Improving the Budgeting Process or Abandoning the Budget Altogether

Improving the Budgeting Process or Abandoning the Budget Altogether

Introduction

For the successful implementation of the strategies and to support the decision making of management in that implementation, budgeting serves as a keystone in this regard. In addition to the implementation of strategies it is important tool for controlling and planning its operational resources. It is a process which is highly structured, budgeting is a multidimensional thing, it is used as a benchmark in comparing with the actual actions of the company with planned actions through valuing them in money. Once it is selected for implementation then the company authorizes the resources consumption up to a certain level for the execution of those action plans. While comparing the plan date with the actual data and that results show deviation from the standard, showing a need for improvement methods of planning or to alter the operational processes both across & within the units of business. The process of budgeting therefore hugely facilitates the overall control and coordination of the activities at firm's level of over its main divisions.

As most of the studies have shown that organizations consider this budgeting overwhelmingly as the most important tool for controlling. For instance, 85% of the companies located in Austria were surveyed and they agreed to the analysis of the differences between actual results and budgeted is the completely vital, basic job for controlling purpose. They are too agreed on the comparative analysis of the occured results with the benchmarked costs in those budgets which are flexible comprises the most essential element within operational controlling. Similar finding has been produced with the surveys which were conducted in Germany (Özel, 2003).

However in spite of the widespread employment, controllers and top managers greatly voice the dissatisfaction with the process of budgeting as a tool for controlling and planning. For example, a survey which was conducted in European enterprises in 2003 showed that the manager agreed generally that the budgetary and planning processes were very ineffective and all the above they are inefficient. Still though the most interviewees which only can supposition at the amount of the assets that were dedicated to them. Merely because the people thought that small benefits could be yielded through the utilization of large resources. Accordingly, 79% of the firms which were surveyed planned the changes in the process of budgeting, while a small circle of 13% even considered abandoning the process of budgeting in total.

The former CEO, Dieter Brandes of the Discount Super mart in Germany chain Aldi North, is one of the managers at high rank who sees budgets as totally unnecessary. In the view, controllers think of different concepts ( for example integrated performance management, balanced scorecards, value-oriented controlling, push button controlling, operational performance measurement, consolidation of the complex value chain, high end controlling and so forth) and overvalue their capability. As a consequence, they contribute significantly to the complexity growing which is linked with the management of business. This difficulty is readily visible in their detailed, fixed, costly and unimportant yearly budgets altogether. In addition to it is also assisted by the computers and the controllers which are nowadays overwhelm managers with that much knowledge which they lose the vision often of what is really existentially essential. Certainly, the CEO finds in agreement to himself with the late administration of business guru which is Peter Drucker's observation through experimentation that managers almost certainly are informed worse about the operations of their company at present than they were thirty years back (Brandes, 2004).

Among the managers of North America who shares Brande's opinion is Jack Welch, the former CEO of the General Electric, which the major corporation of the world. In contrast the most successful executive of the 20th Century, Welch says that for the corporations of America the budget is a bane. In his opinion the management at the top has to deal with a lot of numbers. What he has experienced that numerical key performance indicator should be 3 and that is enough for any enterprise to manage on the face of this earth. Namely Customer commitment, cash flow and the motivation of employee (Welch and Byrne, 2001).

Resultantly, since at the end of 1990s, the practitioners and the researchers have found a way which is more systematic, that are the alternative ways to the rational budgeting. Most notable among them are far away. Currently all the three have gained the prominence as the solutions which are proposed to the perceived problems of traditional budgeting. The dissimilarity among them contains to the degree of how they suggest to the change, the planning of firm and the system of controlling. Advanced and better budgeting center on the boosting of advantages for budgeting or the reduction of the consumption of resources linked with it. Therefore, the two concepts, one of retaining the budget as the main instrument within the controlling system and on the other side, the other concept is of Beyond Budgeting calls for the far basic change. It focuses at the fundamental transformation the model of company's management that the control through the budgets becomes redundant.

Discussion

Additional Causes regarding Beyond Budgeting

Besides the traditional complexity of the budgeting & the cost advantage relation which is unfavorable, there are so many factors which have led the managers to control the paradigm. Among the factors which are changing in the internal process of enterprise that is linked with the change from the market of seller from the age of industry to the market of buyer of the age of high tech. The organization structures for production, buying & sales, which is grown in the division of function of the labor which characterizes the age of industry, providing more space for the processing of chain which links the suppliers with the clients. In the same order, assumptions regarding the linear relationships that exist between the output and input are attracting to customer-oriented combinations which are flexible business systems in the age of high tech. Because the traditional budgeting is also a product of the industrial society, the administration of the post industrial business reasonably needs one or more than one instrument of controlling with the greater flexibility. The concept of beyond budgeting addresses the developments through focusing over the attainment of 2 targets:

* Higher flexibility in the controlling from a change by the management