In general, budgeting is considered a control tool that offers an action
plan to make sure that the actual activities of the organization are
least deviated as compared to the planned activities. Also, most
organizations use the budgets to provide an operation of the
organization as well as an overview of the organization (Management
Control Systems (2nd edition). Budget as an Instrument of Control,
2021). In the present era, many companies are facing new alternative
approaches rather than the traditional budgeting systems because
traditional budgeting is associated with some the challenges.
In the present discussion, the article “Budgets Don't Work: Here's
How Businesses Can Do It Differently” by the Forbes financial council
has been examined to determine the benefits and drawbacks of
traditional budgeting practices.
Benefits of traditional budgeting
A solid framework is provided by the traditional budgeting system as
it is based on the earlier year data that permits the organization to
base their financial activities and their budget on a solid framework.
Also, the traditional budget practices are helpful for the organization
to make a proper decision by identifying the issues and accordingly
asking for making changes in the organization. Moreover, traditional
budgeting encourages decentralization that transfers the control of
an organization or an activity to different authorities. It can be said
that it is a part of the organizational culture. Overall, the traditional
budgeting practices are considered an instrument of control that
follows the top to bottom approach (Rygelski, 2018).
Drawbacks or challenges of traditional budgeting practices
The present research has identified that traditional budgeting
practices require more time to manage the work. Also, it has been
found that this practice involves too many management resources.
Moreover, the traditional budgeting practices are considered to be
inefficient as it has version control issues, are prone to data entry
errors, and have difficulty in devising accurate formulation.
Additionally, this practice has other drawbacks such as low change
responsiveness, disconnection from the strategic plan, and failure to
motivate desirable behaviors.
After analyzing the findings related to the traditional budgeting
practices, it can be said that these practices are the best for the
companies, but a slight modification is required in the practices. Here,
an alternative approach could be taken by a company by focusing on
zero-based budgeting, better budgeting, rolling forecast, and beyond
budgeting. Here, the rolling forecast could be a more beneficial
approach to leadership, managers, employees, and others. This could
help to bring more opportunities to achieve the most significant
objectives and goals to fit budget numbers.
References
Management Control Systems (2nd edition). Budget as an Instrument of
Control . (2021). Retrieved May 25, 2022, from
https://www.icmrindia.org/courseware/management%20control%20
systems/MCS04.htm
Rygelski, M. (2018, January 5). Council post: Budgets don't work: Here's
how businesses can do it differently. Forbes. Retrieved May 25, 2022,
from
https://www.forbes.com/sites/forbesfinancecouncil/2018/01/05/b
udgets-dont-work-heres-how-businesses-can-do-it-
differently/?sh=7bbb61ff46b8
