Budgeting is considered the cornerstone of management control in organizations o

Budgeting
is considered the cornerstone of management control in organizations of
all industries and economic sectors. As a financial plan, budgeting is a
tool for an organization to outline its financial goals for a
particular period (usually one year). Also, it is used to monitor the
progress by comparing the actual performance with the set plan, and
control the activities of the business (McLaney & Atrill, 2023).
According Ilchikabir (n.d), in most organizations, it’s considered the
main part of management accounting process that allows management to
follow and fulfil strategies by allocating resources and according to
strategic goals. What’s more, traditional budgeting system helps
managers to be aware of deviations from the plan (Liyanagea &
Gooneratnea, 2021), and allows them to take corrective measures to keep
things in control (Berry et al., 1995, as cited in Liyanagea &
Gooneratnea, 2021). However, traditional budgeting has several
limitations that Wallanders (1999) used to state that it’s “an
outmoded way of controlling and steering a company. It is a cumbersome
way of reaching conclusions which are either commonplace or wrong”. Why so?
As
argued by Ilchikabir (n.d), the annual budgeting was carried out in the
context of stable markets, predictable and statistic costs. However, in
today’s rapidly changing markets with the increasing impact of
globalization, the annual budgeting is no longer appropriate as
organizations are required to constantly adapt to changes to maintain
their position in the market. Traditional annual budgeting, as planned
one year ago, is incapable of achieving desired targets as the market is
always changing (Hope & Fraser, 2003a, as cited in Ilchikabir n.d).
Moreover,
traditional budgeting approach is time and resource-consuming as it’s
rarely updated. Additionally, it stops organizations from seizing
opportunities, preventing flexibility, and adaptability to the
environment (Libby & Linsey, 2010, as cited in Lidia, 2014). Another
criticism of traditional budgeting is that it “supports a vertical
control, limit communication among departments and exclude the structure
of the entity and make employees unappreciated” (Lidia, 2014)
Question:
To overcome the limitations of Traditional Budgeting systems, Better
and Beyond Budgeting approaches have taken their place. In your
opinion, how Better and Beyond Budgeting fixed the problems encountered
while using Traditional Budgets?