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‘Beyond budgeting or
budgeting reconsidered? A survey of North-American budgeting practice, Libby, and Lindsay (2010:57)
try and help create a ‘robust understanding of budgeting that is capable of
explaining the mechanisms or processes of giving rise to satisfactory or
unsatisfactory consequences of the budgeting system’. They approached this by undertaking extensive research into North American firms, in which
they surveyed firms and searched for processes to find what effects budgeting systems have on their firms.

The study’s results
were categorised into three main categories, ‘The criticisms of budgeting’,
‘North-American practitioner’s perceptions of budgeting’ and the ‘factors and
outcomes associated with perceptions of budgeting. However, Libby and Lindsay
focused mainly on the section where the ‘Criticisms of budgeting’ were explored

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Analysing the results
from their findings, it is noticeable that it’s not a mutual understanding that
budgets are flawed, but they could be improved to align with the firms’
strategy. 88% of the respondents strongly
agreed or agreed with a statement affirming that ‘the problem with
budgeting is more to do with how
they are used and some of the roles they are asked to play; budgets have the
potential to be extremely useful
if used appropriately’ (Libby and Lindsay, 2010:60). However, despite this, 94%
of the respondents showed that they were not planning to ‘abandon the use of
budgets for control in the near future’ (Libby and Lindsay, 2010:60).                                                                                                
The findings conclude that
firm’s primary efforts, in many cases, are to reduce the problems they
face with their budgeting system, rather than trying to find solutions and
amending their budgeting system.

Budgets are also assumed
to be disconnected from firm strategy; Kaplan and Norton (2001) further
reinforce this claim, where they concluded that firms they’ve previously worked
with, unsuccessfully tried to link budgets with their strategic objectives.
Hope and Fraser (2003b) seemed to have a mutual agreement as they also considered
that annual budgets are not aligned with strategy. However, the findings analyze these assumptions,
as the Canadian sample “somewhat agree” that budgeting is linked with attaining
strategic goals; this is further reinforced by 64% of Canadian respondents signifying
that budgets are to some extent, effective for implementing strategy. Despite
this, it is still being used in practice as 67% of the Canadian participants suggested
that there are steps being taken to link budgeting and strategy. However, few
firms are planning to abandon the budgeting practice as a whole (Ekholm &
Wallin, 2000).                                                                                                                                                                           There are also suggestions that
the focus of contemporary budgeting practices mostly focus on how their costs can be reduced
rather than creating value for their firm, which could mean that strategic
initiatives are unfairly lower priorities (Hope and Fraser, 2003) (Schmidt,
1992: 102). This therefore avoids
potential long-term investments to try and meet short fixed targets, which can be harmful for the firms
in the future (Hansen et al 2003)

Budgets are considered to take too
much time to formulate as they “are absorbing considerable management time and
other resources creating them” (Hope and Fraser 2003b:106). However, the
results oppose with this statement, as it takes 6 weeks on average for the
Canadian sample to complete their budgeting process, which is significantly
less compared to the American sample, which scored a median of 10. Participants
were also asked to state how long on average a manager spends in preparing
budget related tasks during a financial year. The results indicated that
managers spend 3- 4 weeks, which is 6% of their whole time performing budget
related tasks for both samples; This however, differs from other results
collected by Hope and Fraser (2003b), as they in fact reported that it takes
12-20 weeks, which consumes 20% to 30% of managers’ time.                                                                                                      Again,
this can be further reinforced by Umpathy (1987), where they had comparable
results. One of the causes for this could because could be the fact the size of
the firms in the samples, which has not been stated in the research. A smaller
firm would take less time in preparing the budgets compared to larger firms.
Likewise, such differences could have arisen from technological advances as
Libby and Lindsay conducted their research from 2009-2010, long after Hope and

The findings also show that most
firms adapt to market changes using budgets, partially confirming the criticism
saying that ‘budgets impede adaptability’ (Libby and Lindsay 2010:63).
Nevertheless, they found that 49% of the US sample and 56% of the Canadian
sample allowed budget revision throughout the financial year. The low
percentages suggest that there may be an inclination for firms to reduce the
issues that have occurred through the inflexibility in budgets. This can then
be brought back to the results, where Libby and Lindsay (2010) found that 4% of
the participants have planned to or are considering abandoning the budgeting
practice. The fast-moving environment can also mean that they become out of
date. Hope and Fraser (2003a) argued that because of this, the prices and
margins are continuously under pressure, as product life cycles are shorter and
customer taste change rapidly, meaning the budgets have the inability to adapt
and conform to these changes.

The last criticism that was found
by Libby and Lindsay (2010), was ‘the use of budgets as fixed performance
contracts’. Due the fact budgets are mainly levied from outdated and uncertain
information, and mainly, they are based on estimates, therefore using them as
fixed term performance contracts is inaccurate. Conferring back to their
survey, this is only a minor issue as 17% of the US participants and 12% of the
Canadian participants (Libby and Lindsay, 2010:64) responded that they compare
results to their budgets without changes or allowance during the year. However,
their previous study, (Libby and Lindsay, 2003, part 1) stated that, ‘Fixed
performance contracts can lead to budgetary gaming’, by purposely reducing the
revenue estimates and increasing expense estimates to achieve favourable
variances against the budget. It is in fact unethical behaviour, which may lead
to difficulties in the future where fraud related issues may arise. Despite
this, budgetary gaming is perhaps the most accepted criticism of budgeting as

Looking at the criticisms of
budgeting, the overall findings are very noteworthy; they contradict the
findings from previous studies which have researched into budgeting. Libby and
Lindsay’s paper articulates the amount of time managers spend on making the
budgets, and how that has been reduced. Firms are beginning to adapt to the
budgeting processes to reduce the number of issues that arise from it and how
the use of fixed term performance contracts has been cut down too. These
factors work hand in hand to the decisions made by firms to fix and amend
budgeting strategies, rather than getting rid of the practice.                                                                                                       
                              However, it must
be remembered that this analysis is inadequate: a greater depth of
understanding and evaluation can only occur with utilisation of other resources
such as comparisons with budget forecasts and the statement of changes in
financial position of the company are considered too. 

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