Budgeting Practices of Listed Companies in the Netherlands

"Budgeting Practices of Listed Companies in the Netherlands"

Summary and Discussion

Although traditional budgeting has been harshly criticized in the last few years, research shows that Dutch CEOs are very satisfied with their budgeting practices so this article focuses on current budgeting practices at companies listed in the Amsterdam Stock Exchange. 134 companies were selected to participate in a survey sent by mail. The final usable response rate was 33%.

The survey asked questions about management control process, budgeting period, budget targets, uses of operating budgets, budget style, budget games and slack, budget satisfaction, new budgeting methods, and effects of size and industry.

Management control is the process managers use to influence other members of an organization to implement the organization's strategies. It has four phases: strategic planning, budgeting, measurement and reporting, and evaluation. It also involves informal communications and interactions such as meetings and conversations. This study is about phase two: the budgeting process, more specifically: the operating budget (which includes the planned operations for the coming year). 63.6% of the firms claim that their current budget supports the firm's strategy.

Budgeting period: 81.8% of the participants have a budget with a period of one year and divide their budget into months. 90.9% use cyclical budgeting with revised forecasts versus only one company who uses continuous budgeting.

Budget targets: Most companies (59.1%) targets are set by lower level management and are reviewed by top management. This is likely to increase commitment to attain budget targets. In 40.9% of the companies, top management develops the targets and then present them to the lower levels for noncommittal advice/comment before setting them. The latter approach still involves participation for both sides, even though it is top-down budgeting.