Analysis Of Budgets Lie At The Core Of Every Business Practice

2489 Words Jan 15th, 2015 10 Pages
Introduction Budgets lie at the core of every business practice. The tools are the major evaluators of managerial effectiveness and overall organizational performance. Businesses can achieve effective control and planning through the application of the right budgeting approaches in financial and accounting activities. Nonetheless, these benefits can only be realized if the managers of a company use the most effective models that take into account all relevant factors, which influence a firm’s budget. An inefficient method automatically leads to attainment of poor results. In this light, practitioners in the financial and accounting sectors evaluate different budgeting techniques in terms of efficiency, flexibility, accurate results, and ease of use. One of the approaches that attract immense criticism in respect to these considerations is the traditional budgeting approach. It is, therefore, essential to look into the reasons as to why the model has been criticized as a rigid method that should be eliminated (Zeller & Metzger 2013). Weaknesses of Traditional Budgeting Traditional budgeting model is not a new concept in business practice. Its application goes beyond the contemporary practices that have seen the development of new techniques. The model dates back to the onset of 1920s when the managers of the industrial revolution realized the need to control costs and the cash flows of a firm. Horvath and Sauter (2004) define the model as a quantitative expression of a…
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