Has the Budget Outlived Its Usefulness in the 21st Century - Essay Example

? Has The Budget Outlived Its Usefulness In The 21st Century? Budgeting like planning is supposed to give a roadmap through which financial obligation and responsibilities are to be approached. In budgeting, an estimate of the financial needs-expenditure and income are projected in every particular organization. Organization thus depends on the budgetary allocation considered at a time. The need for budgeting is thus an important tool in running organization whether profit oriented or not (Lalli 2012, p.62). For a business, an organization, or any institution where money is frequently used, it is important that the aspect of budgeting be brought in to help track and give the necessary projections in funding allocation and enabling effective checks and balances. Budgeting also allows for proper accounting, it make it easier for accounting practices to be applied and used in making financial reports of the different environment (Bogsnes 2003, p.97). Therefore, whether budgeting is or not a prerequisite, it is a subject of serious debate that should be considered in more than one-way. Following this proposal to do away with budgets, researches have been done to evaluate and report on the efficacy of budgets in organization. One of the researchers done by Dugdale and Stephen reported that budgeting is still conseidered a very important tool in business and most firms still look upto its contribution in running the affairs of the organization. In this research, both financial and non financial organization were considered and 40 of such organizations were used in determining whether budgets are still an important factor in management (Dugdale and Stephen 2006, p.19). The managers of the organizations were followed in this regard and eigth of them eventually interviewed. The response in all the companies in which interviews were done confirmed that they rely on bugdeting as a tool in planning, communication, co-ordination and as away of measuting perfomance. Although in the research, a significant trend was obserrved throughout-budget consideration for motivation was not approved by all the organizatins. It is also importanat to note that all the organization is which the research was done actualy approved the need for budgeting in their organization with non financial institutions considered in this research even coming out more firm on the budget issus (Dugdale and Stephen 2006, p.21). In order to find out the problematic nature associated with the budgets, the research team organized about twenty propositions on what a budget may be seen as problematic and fronted them to the respondent to either agree or disagree with them. the outcome was that all the propositions were denied as reflecting the position of a budget in an organization except in two situation where slightly above the number of the respondent accepted that budgets are problematic, these were; that preparing bidgets is a tedious taks that consumes much time and that managers may at times be constrained by the requirement of the budgets and delay making important descision for no clear reason (Dugdale and Stephen 2006, p.30). It is then clear that there might be problems associated with budgetting but they don’t reach a propotion in which doing without a budget would be considered worthwhile. Budgets plays important roles in management and on other related areas and for predictability on perfomance it is important to have abudget in setting benchmarks. Budget Criticism by Beyond Budgeting Round Table (BBRT) vis a vis Academics Budgeting processes have received a number of criticisms in the recent past, which has subsequently attracted the public concern as to whether it is necessary, or not. The criticism has is dubbed going beyond budgeting, the critics says that the process of budgeting has been the greatest barrier in the management the economy (Hope and Fraser 2003, p.23). Budgeting system has been implicated in making the managers and the employees to device behavioural tendencies that are counterproductive considering what strategic management should have. The new approach in the business community has, ‘Beyond Budgeting’ has defied the influence brought in by budgeting and has believed that efficiency and accountability can still be achieved with the development of new system that will eliminate the limitations of budgeting (Alphonse n.d., p.44). Considering the recent organizations development, it is true that they have grown all inclusive that it is no longer the business of production and sales as businesses are traditionally known. The activities in which a company is involved in has become more and diversified, there are many dynamics too coupled with turbulence and cutthroat competition. Business future has thus remained uncertain and this dictates that businesses and organization have to change their management skills and models to suit with the ever-dynamic conditions of work to counter the situation (Hope and Fraser 2003, p.29). Connecting these with budgeting, it interprets that organizations have to remain flexible to the changes and find solutions to the challenges in the shortest time possible a provision, which is not provided for by the traditional planning and budgeting that looks rigid to accommodate any changes. For organization to remain relevant and operate on excellently with quality in place and to continue existing in the market and business, they have to adopt systems that are gullible and those that can be reconsidered depending on the need at the appropriate time. Budgeting plan has the presumption that everything is bound to happen as scheduled and that there is not going to be challenges along the way. This presumption makes it difficult for businesses to thrive in the contemporary business setting. Companies have then noted this problem and are developing plans to adopt systems that are flexible and can be used in responding to the challenges currently facing them, and this is to mean going against the principle of budgeting (Libby and Lindsay 2009, p.28). The beyond budgeting plan makes it possible for the managers to be ahead in thinking on how to cut themselves a niche in realizing the market objectives, in this regard the challenging conditions of the business are well considered. Unlike in the previous budgeting, thinking was only cantered on how the budget can be met even if all factors are odd, the new plan provides for operation without budget and giving solution depending on the dynamics that has presented itself. The founders of Beyond Budgeting round Table, Jeremy Hope, and Robin Fraser believes that organizations should consider abandoning budgeting and opt for alternative models that can give direct solutions to the problems rather than sticking on the static models prescribed by the budgets (Libby and Lindsay 2009, p.33). The Effects of Type of Organization, Its Culture, and Environment on Budget Several factors can influence successful budget operation in an organization. These factors can be grouped into in three spheres, the type of the