Beyond Budgeting

3960 WordsMar 6, 201316 Pages
Beyond Budgeting | Managerial Accounting – AVIMA 11 | | Henrique Antunes de Souza | Jan/2013 | Contents Introduction: 2 The Traditional Budgeting 2 Beyond Budgeting: The Concept 4 Beyond Budgeting: The Benefits and a Comparative Analysis 5 Implementation 9 Conclusion 10 Bibliography 12 Introduction: A concept may go through changes over time, being reconsidered, reviewed, improved or even forgotten. In an environment where changes happen often, it’s usual to observe concepts and models being worn out and new or adapted approaches being introduced. In the field of business administration, the budgeting process has proved to be fundamental and highly recommended as a successful way of planning and controlling.…show more content…
Therefore, the authors disapprove of many beliefs that trigger the traditional budgeting process such as the one regarding fixed financial targets to maximize profit potential. They affirm that one cannot predict external factors nor could control them. Any strong external influence could turn the target into a pointless effort. Moreover, such belief is an obstacle towards creating capability to react fast to new circumstances. The authors consider this to be one main reasons of the traditional budgeting fallacy (Hope & Fraser, 2003). Additionally, Daum (2002) states the massive amount of time a budget requires. Some studies have proved this statement, as KPMG sustains that the budgeting process may take up to 20 to 30% of the management’s time. Moreover, consultants at Horvath & Partner affirm that 50% of the controller’s capacity is directed to planning and budgeting (Daum, 2002). As a consequence of a long and a slow process of elaborating a budget, Hope and Fraser (2003) mentions the high costs involved. Some companies have tried to come up with a cost of elaborating such a tool and it is surprising how high it can get. As an example pointed out by the authors, Ford Motor Company revealed an annual cost of 1.2 billion dollars with the creation and use of the budget (Hope & Fraser, 2003). One may also highlight the possibility of manipulating numbers when dealing
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