After reading the suggested text, traditional budgeting seems to be the
old way of doing things. More specifically, budgets are a "frame of
reference" provided by upper management to restrict spending. The
article wrote about budgets being spent because the area/department
doesn't want to lose that amount when the next fiscal year approaches.
I'm familiar with this act because, in the department I use to work, we
had a budget for permanent ware which would be plates and
silverware. When the end of the year approached, we looked at the
amount left to spend and would spend every penny of it, because we
had it to spend. The department was cutting overtime hours because
everyone was working so much but yet, we spent every penny we could
on dishes. Budgets can be wrong.
I would suggest using a non-traditional budget because I guarantee that
other places do the same thing with their budgets as I did with mine.
The article suggests 13-week or 2 month cashflow/forecast. These
types of cash assessments are better for a company because things are
always unexpected. Take for instance COVID; everything was turned
upside-down. My department lost 6 employees in a short time frame
and the rest of the department had to take on extra work. Overtime was
through the roof and there wasn't much we could do about it because
they weren't interviewing to hire because of restrictions. The company
had to purchase thousands of dollars in equipment for all employees to
work from home (I work for a large company that has hundreds of labs,
some that were testing COVID tests and vaccines). I can only imagine
that over-budget spending we endured during this time. But, who
would have predicted a global pandemic while doing budgets the prior
year?
References:
Datar, S. and Rajan, M. (2018). Horngren's Cost Accounting: A Managerial
Emphasis. Pearson.
Rygelski, Mark. (January 5th, 2018). Budgets Don't Work: Here's How
Businesses Can Do IT Differently. Forbes.
