Weaknesses of Traditional Budgeting

 
Beyond Budgeting > Best Practices > Weaknesses of Traditional Budgeting

Weaknesses of Traditional Budgeting
Anneke Zwart, Student (University), Netherlands, Moderator
Fraser and Hope mention the main weaknesses of annual (traditional) budgeting that gave rise to the development of thinking beyond budgeting:
1. Time Consuming - Budgeting takes a lot of time. Average time needed for budgeting lies between two and four months according to the authors.
2. Costly - Despite developments of high quality and fast computer networks, the process of budgeting still remains to be expensive.
3. Useless - After visiting several companies, it appeared that many companies perceived the results of budgeting differently. Budget gave some companies more control, while in other companies budgeting was perceived as being unimportant and not meeting any needs.
4. Bureaucratic - The continuous pressure on prices of goods and services asks for decreases in structural costs and in bureaucracy.
5. Frequency - Initially changes in the competitive environment resulted in budgeting more often in a year, but its only result is a rising workload th...Sign up 		 

 
On Weaknesses of Traditional Budgeting 6b: Changing Economic Enviroment
Nita, CEO, United States, Member
Hi, Anneke,
I like your observation that budgeting has been successful in stable environments, but is not efficient in the changing competitive e...Sign up
 

 
On Weaknesses of Traditional Budgeting 5: The Trisemester Way
Arif ur Rehman, Professor, Pakistan, Member
In academics the fundamental shift from annual examinations to semester and finally trimester system was in response to rapidly changing corporate and...Sign up
 

 
Weaknesses of Traditional Budgeting: 7. Budgeting is Often not Integrated with ERP
Jagdish B Acharya, Consultant, India, Premium Member
From past business results, vision of business leaders and future plans, management may prescribe limits on expenditure in the form of budgets.
A...Sign up
 

 
On Weaknesses of Traditional Budgeting 3: Now Useless
KALOGO PAUL, Student (University), Uganda, Member
This weakness of traditional budgeting in many organisation is that it was originally made as a reference tool for planning purposes.
Yet ...Sign up
 

 
On Weaknesses of Traditional Budgeting 3: Use Budgeting Appropriately
Alpin McGregor, freeelance, United Kingdom, Member
Surely problems arise with budgeting when it is not used appropriately.
It will be used inappropriately by those who don't understand how budgeti...Sign up
 

 
On Weaknesses of Traditional Budgeting 3: Don't Use Budgeting for History Only
George Kerstholt, Strategy Consultant, Netherlands, Member
If budgeting is used as a means of reference for achieved results (history) (as nowadays is often the case), yes it will work adversely.
However ...Sign up
 

 
Budgets... They Have a Place But When Misused!
Donald Liveley, Teacher, United States, Member
Budgets are about compliance (tactical) rather than the long term strategic and eventual survival and robustness of the enterprise.
I believe th...Sign up
 

 
Weaknesses of Annual Budgeting: 8. Perspective of Cost Control
Hakvoort, Business Consultant, Netherlands, Member
What's the definition of traditional budgeting? Traditional budgeting is mostly perceived out of the perspective of cost control. This is a wea...Sign up
 

 
On Weaknesses of Traditional Budgeting 3: Not Useless...
palermo, ICT Consultant, Chile, Member
Hello Anneke, I agree with your statements except in that the traditional budgeting is useless. I believe it is useful and have to agree with @Sign up
 

 
Weaknesses of Traditional Budgeting: 9. Included in Project Management Tools
CHIEDU UDE, CEO, Nigeria, Member
Ensuring discipline and control are essential attributes of traditional budgeting, and have proved quite useful. Nations and state bureaucracies still...Sign up
 

 
Another Weakness of Budgeting: 10. Vulnerable for Cost Cutting
ADAM SAID, Student (Other), Member
The mentioned weaknesses of (traditional) budgeting are very pertinent.
I suggest also this one: some companies are following their normal budget...Sign up
 

