How Budgets Are Used For A Continuous Planning Process

1786 Words Mar 4th, 2015 8 Pages
Budgets are widely used in organizations as a part of a continuous planning process. Drury (2012) listed six mechanisms they provide, namely planning, co-ordination, communication, control, motivation and performance evaluation.
Traditional budgeting is a long-term plan based on historical performance which indicates managers’ anticipations of the period by setting goals and forecasts (Bonner, 2008). An increasing number of researchers argue that traditional budgeting cannot align with today’s business rapidly changing environment: organizations face a challenge to forecast their goals while adapting their strategy (Simons, 2005).
Planning is linked to organizational objectives and strategy. It is carried annually by managers who devote time examining all aspects of their processes and discovering opportunities and shortfalls to help them delegate responsibilities, set resource limits and monitor the performance of responsible managers (Dugdale and Lyne, 2010, 2006a). Nonetheless, budgets were criticized mainly for being time consuming because today time should be used more efficiently than before due to competition (Jensen, 2001). Neely, Bourne, and Adams (2003) claimed that their preparation consumes 20% of management’s time. This could be attributed to the amount of details required and the number of participants in the process.
Traditional budgeting provides a roadmap of controlling and managing an organization looking on the past, the present and the future by using…

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