Budgeting and Beyond Budgeting - Essay Example

Literature review about budgeting

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

The world budgeting is not mainly used to refer to a narrow planning and control sense; rather it is used as generic term for both control management and traditional command models. It is therefore used with the annual process of making budget at its core. It is therefore clear that in this context, budgeting is used to describe not only a management culture but also a performance management system. Budgeting is mainly divided into two main areas especially for developed countries; the first one is that of the application of program and performance budgeting to a given individual countries and the second one is the analysis of the performance and program which remain a dominant prescription even though its questionable when it comes to record practice. There are various descriptive studies of budgeting which are not sufficient enough for the purpose of both further research and generalization that is needed in exploring specific areas in depth, constructing comparative framework, evaluation of budgetary capacity, clarification of assumptions and utilization of insight from related areas of study (Donovan, 2006).

Beyond budgeting literature review

This is an approach of budgeting that tries resolving the limitations and weaknesses of the traditional budgeting approaches. Beyond budgeting is used to refer to command and control that is used toward a given management model that is more adaptive and empowered It is also all about releasing people from the burdens of suffocating controls and bureaucracy systems, then trusting them with critical information and then giving them adequate time to think, share, reflect and learn and also improve. Above all these factors it is all about learning how to change from various leaders who have build and even managed beyond budgeting organizations. Beyond budgeting represent a management philosophy and not a management recipe. The key elements in the beyond budgeting is the alignment between management processes and the leadership principles. In a situation where this is lacking, organization are said to be at a greater risk of what is said and what is done. To any given organization, this is nothing but a poison. This can be best explained by the principles of beyond budgeting. It was started in 1968 to help in improving the performance and in a flexible and control and command models. It was introduced through beyond budgeting models

The occurrence of budgeting can be traced back at the start of the twentieth century when the municipal level begun to lay much emphasis on budgeting mainly in New York City. A good argument can therefore be made that budgeting begun as a result of need for public administration. It all started in the United States. During this time, it is also important to note that budgeting did not leave behind states and national governments. At the end of the century, budgeting mainly was focusing on the local governments. Depending on the conditions that were in a given history, budget were mainly focusing and emphasizing on financial controls, improvement in management as well as planning. As time went by, additional emphasis was made at around 1980 and 1970 so that the budget could focus on both accountability and prioritization. Even though there is no single emphases are any way unique to a given level of governance, it is certainly much evidenced that they can be found at every level. This is because the first emphasis is control and it appears to be coming from local government to a greater extent. It is also worth noting that there is so much importance of historical context when one looks at the changes in the organizational and states budgeting. Emphasis of budgets mainly depends on both time and circumstances in which is drawn up. This is a very critical observation since it is often found that budgeting is considered as a technical process that is removed from other forces and ideas that are current at a given period of time (Garon, 2012)

How budgeting was developed

Budgeting was actually developed after analyzing and following the following steps;

Strategic plans of the organization or the government were looked at- there was a need for United State government to know the reason why it was existing and what it aimed to accomplish. This was articulated in both mission and vision of the government. Strategic plans at the time showed how the government was to achieve its mission. The first step in the budgeting process was therefore to have a written strategic plan. This ensured that the resources of the federal government were used in a way that supported both the strategy and development of the government.

Analyzing the goals of the government and organization- these were the steps that both the government and organizations take so as to complete their strategic goals. They mainly needed to be budgeted. There was a need to develop goals. This led to emergence of need to develop accountability that could help in achieving these goals. This is mainly the responsibility of the management team. Budget was therefore needed so as to provide the financial resources that were needed to achieve these goals.

Revenues projections- these were mainly based on the historical financial performance and the projected income growth. Projected growth was basically tied to organizational goals as well as planned initiatives that were to initiate business growth (Rohde, 2011).

Criticisms of budgeting

Budget that was used traditionally has proved to have so many limitations. Due to the fact that budget is a financial plan that shows all revenues and expenses of a given business organization, it can at times be found be not only unrealistic and unreliable. It is also be very difficult to allocate such expenses and revenues in a business environment. Budgeting is also very monotonous and time consuming in a situation where it did not focus on the strategy. It also shown to have some constrained flexibility. It mainly focuses on cost reduction only rather than how the organization can add value to its operations. According to various researches budgeting makes superiors to be fraudulent so as to be able to achieve positive results. Another criticism of budgeting is the fact that it is mainly faced by a challenge of accomplishing targets due to fact that when one part of the organization freeze up, or even engaged up in given financial or management decline, it shifts its focus on fixing and adjusting errors. This makes it to be a case of fitting a square peg in a given round hole. No matter how well a given budget is prepared, it at a given time become outdated and therefore becoming of less or no use. Budgeting only provides the managers with a framework to work. They therefore become less keen in considering innovations.

Budgeting approaches

Output/input approach

This approach budgets both costs and physical inputs as a function of unit level activities. It is mainly used in service, manufacturing, merchandising and distribution activities (Garon, 2012)

Activity based approach

This is a type of input/output approach but with reduced distortions in the transformations by emphasizing on the expected costs of the planned activities to be consumed in the process, product or service.

Incremental approach

This approach budgets costs for the coming period or a percentage change for the budgeted amount. Often used in a situation where inputs and outputs are nonexistence or weak.

Beyond budgeting

Beyond budgeting is an idea that entails abolition of traditional process of budgeting as a trigger that improves control of management within a given organization through a fundamental re-examination of how to manage them better (Wiseman, 2010)

References

Donovan, S. (2006). Budgeting. Minneapolis: Lerner Publications Co.

Garon, S. M. (2012). Beyond Our Means: Why America Spends While the World Saves.

Rohde, C. (2011). Budgeting and beyond. Frederiksberg: Department of Accountig and Auditing, Copenhagen Business School.

Shim, J. K., & Siegel, J. G. (2009). Budgeting basics and beyond. Hoboken, NJ: John Wiley & Sons.

Wiseman, B. (2010). Budgeting. New York, NY: Weigl Publishers.