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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