Weaknesses of Traditional Budgeting




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Anneke Zwart
Student (University), Netherlands

Weaknesses of Traditional Budgeting

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 that is especially high in reorganizations and M&As.
6. Changing Environment - Budgeting has been successful in more stable environments, but it is no longer efficient in the changing competitive environment.
Are we missing any further weaknesses of classical budgeting, or is this list complete?
Hope, J. and Fraser, R. (2003) “Beyond Budgeting: How Managers can Break Free from the Annual Performance Trap”. Harvard Business School Publishing Corporation.
 

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3
Nita
CEO, United States
 

On Weaknesses of Traditional Budgeting 6b: Changing Economic Enviroment

Hi, Anneke, I like your observation that budgeting has been successful in stable environments, but ... Sign up

 
8
Arif ur Rehman
Professor, Pakistan
 

On Weaknesses of Traditional Budgeting 5: The Trisemester Way

In academics the fundamental shift from annual examinations to semester and finally trimester system... Sign up

 
10
Jagdish B Acharya
Consultant, India
 

Weaknesses of Traditional Budgeting: 7. Budgeting is Often not Integrated with ERP

From past business results, vision of business leaders and future plans, management may prescribe li... Sign up

 
3
KALOGO PAUL, Uganda
 

On Weaknesses of Traditional Budgeting 3: Now Useless

This weakness of traditional budgeting in many organisation is that it was originally made as a refe... Sign up

 
3
Alpin McGregor
freeelance, United Kingdom
 

On Weaknesses of Traditional Budgeting 3: Use Budgeting Appropriately

Surely problems arise with budgeting when it is not used appropriately. It will be used inappropria... Sign up

 
4
George Kerstholt, Netherlands
 

On Weaknesses of Traditional Budgeting 3: Don't Use Budgeting for History Only

If budgeting is used as a means of reference for achieved results (history) (as nowadays is often th... Sign up

 
4
Donald Liveley
Teacher, United States
 

Budgets... They Have a Place But When Misused!

Budgets are about compliance (tactical) rather than the long term strategic and eventual survival an... Sign up

 
2
Hakvoort
Business Consultant, Netherlands
 

Weaknesses of Annual Budgeting: 8. Perspective of Cost Control

What's the definition of traditional budgeting? Traditional budgeting is mostly perceived out of the... Sign up

 
4
palermo
ICT Consultant, Chile
 

On Weaknesses of Traditional Budgeting 3: Not Useless...

Hello Anneke, I agree with your statements except in that the traditional budgeting is useless. I be... Sign up

 
0
CHIEDU UDE
CEO, Nigeria
 

Weaknesses of Traditional Budgeting: 9. Included in Project Management Tools

Ensuring discipline and control are essential attributes of traditional budgeting, and have proved q... Sign up

 
1
ADAM SAID
Student (Other)
 

Another Weakness of Budgeting: 10. Vulnerable for Cost Cutting

The mentioned weaknesses of (traditional) budgeting are very pertinent. I suggest also this one: so... Sign up

 
2
Sergey Baltin
Manager, Russian Federation
 

All Mentioned Weaknesses do not mean Budgeting is Useless

When you at the very beginning of installing budgeting in your company - you face all these 10 weakn... Sign up

 
-2
K.Narayana Moorthy
HR Consultant, India
 

Further Weaknesses of Traditional Budgeting

- It is not oriented to long-term vision. - If it follows bottom-up method it's tedious and if it f... Sign up

 
4
JC de Jong
Director, Netherlands
 

Waste of Energy, Causes Sandbagging

Hello Anneke, I agree with your points and the two I would like to add are (one already being mentio... Sign up

 
0
jiun
Student (University), Malaysia
 

On 3. Useless: Managers don't see the Value of Budgeting

The weak points and strengths of budgeting should be determined by the management. What I have obser... Sign up

 
2
Istvan Szeman
Consultant, Hungary
 

Budgeting-Rocket Science?

@George Kerstholt: My observation is budgeting is still a great approach to maintain control and qua... Sign up

 
0
Istvan Szeman
Consultant, Hungary
 

Missing Process and Software Support

One essential (and missing) building block is a well defined process and software support for foreca... Sign up

 
0
NANG Theophile
Student (University), Cameroon
 

Weaknesses of Traditional Budgets

Hi all, I appreciate what is previously said by @Jagdish and would like to agree with @jiun that bud... Sign up

 
0
Dobson
Project Manager, Canada
 

Weakness of Traditional Budgeting

I agree with @ADAM SAID that typically budgeting takes on a 'changes around the edges' approach, wit... Sign up

 
0
RUBEN ACOSTA
Manager, Mexico
 

Weaknesses of Annual Budgeting

Dear Anneke, you are just right in your observations. Dou you have any better way to improve this pr... Sign up

 
0
Donald Liveley
Teacher, United States
 

Lack of Process and Software..

The reason that processes and technological support is not as optimal as it should be, is the concep... Sign up

 
1
Adam Mohammed Baba
Director, Ghana
 

Weaknesses of Traditional Budget, 3 Useless

Political interference as a result of political expediency also distorts implementation of tradition... Sign up

 
2
K.Narayana Moorthy
HR Consultant, India
 

Weaknesses of Traditional Budgeting

I agree with Adam Mohamed Baba - budgeting must be of value of money. Basically, if the budgeting is... Sign up

 
3
ADAM SAID
Student (Other)
 

Careful with the Effectiveness of Numbers

I think indeed numbers are effective tools for decision making, but the issue is the reliability of ... Sign up

 
0
Michael T Iorngurum
Manager, Nigeria
 

Weaknesses of Traditional Budgeting

Your reasons are cogent (Editor: ~convincing). Particularly observations 3 and 4 (Useless, Bureaucra... Sign up

 
0
George Kerstholt, Netherlands
 

Weaknesses of Traditional Budgeting

@Istvan Szeman: unless I misunderstand you. Imho budgets are usually used as a reference of short-te... Sign up

 
0
K.Narayana Moorthy
HR Consultant, India
 

Weaknesses of Traditional Budget

While it is agreed that a budget is important, it can not be simply followed in completion of work. ... Sign up

 
2
Istvan Szeman
Consultant, Hungary
 

Weaknesses of Traditional Budgeting

@George Kerstholt: I agree with you very much with regards to usual practices and its limiting facto... Sign up

   

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