ACCOUNTING

Beyond budgeting satisfies this need better than traditional budgeting



Beyond budgeting satisfies this need better than traditional budgeting

Introduction

Organizations used the process of budgeting to manage and control their operations, to formulate a proposed budget for the following year, for employee motivation and performance enhancement, and to allocate organizational resources to every part of the organization. In accordance with these, it is also used to evaluate the performance of the organization, and to allocate responsibilities among employees (Gustafsson & Parsson, 2010).

However, an extensive use of the budget has negatively affected its credibility and is not considered as an optimal management control tool, and because of this process of budget, allocation is facing some criticism. It has been observed that most of the companies are unable to use this system because of fluctuating market (Ebdon & Franklin, 2006).

In addition to this, critics of the budgeting process has argued that it has become an antiquated process as it is unable to detect problems, and since companies cannot include unforeseen circumstances in drafting of budget, and since budget process required considerable time and effort.

Another important negative aspect of budgeting is that it cannot be utilized under changing business environment. Hence, it has been argued that firms need to bring changes in their projection planning and budgeting process to meet the requirement of competitive business. Further (Akesson & Siverbo, 2009) describes that for the organization to enhance their growth and performance must lay emphasis on strategy goals rather than short term budgeting reports.

In accordance with changing business environment, organization are adapting new technologies, but tends to go on with olds models as well, the new accounting models such beyond budgeting and others are drafted on different philosophies that distribute new rules and regulations to the organization before implementation of these models.

Whereas (Fraser & Hope, 2003) explains that like budgeting addition management techniques are also used to analyze the financial performance of the company at annual basis, hence there is a possibility that alternative models might require more managing efforts and could prove to be costly for several organizations.

Discussion

Traditional budgeting technique and criticism

Historically budget was used in the organization for control purposes, but now day's firms tend to achieve several objectives with the budget process. For instance, budgeting tools are used to plan their future activity that includes projection of sales for the future, cost allocation for material purchase, and financial budgeting.

In addition, organization used budgeting techniques to coordinate with departments of the firms since all department are entirely dependent of each other. Therefore, at the time of resource allocation budget process is perceived as necessary requirement that is being used to make affective communication with each department regarding their budgeting needs (Gustafsson & Parsson, 2010).

Moreover, it is also consider as useful to enhance contribution skills of the organization, as during the budgetary process employees gets the prospect of providing their point of view in front of management, and with their coworkers.

The process of budgeting is also used to evaluate the peroformance of the employees after the year-end ...