Week 4 Discussion Post 23 Document

Budgeting can be good for a company, but it also has its drawbacks. The biggest advantages

are that it "[promotes] coordination and communication among subunits in the company [and

provides] a framework for judging performance and facilitating learning" (Datar, 2018).

Obviously, a company that has strong communication will run better because everyone will

be on the same page, which means processes can go faster and costs can be lessened.

Budgeting also allows the company to better plan for how it will perform. By looking at the

previous years, it can take those numbers to give it an idea of how production for that year

will be. However, that can also be a hindrance. Relying on old information and planning for

an unknown future is difficult because unexpected things can and almost always will happen

months and review all of the company’s financial decisions (Rygelski, 2018). By forecasting

only two months, the data is still current provides a better image as to where the company can

improve. It also allows for more conversation to be facilitated in the company as different

subunits can provide more accurate numbers and predictions. Besides that, reviewing

financial decisions fully and deeply is a better way to gouge how similar financial decisions in

the future may affect the company. It's impossible to plan for the unexpected, especially when

it's a year out. I believe that it is better to formulate a plan on fresher data and make financial

decisions as opportunities show themselves, not when it is convenient for what was budgeted

a year ago.

Traditional budgeting practices have been around because it is a proven method. The benefits

include communicating directions and goals to different departments, judging performance

based on financial results against goals, and motivating employees to achieve goals (Datar &

Rajan, 2022). It can do wonders when the budget is integrated into the company goals.

Making a budget can vary, but most companies settle on a yearly budget. I have tried

budgeting in my personal life and frequently go over my budget because of increased costs

that I cannot control, such as the rising gas prices. However, I still need to drive to work

because public transportation does not exist where I live. When I read through the chapters

and answered the homework, I thought of this issue and how companies face these. Money is

that managers should spend more if it means to benefit the company in the long run (Datar &

It can become frustrating to keep following the budget that has been based on the previous

year’s performance. The book has stated, “One limitation is that past results often incorporate

past miscues and substandard performance. The other limitation of using past performance is

that future conditions can be expected to differ from the past” (Datar & Rajan, 2022).

However, there is also the issue of oversetting goals to frustrate employees. While the book

had a little section to explain this, I found this article from Harvard Business Review named

this phenomenon the Stretch Goal Paradox and further explained this oversetting of goals.

One excerpt says: “Our research suggests that though the use of stretch goals is quite

common, successful use is not. And many executives set far too many stretch goals... Tesla

them by nearly a year” (Sitkin et al., 2017). The key is to find the perfect metrics. The book

discussed alternatives such as rolling budgets and managers and employees discussing to

keep it within budget, but the fact remains that it takes much effort and can be time-

consuming. There are other issues, such as employees forgoing good opportunities. It goes

over the budget and uses everything in the budget, whether necessary or not, so the budget

will not decrease next year (Rygelski, 2018).

It Differently, is fascinating because instead of a year or a month, it suggests using a 13-week

budget. “Thirteen-week cash flows are easier to keep updated to the ebbs and flows of

business and provide a better picture of reality to make business decisions from... sound

2018). I like the idea of an unrestrictive but not a free-for-all type of budgeting. While the 13-

week budget works for some, I admit it does not solve everyone’s problems. With traditional

budgeting, higher-ups must check and verify the budgets before being submitted, and

sometimes, traditional budgeting works. Despite the outdated information, it still provides an

excellent reference for some companies in their upcoming months.

The budget and the budgeting process is a never-ending cycle of planning and

implementation that "...includes both the plan's financial and nonfinancial aspects and serves

as a road map for the company to follow in an upcoming period" (Datar & Rajan, 2018). The

traditional budget has several advantages. A budget allows every person in the organization to

know and understand the overall company financial goals for the period and the financial

goals for individual departments. With every member of the organization on the same plan

company goals can be prioritized and achieved. There should be no question as to leadership's

expectations. Knowing the company's financial goals allows each department to assess

performance relative to those financial goals. The company is only as strong as its weakest

department. If a particular department is falling short of meeting budgeted goals,

investigation and research must be conducted to find out the reason for the short fall. This

allows the company to perform better: provide better products or services, improve customer

service, improve inventory management, etc. With an established budget employees have a

goal to reach or maintain. In some budget years employees are required to create solutions to

conditions, or when actual future events are drastically different from what management

consuming process. Not only does budgeting take time from leadership, but lower-level

employees that give input into the process have their time taken by the budgeting process. I

Due to the advantages and disadvantages of the traditional budget I would encourage a

company to look at a combination of traditional budgeting and alternative budgeting. In a

Forbes article Rygelski (2018) mentions that his company looks at budgeting on a thirteen-

plan for all to follow plus the ability to meet intermittently to make changes would make an

organization stronger. The budget would also be in real time as opposed to twelve months or

more behind. For example, in Texas public schools the financial office is required to submit a

fiscal year budget to the school board for their approval before September 1 of every year. We

are also required by law to perform improvement plans at the district and campus levels.

These improvement plans drive the spending of federal and state dollars within our district.

This means that the budget that is planned and submitted to the board must include all

expenditure items from the district and campus improvement plans. Every month, the

committees that develop the improvement plans meet to reevaluate the plans and adjust as

1.Promote coordination and communication among subunits within the company

2.Provide a framework for judging performance and facilitating learning

3.Motivate managers and other employees

Challenges in Administering a Budget

The budgeting process is time-consuming. Estimates suggest that senior managers spend

about 10–20% of their time on budgeting and financial planning departments spend as much

as 50% of their time on it.

For most organizations, the annual budget process is a months-long exercise that consumes a

tremendous amount of resources

Reference

Datar, S. M., & Rajan, M. V. (2018). Horngren's cost accounting: A managerial emphasis,

global edition, 16/E 12. PEARSON EDUCATION LIMITED.

Sitkin, S., Miller, C. C., & See, K. (2017). The Stretch Goal Paradox. Harvard Business

Review. https://hbr.org/2017/01/the-stretch-goal-paradox

Rygelski, M. (2018, January 5). Council Post: Budgets Don’t Work: Here’s How Businesses

Can Do It Differently. Forbes.

https://www.forbes.com/sites/forbesfinancecouncil/2018/01/05/budgets-dont-work-heres-

how-businesses-can-do-it-differently/?sh=2cb42dd846b8

Datar, S. M., & Rajan, M. V. (2018). Horngren's cost accounting: A managerial emphasis,

global edition, 16/E 12. PEARSON EDUCATION LIMITED

Rygelski, M. (2018, January 5). Council post: Budgets don't work: Here's how businesses can

do it differently. Forbes. Retrieved May 26, 2022, from