This report highlights the usage andpractice of budgets within organization.
in this article , first of all the thehistory or background of budgeting ispresented , along with various budgeting practices followed by organizationsand analysis of related theories intraditional budgeting, considering boththe merits and demerits of traditional budgeting. The second part ofthe paper continues with the discussion about alternative budgeting methods andthe benefits of using budgets for an organization. In the third part conductedsurveys and studies are analyzed in order to establish whether traditional oralternative budgeting methods are better and have a positive impact onbusinesses; or which has more practical usefulness.
The final part providesconclusions and discussions for future research Bugets and budgetary control has been known since 19th century.however the useof budget control was until the beginning of in 1920s in US. At that timebudgets support management in controllingmanagement resources and activities fordefinite period..
by the 1960, budgets are used by organizations for predictingfuture revenue and expenses of company for particular period of time and withthe passage of time it become act as a key drivers for measuring theoverall performance of company .(cima,goode and malik) after that ,budgets are taken into consideration for making long term and short-term plans andimplementing strategies of enterprises.(Rickards,2006). According to Ekbom and wallin, merchant andvan der Stede budgets have historicallyplayed a significant role in managing and controlling the basic operations of acompany. In the present scenario,budgets are used as a financial control tools by companies through which theorganizations can measure their financial performance for definite period. budgets are important for organization due tonumerous reasons. According to Romanian authors (achim,2009a) budgets performseveral functions for management.
It is used by companies for planning their operations. It aids themanagers in forecasting future issues of company in advance and enable them toact accordingly. it also acts as a coordinatoras it brings coordination between different departments and employees ofcompany and it can provide help in communicating financial plans amongdifferent departments to achieve its set objectives. budgets also utilize byorganizations for controlling the current activities of business by measuringthe actual performance with budgeted performance and determining the deviationsif any.so that management can take the relevant decision to eliminate such deviations.
If the budgets have been properly prepared, it gives the management detailedinformation about the next fiscal year.it gives the possibility to setobjectives easier and becomes an important tool in decision making process. According to theliterature (Campbell, 1985; Horngren, Datar and Rajan, 2012) a traditionalbudget is a plan which is used by management for estimation ofincome, expenses, cash flows for a specified period .in this budget last yearbudget is taken as a base and current year budget is prepared by makingalterations in previous years base.
The main objective of this budget is toprovide aid to management in planning ,controlling and communicating theproposed plans so that management canwork according to the predetermined plans and thus, achieve the overall goal of company. In another words it, servesas a financial plan in support of a specified target. Thus, traditional budgeting process proves to be beneficalfor management as it helps the management in performing basic functions ofmanagement, like planning, controlling and performance evaluation but there aresome issues regarding the use of budgets within organization. Some authors criticize the historicalbudgets due to many reasons.
Under traditional budgeting ,past information isused by management for setting the goals of company and by using past data acompany can never cope with the future changing requirements of business world.(neely,Sutcliff and heyns) in 2001 ,neely , highlightsthe demerits of traditional budgeting .According to them,, these budgets consumetoo much time, too many managementresources and quite expensive .theinstallation and operation of budgets is very costly since it require theengagement of large force of technical and qualified staff.as such it is notsuitable for smaller undertakings budgets constrain responsiveness and areoften a barrier to change as Budgets are prepared after a lot of ground workdone by different departments .Budgets encourage gaming and perverse behavior, budgetsdo not react the emerging network structures that organizations adopting, theyare not prepared frequently useuallydeveloped and updated on annual basisonly and make people feel undervalued. The main critique is that budgetintroduces a vertical command and controlling, that constrain responsivenessand barrier to changes. Instead of using budgets as a mean to implement strategythe concentration is primarily on cost reduction that affects the people behavior and encourage them to play games.
Overthe years it has claimed that traditional budgeting has lost relevance with themodern business environment and is no longer satisfying the needs of managers(Rickards, 2006; Goode and Malik, 2011). Due to this reason researchers havedeveloped alternative budgeting methods that are more suitable to changingrequirements of modern business world.in last five years, Beyond budgeting,better budgeting, rolling forecasts, activity-based budgeting are developed as a best alternative methods of budgeting. Beyond budgeting (BB) enables themanagers to carry out their operations with speed ,flexibility and simplicityand it also helps in reducing the overall cost of operations .similarly ,activity based budgeting eliminates all sorts of unnecessary activities, whichhelp the business to save its cost. researchersshows that improvements in methods of budgeting has been seen as one of the mostimportant management control mechanisms in public and private companies.
modern budgeting system plays a crucial role insetting the targets of companies,as it set the standard for performance in coming period .the importantadvantages of budgets or budgetary control system due to which the managementcan use budgets are as follow:-1 Maximization of profits: .the budgetarycontrol system aims at maximization of profits of enterprise. To achieve thisobjective,a proper planning and coordination of different departments isundertaken.
there is proper control over various capital and revenueexpenditures. the resources are put to gether for best possible use.2Coordination: the working of differentdepartments is properly coordinated byusing budgets . coordination of various executives and subordinates isnecessary for achieving the budgeted targets. 3 Specific aims: the plans andpolicies and goals are determined by top management and all efforts are put together to reach the common goals of company.every department is given target tobe achieved.the efforts are dirtected towards achieving some specific aims.
