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Alternate Budgeting System - Essay Example

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The purpose of this essay is to outline the flaws of traditional budgeting structure adopted in most business organizations.  Furthermore, the essay provides an analysis of an alternative approach to finance management named activity-based budgeting system…
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Alternate Budgeting System
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Download file to see previous pages On basis of a study conducted by Catherine Stenzel and Joe Stenzel (page 82)2, it may be observed that irrespective of a model of the budget adopted, budgets normally incorporate three mistakes that limit the scope and decision making abilities of the entities. Those three mistakes are as under:
It is seen that budgets do not align resources to strategic objectives of the firm. Budgets do not reveal the business strategies. Logically the budgets should translate the strategic goals into actionable operations in quantitative terms. But this does not happen. Budgets and strategic objective some time appear far apart in planning the use of resources. Budgets are constructed keeping in mind the resources in hand. There is no planning under the budgetary process to create resources to meet strategic objectives.
Entities declare mission statements and strategic objectives enthusiastically in a big way. It is seen that during budgeting, very few so-called flaccid budgets, that are presently in operations, care for business plans and plan activities to achieve those strategic goals.
In words of Catherine Stenzel and Joe Stenzel ‘one final flaw that can reduce budgeting relevance and lead to flaccid budget centers on parochial claims to resources.’ That is to say resources under the budgetary process are allocated on a competitive basis and not as per preferences set out in the strategic objectivity.
Conventional budgets do not describe methods for arriving at budget proposals or at an allocation of funds.  ...Download file to see next pagesRead More
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