Has the Annual Budget Outlived Its Usefulness?
Introduction
The debate concerning the usefulness of budgets continues to rage on. Many consider them fundamental to an organisations success, while others feel that they are obstructive in an organisations quest to optimise their success and they should therefore be abolished.
This report is concerned with the advantages and disadvantages of budgeting and whether not it is still relevant in today’s environment. It will also look at the alternatives to budgeting such as “better budgeting” which is improvements on the current approach and “beyond budgeting” which is a radical new idea that totally disregards the concept of budgeting.
Budgeting ' ' Pros & Cons
A budget is a plan of action for the coming year expressed in financial terms. (www.ci.berkeley.ca.us)
Even though budgeting is criticised and businesses are being told to adopt new methods, it still remains popular among many businesses as it has many uses.
Planning - A budget provides a detailed plan for the coming year of a company’s resources and enables them to allocate them adequately in order to achieve its objectives. For example, it enables a company answer certain questions such as; How much cash will be required? When it’ll be required? How long it’ll be required for? Whether cash will be available for investing? Also, “If cash-flow problems are likely to occur, a good budget can anticipate them and allow you to prepare necessary adjustments, either by postponing expenditures, obtaining sooner (if possible), or using credit to smooth out the cycle” (www.personalmoneymanagementexpert.com).
Communication -Budgets encourage different levels of an organisation to communicate with each other. This is essential as different departments have different goals and for the organisations overall goals to be achieved it is necessary that they communicate with each other in order to strike a balance. (Drury)
Motivation - A budget is used to motivate managers as what is expected of them is
The debate concerning the usefulness of budgets continues to rage on. Many consider them fundamental to an organisations success, while others feel that they are obstructive in an organisations quest to optimise their success and they should therefore be abolished.
This report is concerned with the advantages and disadvantages of budgeting and whether not it is still relevant in today’s environment. It will also look at the alternatives to budgeting such as “better budgeting” which is improvements on the current approach and “beyond budgeting” which is a radical new idea that totally disregards the concept of budgeting.
Budgeting ' ' Pros & Cons
A budget is a plan of action for the coming year expressed in financial terms. (www.ci.berkeley.ca.us)
Even though budgeting is criticised and businesses are being told to adopt new methods, it still remains popular among many businesses as it has many uses.
Planning - A budget provides a detailed plan for the coming year of a company’s resources and enables them to allocate them adequately in order to achieve its objectives. For example, it enables a company answer certain questions such as; How much cash will be required? When it’ll be required? How long it’ll be required for? Whether cash will be available for investing? Also, “If cash-flow problems are likely to occur, a good budget can anticipate them and allow you to prepare necessary adjustments, either by postponing expenditures, obtaining sooner (if possible), or using credit to smooth out the cycle” (www.personalmoneymanagementexpert.com).
Communication -Budgets encourage different levels of an organisation to communicate with each other. This is essential as different departments have different goals and for the organisations overall goals to be achieved it is necessary that they communicate with each other in order to strike a balance. (Drury)
Motivation - A budget is used to motivate managers as what is expected of them is
References: • Drury, Colin. Management Accounting for Business Decisions. 2nd Edition. 2001. • Clarke, Peter J. Accounting Information for Managers, 2nd Edition. 2002. • Hope J., Fraser, R. Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap, 2003. • The End of Traditional Budgeting, Journal of Performance Management, by Gregory J. Nolan, 2005 World Wide Web