This sample will let you know about:
- What is Traditional budgeting ?
- Discuss about the budgeting concepts and principles.
- Discuss about the weaknesses of traditional budgeting.
Budgeting refers to creation of spending plan for the organisation. Spending plans of company are known as budgeting. Creation of budgets helps company in determining in advance that whether company will be having enough money for carrying out operations of company. In simple words it is concerned mainly with expenses with income. With the time budgeting has evolved with other types of budgeting and practices that is helping companies to frame better budgets (John, 2018). Effective budgeting helps the business organisations to achieve their respective goals and objectives. Present report will provide and understanding about the benefits of beyond budgeting than traditional budgeting. It will give an understanding about the concepts and practices followed in both the budgeting.
Traditional budgeting and its flaws.
Traditional budgeting can be referred as a process of preparing budget where the budget of last year is taken as a base. Budget of current year is made by making alteration and adjustments to budgets of previous years. The adjustments made are relating to inflation rates, demands of consumers, market conditions and like factors affecting the organisation. In this budgeting costs and revenues of last year is integral part of the budget for current year. All the items that are over & above the budgets of last year are required to be justified by the business. Traditional budgeting has been used from years by companies for having control over its expenses. This is widely used by organisations as it is simple to implement and budgets are prepared much faster as only required changes are to be made in budgets of last year (Rubin, 2019). The budgeting approach has brought stability in the working process as this is more familiar to the organisations and everyone is aware of the things to be done.
But many experts and business specialists has considered as an ineffective budgeting practice. Many companies have replaced their budgeting practices to rolling forecast and other methods of budgeting. Beyond budgeting round table after spending deep research has concluded that managers spend significant time in preparing. The traditional budgeting approach has been left due to various problems associated with the approach.Worried for Marketing Assignment Help? Get our experts Help Now!
Weaknesses of traditional budgeting.
The traditional budgets are very long and detailed. They are prepared after requiring the items to be negotiated back & forth. It consumes lots of corporate resources in preparing the budgets. The cost of preparing budgets under traditional approach is very high. The budgeting approach is very flexible as it starts from top to down and becomes detailed process for bottom up and attempts for meeting fixed goals of management. Once the budgets are prepared it do not takes into account any other changes.
It could be inaccurate representation of the goals and objectives of business. In this business owners and managers manipulated projections for making actual results to look attractive (Wildavsky, 2017). This will not be helping business in long run. It takes time to analyse the budgets of previous years and identifying the areas where changes are required to be made. There are high chances that errors and mistakes of previous budgets are carried in the budgets of current year if not identified properly.
Emergence of beyond budgeting and better budgeting concepts and practices.
It is a idea based for abolishing the traditional budgeting approaches for eventually improving the control of management over organisations. Abandonment of traditional budgeting practices company aims at establishing a high decentralised systems and set of adaptive management processes. Beyond budgeting is a principle where companies are required to move forward and beyond the budgeting due to inherent flaws existing in budgeting especially when setting contracts. It is also defined as budgeting beyond command & control towards management model which is more adaptive and empowered. It is rethinking the management approach in an industrial environment where innovative management model represents as the only competitive advantage for sustainability. The budgeting is also aimed at releasing people and staff from suffocating control system and stifling bureaucracy. Giving time for rethinking reflects, share and helps in improving the processes (Bogsnes, 2016). The framework of beyond budgeting is based over 6 leadership principles & six management process principles. Rationale behind beyond budgeting is the number of flaws existing in traditional