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Welch, J (2005), expresses his judgement on the traditional style of budgeting. “The most ineffective practice in management, It sucks the energy, time, fun and big dreams out of an organisation. In fact when companies win, in most cases it is despite their budgets, not because of them.” Financial managers are now expressing this universal view and are realising that it is an ineffective and unproductive approach to be using, therefore a new approach needs to be found that is not out-dates. Better budgeting and beyond budgeting are two alternative budgeting techniques which appear to be superior over traditional budgeting with its clear limitations and downfalls that effect the organisation.
Traditional budgets are very detailed and require the input and cooperation of numerous people throughout the organisation; which only increases to the sum of corporate resources consumed by traditional budgeting. Moreover, internal politics come into force and becomes more significant than the customer, with managers and employees self-occupied as an outcome. Therefore the process can take as long as six months and in some cases they find it is completed after the budget period has actually started or even finished. With the time issue involved in traditional budgeting, it can cause an inefficient workforce as employees and managers are not completely focused on the job in hand but rather sorting out the budget as it requires a massive amount of detail. According to IBM (2009) “77% of financial analyst’s time is not spent on performing value added analytics work.” As a result analysts are spending the bulk of their time accumulating and certifying data and managing the process, rather than other tasks that needs to be completed.
Traditional budget is fixed and inflexible and can quickly become irrelevant, this is because it starts top down and then becomes a comprehensive bottom up construction process to meet fixed objectives set by management regardless whether they
Traditional budgets are very detailed and require the input and cooperation of numerous people throughout the organisation; which only increases to the sum of corporate resources consumed by traditional budgeting. Moreover, internal politics come into force and becomes more significant than the customer, with managers and employees self-occupied as an outcome. Therefore the process can take as long as six months and in some cases they find it is completed after the budget period has actually started or even finished. With the time issue involved in traditional budgeting, it can cause an inefficient workforce as employees and managers are not completely focused on the job in hand but rather sorting out the budget as it requires a massive amount of detail. According to IBM (2009) “77% of financial analyst’s time is not spent on performing value added analytics work.” As a result analysts are spending the bulk of their time accumulating and certifying data and managing the process, rather than other tasks that needs to be completed.
Traditional budget is fixed and inflexible and can quickly become irrelevant, this is because it starts top down and then becomes a comprehensive bottom up construction process to meet fixed objectives set by management regardless whether they