To budget or not to budget. It is the questions that companies are asking their managers to
consider. Traditionally, budgets are the proposed plan of action by management for a specific
period. d Used for the current year or as a follow-up to the prior year ending accounting cycle. d
Budgeting is a help to managers by helping departments to set goals, judge and measure
performance or even motive employees. d
In the article it talks about how ineffective budgeting can be. GL groups points out that they
sway from using budgets. Their reasoning for this way of thinking was because budgets are
inflexible and cannot be adjusted once that are set in place. Also, budgeting can have a
negative affect within a business. For example, managers may be force to think that their
expense budget should be used in its entirety even if it is not needed. Or it can lead to poor
decisions made to meet certain expense goals. d
I agree with the decision made in the article to look at employees, customers and operations to
make decisions on where money is spent. This will lead to placing monies within the business
that will provide the best outcome for the business. Answering the important questions of
timing, does it make sense, or what is the worst that can happen. Not to budget.
Traditional budgeting is most likely the best way to go. There is always a way to create a
solution whether it needs to be altered as in cutting back on it or increasing it for that quarter.
Although it does have its cons by the budget being manipulated or it can carry Errors which
gives a false of what was spent during that quarter. They are used mostly in smaller
businesses since the previous spending is being used to generate a budget.
budgets are extremely important documents for the businesses in this modern world. Budgets
are based on the past data and also include professional estimates and assumptions as well. It
is important to note that budgets must also include the latest possible available information in
order to make realistic budgets.
The traditional budgets are always helpful for the organization in the following major ways:
Help management to plan future activities of the business in a more affirmative approach
Budgets acts as a yardstick to measure the performances of the relevant department and/or
managers
Budgets help in improving the communication within an organization
Realistic budgets always result in increasing motivation level of employees, which also help
in improving productivity of the employees, etc.
The first starting point of preparing the master budget is to prepare the sales budget and this is
because of the reason that many other budgets are dependent on the sales budget. Moreover,
following are the major approaches to prepare budgets:
Participatory Budgeting Approach (i.e., the lower-level employees including managers must
be involved heavily, while preparing budgets) and this approach is usually considered to be
feasible for the businesses
Top-down Approach (i.e., in this approach, the participation from lower-level employees has
not been included or involved at the minimum level)
The major drawbacks of traditional budgeting include the budgetary slack (i.e., intentional
overestimation of expenses and/or underestimation of revenues to ensure the favourable
variances once actual data compared with the budgeted results) and preparing budgets are
quite time-consuming process.
Based on above details, I would prefer the use of the traditional budgeting in comparison of
the alternative approach to budgeting. This is because of the reason that under alternative
approach, only real time analysis could be performed with only real time data availability.
I believe that there are times when a traditional budget may be the best option, they are very
useful for strategic planning and pinpointing specific areas or departments that are not
operating as efficiently as possible. They are based on historic information and organized.
On the other hand, that information can be stale and inflexible. The bigger concern and what
I experience with my own company is that too often the decision is based solely on staying
under budget and doing so is often tied directly to the bonuses of executives.
Using an alternative approach that is more flexible and encourages everyone in the company
to think more critically about expenses and efficiency of operations seems like a better
approach. d Sometimes the decision that is best for the company in the long run, does not fit in
the current budget but should still be considered. The ability to make changes closer to real
time and considers best interests and not just an immediate return on the investment would be
more important to me.
Traditional budgeting does have its advantages because it helps a company with decision
making. “Because a budget makes it easier to spot issues, you can decide to make changes to
your business. If you are exceeding your budgeted expenses, you can cut back and reduce
business expenses that you deem unnecessary” (Blakely-Gray, 2018).
However, the budgeting process can be 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” (Datar, Rajan, 2017 p. 201). Traditional budgeting
can also be an inaccurate representation of the goals a business wants to reach. Managers and
business owners can manipulate projections to make actual results look more attractive,
which will hurt her business in the long run (Blakely-Gray, 2018).
I think that companies should consider other forms of budgeting other than traditional
budgeting. “More and more businesses are moving toward operating without a long-term
budget and working with 13-week cash flows instead” (Rygelski, 2018). These are easier to
keep updated and provides a better picture of reality to make decisions from.
Most companies choose to make a budget for the year and try to stick to it very closely. A
traditional budget is typically based on the performance of the prior year. This is done by
estimating revenues and expense for the year. When a company knows that they have
something big coming up, they will add that to their budget so that it does not show up
unexpectedly and through the budget way out of sorts. There are advantages to traditional
budgeting such as increasing savings, keeping expenses under control, and analysing the
trends of the company’s spending trends. There are disadvantages to this as well that include
stressing out when the budget is cutting close, being stricter on what you can and cannot
spend on and fighting a good budgeting pattern that works well for the company.
Some companies are using a 13-week cash flow instead of a traditional budgeting plan
(Rygelski, 2018). This allows a company to focus on their spending instead of their budget
specifically. It is also a much shorter timeframe from a 12-month bases to a 2-month basis.
Companies can spend a lot of time analysing their financials instead of focusing on the
budget, where they are according to the budget, and if they will meet their budget for the year.
I do support a company’s use of traditional budgeting practices instead of an alternative
approach. I think that the article from Rygelski, 2018 made traditional budgeting sound like
all the company focuses on is the budget. However, the company that I work for uses a budget
and it seems to work for us. We always end up very close to our budget for the year. Though
there are weird things that pop for unexpectedly, that is why we budget for expenses like this.
These include payouts for employees quitting or retiring as well as bonuses or referrals given
to employees. The budget allows the company to look closely at our spending to make sure
we are not wasting money on unnecessary items when we could spend it in a different area
that benefits the company AND the customers as well. For example, our bank just went
through a new product that was easier and provided more options for customers when they
opened accounts. Yes, we are “losing money” because we are waving more fees than before,
however more customers are opening accounts and putting their money into our bank which
ultimately benefits the bank and looks great from a budgeting standpoint.
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 22, 2022, from
https://www.forbes.com/sites/forbesfinancecouncil/2018/01/05/budgets-dont-work-heres-
how-businesses-can-do-it-differently/?sh=c95e50c46b8a
Datar, S. M., & Rajan, M. (2017). Horngren’s cost accounting (16th ed.). Boston, MA:
Pearson.
Rygelski, M. (2018). Budgets Don't Work: Here's How Businesses Can Do It Differently.
Retrieved from forbes.com/sites/forbesfinancecouncil/2018/01/05/budgets-dont-work-heres-
how-businesses-can-do-it-differently/?sh=3485c4e846b8.
Blakely-Gray, R. (2018). Understand How Traditional Budgeting Can Impact Your Small
Business. Retrieved from https://www.patriotsoftware.com/blog/accounting/traditional-
budgeting-system-process-advantages-disadvantages/
Datar, S. (n.d.). Horngren’s Cost Accounting: A Managerial Emphasis (16th ed.) [E-book].
P. (2022, April 20). Advantages And Disadvantages of Budget | What is Budget? Advantages
and Limitations of Budget. A Plus Topper. https://www.aplustopper.com/advantages-and-
disadvantages-of-budget/
Rygelski, M. (2018, January 5). 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=58f638f46b8a
https://www.datarails.com/top-down-vs-bottom-up-budgeting/
TRADITIONAL BUDGETING: OVERVIEW, ADVANTAGES, AND DISADVANTAGES
- CFAJournal
Budgets Don't Work: Here's How Businesses Can Do It Differently by mark Rygelski
