Talking themselves into a budget overrun

Those who talk the most about staying within the budget, are also the ones who spend the most money and have the biggest overruns.

KNOWLEDGE @ BI: Mindsets in business

Most organisations in both private and public sectors use budgets to keep their finances in order. Not everyone is equally good at adhering to the approved budget. We constantly read of budget overruns.

Is there a method that will help us distinguish those leaders who are good at sticking to the budget, from those who are not?

In his PhD project at BI Norwegian Business School, researcher John-Erik Mathisen has conducted a study on whether different types of mindset can explain why some people succeed better than others in conducting business activities.

Can leaders' mindsets, which means the way they recognise patterns in their surroundings, tell us whether they are likely to overrun the budget?

"Yes. Thought patterns can help explain business results," Mathisen asserts based on his study.

Reading minds

With professor Jan Ketil Arnulf at BI Norwegian Business School, John-Erik Mathisen has identified three different types of business-related mindsets in leaders and entrepreneurs.

  • The elaborating mindset: Thought patterns for assessing situations and determining objectives. These people are willing to accept new information during the process. There is little connection between such elaborating thoughts and actual implementation.
  • The implemental mindset: A state where everything is interpreted based on known patterns from practice and experience. The outcome will normally be some type of action, i.e. implementation. Or "Just do it!"
  • The automation of a business mindset: Recurring thoughts of business actions that keep coming back whether you want them to or not. Such thoughts can sometimes disturb other areas of your life without you being able to control them.

Researchers have developed an instrument where they use a questionnaire to measure the intensity of various thought patterns in entrepreneurs and leaders. They find that the intensity varies.

Some do the talking, others act

Mathisen and Arnulf conducted a survey of 203 project managers in two international enterprises in different sectors.

The study shows that leaders who have very conscious thoughts about cost-awareness (the elaborating mindset), are not particularly cost-efficient in real life, rather the opposite. However, leaders who instead implement strategies and measures to stay within the budget, tend to spend less than what has been budgeted.

Mathisen sums it up: "Those who talk the most about saving money and keeping costs down, paradoxically end up spending more. Those who don't talk that much about costs and budgets, but focus more on doing what is needed, stay within their budget. In fact, they spend less than budgeted, according to this study."

Learning by practising

Knowledge that is acquired at school, for instance, is important for planning and determining objectives. But book learning and the ability to set objectives do not seem sufficient to succeed in the business world.

To develop an ability to implement, to go from words to action, it seems necessary to gain hands-on experience.

"For those who have both feet planted in practice, top-up of new, relevant knowledge can be very fruitful," John-Erik Mathisen argues.

John-Erik Mathisen. Elaborating and Implemental Mindsets in Business-related Behavior: An Investigation of the Interface between Cognition and Action. Series of Dissertation - 03/2016. BI Norwegian Business School.

Published 3. June 2016

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