Summary to Beyond Budgeting and the Adaptive Organization - Dissertation Example

Budgeting is one of the most important tools for managers and it has been regarded as the cornerstone of the management accounting system by Hasnen, Otley, and Stede (2003).

Budgeting is a tool that is used by managers as a blueprint for their future actions. Budgeting is used by organizations to analyze how the firm is performing and how it is expected to perform in the time to come. In some organizations, this tool is also known as the annual planning process. Budgeting has been one of the most commonly used methods by managers and it has been used in different parts of the world. However, with the passage of time, there have been several discrepancies and inconsistencies found in the budgeting process and traditional methods used by managers for budgeting and this has raised questions regarding the reliability and effectiveness of the budgeting process (Ostergren and Stensaker, 2011).

One of the major purposes of budgeting is that it allows the company to analyze how it is able to achieve and meet its objectives. With proper and effective use of budgeting techniques, an organization is able to improve its profits and reduce its unnecessary expenses. There can be different purposes for using budgeting and some of the most important purposes of using budgeting techniques include: forecasting financial statements, controlling costs and expenses, managing and predicting cash flows, resource planning, communication plans, etc (Becker, Messner, and Schaffer, 2010).

Organizations may use budgeting for more than one of these above reasons and it is up to the management how they adopt these techniques as there have been several firms that have adapted and have achieved benefits of using these techniques. Besides the advantages and benefits that budgeting techniques offer, these techniques have several limitations that limit and reduce the importance of such techniques. Organizations have been planning to improve these techniques and therefore there has been sufficient research on this topic (Linder and Weber, 2005).

Budgeting techniques are not only used for one department or one product that the company is offering. With the use of budgeting techniques, an organization is able to identify the cash inflows and outflows from different departments or products that the company offers. By using these data, the management can be able to better analyze the situation and take decisions accordingly. Therefore it has been used by management as a planning tool for years (Drury, 2008).

1.2 Background
The traditional budgeting approach is a combination top down and bottom-up budgeting methods. According to the top-down budgeting method, the top management makes the master budget for the company and passes it down to the lower levels of the organization for implementation.