Setting Performance Targets

Chapter 3

Target Setting in Changing Conditions

Change is inevitable—except from a vending machine.

—Robert C. Gallagher

Introduction

Target setting faces challenges from changing conditions. A target is set, and subsequently underlying conditions change. Therefore, the target needs to be revised and the changes incorporated into the budget, or this will lead to poor decision making. The static approach where no change is recorded is called the fixed approach, while a more dynamic approach is called a flexible budget. We will illustrate the differences in these approaches by using two examples: one using a traditional fixed budget and the other using a flexible budget adjusted for the impact of volume changes. We also look at using rolling ...