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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.
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