 
All Mentioned Weaknesses do not mean Budgeting is Useless
Sergey Baltin, Manager, Russian Federation, Member
When you at the very beginning of installing budgeting in your company - you face all these 10 weakness mentioned before.
The main aim of managem...Sign up
 

 
Further Weaknesses of Traditional Budgeting
K.Narayana Moorthy, HR Consultant, India, Member
- It is not oriented to long-term vision.
- If it follows bottom-up method it's tedious and if it follows (many a time) top-down method it's pain...Sign up
 

 
Waste of Energy, Causes Sandbagging
JC de Jong, Director, Netherlands, Premium Member
Hello Anneke, I agree with your points and the two I would like to add are (one already being mentioned)
1. Lack of long-term visioning (budgets ...Sign up
 

 
On 3. Useless: Managers don't see the Value of Budgeting
jiun, Student (University), Malaysia, Member
The weak points and strengths of budgeting should be determined by the management. What I have observed is that managers indeed do not really fully ut...Sign up
 

 
Budgeting-Rocket Science?
Istvan Szeman, Consultant, Hungary, Member
@George Kerstholt: My observation is budgeting is still a great approach to maintain control and quantify strategies...Sign up
 

 
Missing Process and Software Support
Istvan Szeman, Consultant, Hungary, Member
One essential (and missing) building block is a well defined process and software support for forecasting budget positions, based on recent trends, co...Sign up
 

 
Weaknesses of Traditional Budgets
NANG Theophile, Student (University), Cameroon, Member
Hi all, I appreciate what is previously said by @Jagdish and would like to agree with @...Sign up
 

 
Weakness of Traditional Budgeting
Dobson, Project Manager, Canada, Member
I agree with @ADAM SAID that typically budgeting takes on a 'changes around the edges' approach, with incremental ad...Sign up
 

 
Weaknesses of Annual Budgeting
RUBEN ACOSTA, Manager, Mexico, Member
Dear Anneke, you are just right in your observations. Dou you have any better way to improve this process? Is it possible to reduce to 50% of current ...Sign up
 

 
Lack of Process and Software..
Donald Liveley, Teacher, United States, Member
The reason that processes and technological support is not as optimal as it should be, is the concepts/principled are not well conceptualized. Process...Sign up
 

 
Weaknesses of Traditional Budget, 3 Useless
Adam Mohammed Baba, Director, Ghana, Member
Political interference as a result of political expediency also distorts implementation of traditional budget.
This is more pronounced in the eco...Sign up
 

 
Weaknesses of Traditional Budgeting
K.Narayana Moorthy, HR Consultant, India, Member
I agree with Adam Mohamed Baba - budgeting must be of value of money. Basically, if the budgeting is based on activity calculations and activity costi...Sign up
 

 
This is a Good Observation
Nita, CEO, United States, Member
@K. Narayana Moorthy: You are right, although I never thought of it that way before. It is very difficult indeed to ...Sign up
 

 
Careful with the Effectiveness of Numbers
ADAM SAID, Student (Other), Member
I think indeed numbers are effective tools for decision making, but the issue is the reliability of these numbers.
When the process for producing...Sign up
 

 
Weaknesses of Traditional Budgeting
Michael T Iorngurum, Manager, Nigeria, Member
Your reasons are cogent (Editor: ~convincing). Particularly observations 3 and 4 (Useless, Bureaucratic). In a process manufacturing plant, they are e...Sign up
 

 
Weaknesses of Traditional Budgeting
George Kerstholt, Strategy Consultant, Netherlands, Member
@Istvan Szeman: unless I misunderstand you. Imho budgets are usually used as a reference of short-term (1-3 years) r...Sign up
 

 
Weaknesses of Traditional Budget
K.Narayana Moorthy, HR Consultant, India, Member
While it is agreed that a budget is important, it can not be simply followed in completion of work. Especially in a changing environment with high lev...Sign up
 

 
Weaknesses of Traditional Budgeting
Istvan Szeman, Consultant, Hungary, Member
@George Kerstholt: I agree with you very much with regards to usual practices and its limiting factors. The conseque...Sign up
 

     
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