4 tools for measuring performace: .by providing targets to various departmentsbudgetary control provides a tool for measuring managerial performance. The budgeted targets are compared with actualresults and deviations are determined.the performance of each department isreorted to top management.this system enables the introduction off managementby exception.
5 economy: the planning of will be systemetic and there will beeconomy in spending.the finances will be put to optimum use.the benefitsderived will ultimately extend to industry and then to nation. 6 economy: the national resources will be usedeconomically and wastage will be eliminated.
7 determining weakness: thedeviations in budgetsd and actual performance will enable the determination ofweak spots of company .8 correctiveactions .: the management will be able to take corrective measures when thereis deficiency in performance .thedeviations will be regularly reported to top management so the necessary actionis taken at earliest.in the absence of budgetary control system,the deviationscan be find out only at the end of financial year.9 consciousness: it createconsciousness among the employees .by fixing targets for employess,they aremade conscious of their responsibilities.
everybody knows what is expected to doand he continues with his work. The researchers and practitioners was very excited about their research on budgeting .Overthe years studies were made in order to decide whether traditional oralternative budgeting methods are better and have a positive impact onbusinesses.
Although traditional budgeting has met intense criticism it stillis used universally. The literature (Hansen, Otley 579 and Van Der Stedel,2003) considers that the percentage ofcompanies that use traditional budget it is very high, around 90% in developedcountries and developing countries (Goode and Malik, 2011; Pietrzak, 2013).in2006 dugdale and lyne studied that about 95% of financial managers thought thatbudgets are extremely important for planning, coordination,communication and performance evaluation , and forsupporting the internal control system of organizations. The majority of therespondents (80% of the Canadian and 77% of the US sample) indicated thatbudgets were used for control purposes in their organizations and they were notplanning to abandon the use of traditional budgeting in the near future .similarly, Rickards (2006) presents a report aboutwell-known companies that successfully added beyond budgeting into theirmanagement processes.
Companies like Borealis (a leading European petrochemicalmanufacturer), Unilever (health and hygiene), Rhodia (a French chemicalconcern), German Railways, BASF-IT Services .To conclude that Budgetingis a major management activity without which the management is not able to perform basicoperations of company. The evolutions inbudgeting comes due to changing economic environment and business processes. Toconduct a profitable business, it is mandatory for every business to recognizetheir strengths, weakness so that they can cope with the dynamic environment inwhich it exists. Thus, ever company use budgets or making long term and short-termplans and execute their plans accordingly.
Fromthe initial cash budgets and future income and expenditures estimation budgetsevolved to more modern techniques such as zero based budgeting, activity basedbudgeting or beyond budgeting. The alternative budgeting methods gainedpopularity as they proposed solutions to traditional budgeting’s perceivedproblems. Eventhough several advantages were attributed to beyond budgeting themovement is still in his early stages of development. The concept requiresfurther research, development and practical implementation before a realbreakthrough is managerial (Although traditional budgeting is ofteninappropriate for the current environment is still very popular amongorganizations and will not soon be eliminatedIT services) are the examples ofbeyond budgeting successful implementation. Bibliography Assistent teacher MIRELA-OANA INTEA, ,.
associate professor VIOREL-DORIN LACATUS,assistant teache LIVIU-DANIEL DECEANU. jjournal of purpose for budgeting-literature review. neelly, s. h. (2001,2003,2004,2013). use and practice of budgets within organization.
traditional budgeting vs beyond budgeting. Bunce, P., Fraser, R. and Woodcock, L. (1995) ‘Advanced budgeting: a journey to advanced management systems’, Management accounting research, vol.6, iss.
3, September, pp. 253-265 Professor david dugdale and dr stephen lyne,( BUDGETING PRACTICE AND ORGANIZATIONAL STRUCTURE.) ANSHU KATARIA,DR PARVEEN KATARIA TRUEMAN PUBLICATION REVISED ADDITION 2016.(UGC COMMERCE) Dr RASHPAL S.SANDHU ,DR NEERAJ KUMAR SADDY .DR SIKKA SHARMA PUBLICATION.2016.(COST ACCOUNTING) Budgets have traditionalplayed a crucial role in controlling the management actives,