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Answer 1. Budgeting And Budgetary Control


The two companies are operating in very different business environment, one in a very stable and static market while other in a dynamic and innovative environment. The need is to advise both the companies about the pros and cons of the traditional approach to budgeting and budgetary control. There are two issues traditional budget is faced with; the first issue is the accounting. The budget process serves two functions. It serves to build the internal budgets for each responsible center in the company and the roles up to form the external earnings per share capital.

Nobody wants to reinvent the wheel. But if the wheel is no longer ensures the movement, but it becomes an obstacle on the way forward, then it should be changed. Traditional budgets are perceived by managers as something odious, capable of destroying the strategic objectives of the company. World's leading companies after the formation of the traditional approach to budgeting stated that through the introduction of the changes they have purchased another competitive advantage and turned the budgeting process in generating added value (Durfee, 2006, 28).

Stones flying toward the traditional budgeting with the filing of managers at different levels - do not count. Managers complain and the large number of iterations, unrelated to the strategic objectives of the company, and the enormous amount of time absorbed by the formation of the budget, and the discouraging result: the budget - only a dim reflection of the real business.

Traditional Approach To Budgeting

Many accuse the traditional budgeting in the short-sightedness - the budgets reflect the financial condition of the company's resources at a certain moment, losing sight of the potential loss of customers or a threat to reduce sales of new products. Management of the companies that have revised approaches to budgeting, concurs that the traditional budget hinders the potential growth of the company, focusing exclusively on the management of short-term financial results. Orientation to the level of expenditure of the previous year, when forming the budgets of departments or business units of the company, relates managers' hands and feet. " For example, the leadership of the business unit has identified the possibility of starting a new activity, which promises to bring considerable profit, but for fear of "not to get" in the budget it varies accordingly spends more time on decision-making, which as a result often turns out to be negative, that is, the rejection of a promising area of ??business.

With traditional forming budgets based on calendar or fiscal year, creating an artificial time limit, which causes difficulties in the case of breeding a new product to market. For example, imagine that in February the marketing department decided that the company should provide the market with a new product within three months. Suppose a company is practicing the budgets for 12 months and have already allocated resources for a year and a guide will be in the uncomfortable position of answering the question of where to get additional ...
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