Traditional budgeting is the processing of projected revenue and
expenses based on previous budgets. Advantages of traditional
budgeting include making decisions. If you spot any issues, you can
adjust accordingly, cut back, reduce, etc. Essentially it allows a
company to come up with a game plan for operating a business while
remaining profitable. There are some downsides. Traditional budgets
are easy to manipulate which would give inaccurate representation. It
is also time-consuming, you have to review previous budgets and
determine if any changes are needed.
a Open-book management is an alternative to traditional budgeting.
Using forecasts within a shorter span of time allows a company to
make an educated guess versus a guess based on previous traditional
budgets. This method paired with open-book allows transparency to
employees, specifically those whose pay and bonus are based on the
profits of the company, to focus on the success of the business. This
does come with some disadvantages. If employees are able to see the
company's financials, they may seek immediate compensation if the
company's revenue increases.
a In my opinion, based on today's workforce, traditional budgeting is
the better choice. Employee retention is difficult for many businesses
right now and cannot afford to lose employees based on open-book
management. While traditional budgeting is more time-consuming,
there is software available that can do this for businesses
automatically.
Blkely-Gray, R. (2021, January 25). Traditional budgeting advantages &
disadvantages for small business. Patriot Software. Retrieved May 22,
2022, from
https://www.patriotsoftware.com/blog/accounting/traditional-
budgeting-system-process-advantages-disadvantages/
Henglein, G. (2009, April 22). The Pros and cons of open-book
management. All Business. Retrieved May 22, 2022, from
https://www.allbusiness.com/the-pros-and-cons-of-open-book-
management-12302038-1.html
Rygelski, M. (2018, January 5). Council post: Budgets don't work: Here's
how businesses can do it differently. Forbes. Retrieved May 22, 2022,
from