organization, the organization’s culture, and the environment of the organization. These factors will dictate how budgeting will be adopted in an organization. Type of the Organization In terms budget consideration in organization, there are two classifications that can be considered, the financial and the non-financial. The financial in this case denotes those firms that are profit motivated while the other is not profit motivated. The difference in these organization is that the profit motivated must a accomplish some of the obligations in management and are bound to make profit too. As such, the profit-motivated organizations have to keep themselves in the market and do all that is necessary to keep in the pace of the competitors (Tierney 2008, p.102). Business is about preference and taste of the ultimate targeted person, the customer. In this regard, businesses tend to diversify their provisions and keep responding to the dynamics associated with businesses. They are then bound to have a flexible system that can accommodate changes as they present themselves, the subsequent result is that such businesses or organization are not able to fully comply with the much restricted budget that provides for no vibrations of the earlier plan (Tierney 2008, p.110). Contrary to the same, the non-profit organizations do remain focused to initial budget since they are not faced with dynamic situations. Culture It defines the level of association and prescribed codes of conducts that relates the employees themselves and to the organization. In this case, the organization can be built in the culture of innovation or to follow established norms until otherwise stated. In those organizations in which innovation is the lifeline of the business, it is impossible to successfully apply the principle of budget and keep in the business, you have do design other models that can serve more effectively compared to the limits of a budget. Budget is built on static hypothesis; anything that remains uncertain; thus, defies the essence of budget and should be looked for in another perspective (Cekic 2010, p.88). This is how the organization’s culture able to affect fulfilment of the budget’s requirements. Organization’s Environment The environment of an organization encompasses many aspects that influence the business directly or indirectly. One classical example of the environmental issues is competition among other organizations. Competition would mean that the best candidate wins whatever the competition is about, it can be the market share or any other factor of significance interest to the business. If the competition becomes intense, it is always a rule that strategies have to be changes so that existence in the market can be maintained. In such situation, budget rule will have to be interfered with since more expenses than anticipated will be incurred and this does not augur well with fixed budgeting plan (Cekic 2010, p.94). These dynamics explains why the beyond budget round table model was developed-to cope up with uncertainties in business that otherwise will not be given a solution in case the business runs on absolute fixed budget. How should organizations today overcome the perceived limitations of budgets? Even though budgets are perceived to have a tracked system in which an organization can maintain focus on their objectives, it comes with a number of challenges and limitations; budgets are known to only have estimations hence the results cannot be accurately determined. Developing a budget prior also acts to deter further achievement of results, once the target is reached; the organization will expresses a feeling of contention preventing possible positive realization. Budgeting also allows inefficiencies to be justified, through budgeting; it is possible to factor in certain expenditures that are not necessary or exclude others that are necessary (Moeini 2007, p.64). Most budgets are also prepared annually, this means that they are not for results that are to be realized in the short term. Budget plans also tend to manifest certain inflexibilities, this is not good for the business since not all the prices quoted in a budget remain static and this always poses problems in trying to fix for the deficits. Given the above limitation of budgeting, managers in the organization should come up with systems that are able to provide instant solution for the problems that arises with the budget plan. With reference to the span of time, the managers should come with the overall plan and at the same time develop contingent plans for any of the short-term achievements to be realized. Following the needs of the organization, the managers are supposed to be in a position of estimating the contingent fund that will sufficiently cater for impromptu activities (Hope and Fraser 2005, p.85). In terms of the inefficiencies and over budgeting, managers should develop a plan for checks and balances and oversight system that will ensures that the budget is lean and that the vote heads are stringently followed to the letter. Finally, the management of different organization should consider coming up with systems that will play the role of budgets as well as other roles in order to curb the limitations that comes with budgeting (Moeini 2007, p.9). In conclusion, budgeting has been a very important tool in business and in the general achievement of objective and goals. Nonetheless, it has also proven to be very ineffective in some cases, more so in the more complex contemporary business situations that requires business to diversify and contain dynamism associated with business. In this regard, new models to replace budgeting are coming in including the Beyond Budgeting Round Table. References Alphonse, B. (n.d). "6 main Limitations of Budget." PreserveArticles.com: Preserving Your Articles for Eternity. N.p., [Online] Available from http://www.preservearticles.com/2012051932652/6-main-limitations-of-budget.html [Accessed 15/02/2013] Hope, J., and Robin F. (2003). "The time has come to abandon the budget." Controlling & Management 47.0: 71-76. Lalli, W.R. (2012). Handbook of Budgeting. 6th ed. Hoboken: John Wiley & Sons. Libby, T. and Murray L. (2009). "Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice." Management Accounting Research 19: 31. Tierney, W.G. (2008) The impact of culture on organizational decision-making: theory and practice in higher education. Sterling, Va.: Stylus Pub. Bogsnes, B. (2008). Implementing Beyond Budgeting: Unlocking the Performance Potential. London: John Wiley & Sons. Cekic, O. (2010). Budgeting and Organizational Culture. Chicago: LAP Lambert Acad. Publ. Dugdale, D. and Lyne S. (2006). "Budgeting: Are Budgets Still Needed? David Dugdale and Stephen Lyne Investigate Whether Companies Have Heeded the Call to Scrap Them and Find That, in Most Organisations, They Are Still Alive and Kicking." Magazine article from Financial Management (UK): 43. Print Hope, J. and Robin C.F. (2005). Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap. Harvard: Harvard Business Press. Moeini, H. (2007). Beyond Budgeting. Washington: GRIN Verlag. Read More