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PurposeThe paper sets out to apply the concepts of cybernetics and the control of probabilistic systems to the issue of performance measurement within organizations.Design/methodology/approachConventional approaches to Performance Measurement have been based on a mechanistic “target‐plan‐variance” model that was introduced into mainstream management practice in the 1950s. It has been subject to criticism from within both the academic and practitioners community over the last 50 years but has proved remarkably resistant to change. Systems ideas, particularly those emanating in the field of cybernetics, have not been successfully applied in this field because, it is argued, the concepts have been misunderstood and falsely blamed for the perceived failings of conventional practice.FindingsThe paper identifies the shortcomings in “tradition” approaches to performance measurement in organizations and demonstrates how the application of cybernetics concepts can address these shortcomings.Originality/valueContrary to received wisdom in parts of the academic community, cybernetics potentially provides the intellectual building‐blocks for a new paradigm, based on a fundamental appreciation of what is required to manage the interdependencies between an organization and its environment and between its constituent parts. It holds the promise of developing a set of practice that is not only more efficient and effective as a control philosophy, but also more sensitive to the human need for self‐determination in the workplace.

Variety engineering was the term coined by Stafford Beer to describe the management of the system of constraints placed on an organisation. Successful variety engineering involves working with the demands of Ashby's Law of Requisite Variety; matching regulatory variety with that of the situation being regulated. Money is an important mechanism for variety engineering: the allocation of financial resources helps amplify variety; its withdrawal attenuates. This paper argues that budgeting, the conventional approach to the management of financial resources, demonstrably does not have requisite variety. This fact could be manifest in a range of undesirable patterns of behaviour. The practice of budgeting has not, however, been seriously challenged by systems theorists nor alternative mechanisms proposed. This paper sets to remedy this by describing how the cybernetic regulation of the flow of financial resources can be incorporated into the framework provided by Beer's Viable Systems Model.

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