Critical Analysis Of The Abolition Of Budgeting

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Critical Analysis of the Abolition of Budgeting Budgeting is a main instrument of management control for most organizations’ systems. Recently it is a controversial phenomenon, the disappointment with budgeting is occurring. This is because some people find that budgeting processes are time consuming and often lead to dysfunctional behavior. Additionally, they make organization fail to be flexible in such an uncertain financial environment. Many people think traditional budgeting systems should be abolished, but others wish to improve them. Hope and Fraser (2003b) provide a few examples of European companies that have abolished traditional budgeting systems successfully. On the other hand, Eckholm and Wallin (2000) observe approximately…show more content…
Thus, under the pressure to improve performance, subordinates may force performance through engage some short-term actions, which may result in earning manipulation, breakdown in corporate ethics or outright fraud. In a company that applies traditional budgeting, teams are fighting with each other for customers and resources, which leads to discourage of information sharing. Hope and Fraser (2003b) maintain that budgeting impedes information sharing and slow the responsibility of market information. In addition, without budget targets, subordinates would report or make more effort on some abnormal market information they collect instead of simply hide them. The reporting of that abnormal information may help the company adjust their business strategy, and avoid shortcomings (Hope and Fraser, 2003b). Conversely, Libby and Lindsay (2010) suggest that in their survey sample, in terms of the efforts put on achieving budgets targets, there are 52% and 71% of respondents in Canadian and US respectively, which indicate that the emphasis is high. In respects of the relevance of the use of fixed performance contracts, there are only 12% of respondents in Canadian and 17% respondents in US agree that financial performance is strictly compared to the predetermined target and no commission for changes during the competitive period. In other words, the fixed performance contracts are not as highly relevant as what Hope and Fraser suggested. In terms of information sharing,
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