Traditional Budgeting: Why they should be discarded in practice

Budget control can be categorized as a form of management accounting that has encountered various changes; both in theoretical representation and in practice. Budgeting comprises of coming up with standards that either an organization or an individual can utilize as as a benchmark to measure with actual performance. Budgeting is significant to an organization or an individual since a budget occurs as useful in terms of self-regulation, evaluation, and measuring the results against the set standards. Budget control comprises all these. On the other hand, efficiency of capital markets duels on the accuracy and availability of information on securities and the respective prices. The market assumes that every buyer and seller has got full knowledge in regard to shares availability and the prevailing market price. Also, the trader should have knowledge of any other useful, applicable fact. For instance, chances of the issuer repaying the debt as promised, the past behavior of the said market and even the company's performance. The efficiency of the capital markets contradicts the notion and time limit allocated to budgets. With these facts in regard to capital markets, the article seeks to show critically why organizations and individuals should abandon the traditional budgetary model.

Thesis statement: It is imperative to put aside the conventional budgetary system and come up with a flexible system.

Most of the present day companies have to deal with an ever increasing rate in regard to change occurring in the environment. Bunce et al. (1995:254) echoes this statement by criticizing the usefulness of budgeting as a form of management control. With the ever prevailing changes; both within and outside the organization, flexibility comes in handy. In addition, the capital markets demand to have timely information. This requirement pressurizes the organization to deploy other new techniques so as to conform to the set rules and regulations.

Furthermore, Otley argues that one may work harder to understand how the system of budgetary control operates. Only to realize later own that such operations do not concur with capital markets requirement. As a result, most organizations have begun ceding budgetary control as the main way of carrying out effective control and resorting to new techniques. However, one may encounter challenges in regards when it comes to combining the said path with the usual tested and used systems.

Additionally, Ryan (2006:2) states that the prevailing business context happens to change in every scenario. In this regard, the budget procedure happens to dwell on the unpredictability of the given environment. Under such a scenario, one can conclude that the budget works mostly within a shorter-term period. Ryan goes on to explain how organizations assumes that even a business plan has got the capabilities of being represented financially inform of budgets. In this regard, on can utilize the budget as a controlling and monitoring technique when handling complex issues of the business plan.

Conversely, the organization may find the issue of implementing the budgetary control system as puzzling. Although a common understanding in the planning, behavioral and even control objectives occurs in uniformity (Lowe and Shaw 1968:305). For one to have an understanding of the whole scenario, both the factors prevailing inside and even outside the organization occurs as crucial. Also, the uncertainty of the situation presents itself as paramount.

Moreover, Kaplan and Norton (2000: 22) explains the happenings through the Balanced Scorecard approach. The method consists four parts namely; satisfaction, knowledge and innovation, efficiency and financial performance. The path has a link to the budget process and even the chances of having a connection amid short -term operations and long-term operations. Kaplan and Norton explain that the Balanced Scorecard divides the whole company strategy into smaller operational levels and in the process encourages the measurement of operational sections. The authors continue to show how the buy-in for employees and even the acceptance of such measures stands a chance ton present a long-term focus in place of a shorter-term budgetary system.

On the other hand, Buckley and Mckenna (1972:38) explains why it is necessary for a budgetary system to carry out planning, coordinating, motivation and controlling via various sectors present in the company. The budgetary system usually occurs as a financial plan for a given accounting period, specifically in one year. The main reason for carrying out such a process to catalyze the behavior of management when it comes to coming up with performance standards and at the same time control on how to achieve the said standards. In addition, Hofstede (1968) shows that the planning function may appear as immersed even in a steady environment. Realistically such an instance can represent the actual context of the organization's stand on the environment. However, under the present ever-changing business environment, the budget control system should always have a connection with the unpredictable situations which usually exists under short-term circumstances.

In addition to this argument, Otley (2001:257) notes that even if the system for budgetary control occurs as part of the bigger reality of the compound organization, works well or near to perfection under predictable environment. Otley recommends that one has to find out if the dynamic context of the existing team environment has got n impact on the reactions of the employees under unstable environment. This fact occurs due to a permanent team environment being replaced with the unpredictable and flexible business context where recognitions of employees contributions' under a given scenario occurs as eminent.

Collier and Berry (2002:13) handles the issue of risk in a different way. This action occurs where the notion of uncertainty plus the outside environment has been conceptualized in the form of the said risks and the reactions of that likelihood in regard to the budgeting process. The argumentstates that the risks carried out initially related fundamentally to the stability in terms of decision tools. The accounting risks usually based on the technicality aspect of the environment

In conclusion, after discussing the aspects of individual reactions with regard to the uncertainty of the budget control system, it may occur well if one emphasizes the integration of the said findings. The emphasis on the changing culture of power through the budget process appears to be linked to the newer techniques with regard to the organizations attitude towards results and the evolving nature and influence of the shareholder community. All shows how it is crucial to abandon the traditional budgetary control system and embark on new techniques to sort out management accounting issues.

References

Buckley, A. and McKenna, E., 1972. Budgetary control and business behaviour. Accounting and business research, 137-150

Collier, P and Berry, A. J., 2002. Risk in the process of budgeting Management accounting research, 13, 273-297

AHofstede, G., 1968. Game of budget control, Tavistock publications Ltd., London.