The strengths and weaknesses of the traditional budgeting

1438 WordsJul 11, 20046 Pages
As Gowthorpe (2003: P457) argued, that "A budget is a plan, expressed in financial and/or more general quantitative terms, which extends forward for a period into the future." Budgeting actually refers to the process that, after the strategic plan of the business has been made, companies made a short term plan (usually one year) to meet the strategic purpose. Traditional budgeting has offered a lot of contributions in so many years' practice. But it seems it is more and more unsuitable for the modern business. In this paper, I will give a brief induction for traditional budgeting; and then discuss the strengths and weaknesses of the traditional budgeting; last I will explain and evaluate the alternative. Every business leader wants…show more content…
Most of the budgets are based on the previous year's expenditure. Traditional budgeting methods are proving ineffective in today's unpredictable and fast-paced business climate. Traditional budgets are based on a calendar or fiscal year, creating artificial time lines that do not match new product schedules. Since this budget presents proposed expenditure amounts only by category, the justifications for such expenditures are not explicit and are often unintuitive. As Lester(2000) said, it may invite micro-management by administrators and governing boards as they attempt to manage operations with little or no performance information. Other criticisms of the traditional budgeting process are that it is extremely time-consuming for the benefits achieved; it focuses on resource inputs instead of the outputs generated by those inputs. What is more key performance indicators are not incorporated into existing budgeting processes and therefore traditional tools are too slow, one-dimensional and backward looking. However, to overcome its limitations, the line-item budget can be augmented with supplemental program and performance information. In nowadays, most organizations have recongnised that the traditional budgeting is the greatest barriers to achieve the goal. The traditional budgeting is described as "Bane of corporate America" and "tool of repression". So, what are the alternatives? Many
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