Bjarte Bogsnes, Vice President – Performance Management Development at Statoil, spoke about a new way to budget, forecast, lead and manage at Nordic Project Zone. I talked to him to find out more about the ideas he’ll be presenting. You can read the first part of this interview here.
Bjarte, what you are doing at Statoil sounds a bit like rolling forecasting. How is it different?
A rolling forecast is done on a fixed frequency and on a fixed time horizon across the company, typically quarterly and five quarters ahead. We were about to introduce this in Statoil as well. Then it struck us that rolling forecasting (which is much better than traditional “against the wall forecasting) still has a “fixed” frequency and time-horizon, which might be too often and too long for some and the opposite for others. We wanted forecasts to be updated on an event-based and not a calendar-based rhythm ,when something happens, and as far ahead as relevant for each unit. We called this Dynamic Forecasting.
If a unit one level up needs a forecast with a longer time horizon, it should normally be their responsibility to “fill the hole” with a “good enough” forecast. Why should all teams be forced to look ten years ahead because aggregated this is a relevant time horizon for an oil company? For our oil trading people, anything beyond three weeks can be quite foggy, while three years is very much on the short side for those bringing new oil and gas discoveries into production.
Also targets can now have shorter or longer time horizons, from months to years, again driven by lead times and complexity.
Note that “dynamic” doesn’t necessarily mean more often. It means at the right time. For some it could actually mean less often.
OK. So is calendar-based management really all that bad?
Imagine a bank informing its customers, “We have now changed our hours, so if you want to borrow money, we are now only open in October”. It sounds ridiculous – but isn’t this exactly what people in companies experience every year in the budget process?
We want the bank to be open 12 months a year. A funding request might still be refused; we should be just as good in saying no as yes. Cost is of course still very important for us. But why should we make all our cost decisions in the autumn, before we have to? Isn’t it better to make them as late as possible, when we have better information – not only about the new project or activity up for decision – but also about our capacity to fund it or staff it?
Yes, that makes sense! Tell me how you evaluate project performance at Statoil then.
We have introduced a more holistic performance evaluation, with hindsight insights as a key component, and with how we have achieved our business results counting 50%. How can we claim to be a values-based organization (as we do) if our values and people and leadership principles are completely absent in target setting and performance evaluation?
Some might say that this involves too much subjectivity, and that targets should be set in stone. But let us not fool ourselves. There is a lot more subjectivity involved at target setting time, with loads of uncertainty about what good performance will look like 15 months down the road. This subjectivity does not magically transform itself to full objectivity just because we finally nail the target to “29.2”. And why should we not apply subjectivity at the point in time when we are much more qualified to do so; after the fact, when uncertainty has become certainty?
Changing your budgeting model has been a significant shift in mindset then.
Yes. It leads us into important discussions, whether we want it or not. How can we find targets that really inspire and stretch without feeling stretched, while avoiding all the gaming and negotiation that adds no value at all? How can we make simple and unbiased forecasts, free of all the hidden agendas? How can we make people spend money as if it came from their own pocket? How can we move towards a management model which works more with and less against human nature? How can we be big and small at the same time? How can we take reality seriously? These are important questions for any large company. We have absolutely not solved them all, but we have definitely started.