embarked on its beyond budgeting journey in 2005. The question was whether Beyond Budgeting works well when the going gets tough. It’s easy to point to great success when oil prices are above $100 and the company is super profitable. But what about now?

Bjarte Bogsnes, vice president of performance management development, likes to compare Statoil’s budgeting process to having the bank open all year. Instead of setting a static budget ahead of the start of the fiscal year and locking in resources, funds are allocated to worthy projects year-round and projects are continuously evaluated for potential ROI given changing market conditions. That process is supplemented with a dynamic forecasting approach that allows the company to stay on track and foresee what’s coming down the road to course-correct and understand the financial capacity ahead. It’s a lot like steering a supertanker: it needs a lot of advance notice to stay away from any oncoming danger.

Making more informed decisions

Bogsnes said the agility afforded by its flexible management process has been even more important as oil prices dropped. “It has definitely helped us be more agile than our competitors,” he said, adding Statoil has outperformed the average of a group of its peers. “It was a great test of the whole concept.”

While the company faced some doubters, even from within, “everybody is very happy we didn’t revert to a traditional budgeting process,” Bogsnes explained. Had it done so, the 2015 budget would have been based on oil prices in the summer of 2014—well over $100. “This approach has given us the agility we needed, especially with regard to investment and capex,” he said. By allowing the “bank” to stay open throughout the year, Statoil was able to allocate funds continuously, which made it easier to turn down the activity level. “We keep asking two questions: is this a good investment? And can we afford this investment?” he said. “We ask them more frequently and we can ask them when we have more information, versus our peers who have to make those decisions earlier in the investment cycle.”

The upshot: Beyond Budgeting allowed Statoil to steer clear of the rocks.
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