Beyond Budgeting: A Review of the Evolution and Impact

The provided articles and online resources discuss the impact of adopting rolling budgets, activity-based budgeting, and beyond budgeting in various organizational settings. The studies highlight the benefits of these alternative budgeting approaches, including improved financial performance, enhanced decision-making, and increased employee engagement. The articles also explore the challenges and limitations of these approaches, such as resistance to change and difficulties in measuring their effectiveness. Overall, the content suggests that adopting innovative budgeting practices can lead to positive outcomes for organizations, but requires careful consideration of the organizational context and cultural factors.

Budgeting

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
I. An understanding of how Leeworthy Ices benefits from having a budget and how the
budget process helps development of the business................................................................3
ii. The application of traditional budgeting approaches to a business Leeworthy Ices, key areas
of the business which the budget process needs to address....................................................4
iii. Traditional budgetary method and its benefits..................................................................6
iv. Alternative methods of budgeting and its importance ......................................................7
V. Traditional approach of budgeting ...................................................................................8
VI. Analysis over the methods (or a combination) would be more appropriate to Leeworthy
Ices........................................................................................................................................10
Budget-Collection of data in a single year is known as budget. It calculates the overall budget
in one financial year.............................................................................................................10
COCLUSION.................................................................................................................................12
REFERENCES..............................................................................................................................12

INTRODUCTION
This report contain the detail information about company Leeworthy ices. Under this the
detail is given on the techniques used by Leeworthy ices for making their budget like zero based
budgeting and incremental budgeting. The information on traditional and non traditional methods
of budgeting are also given under this with the detail description about their advantages and
disadvantages. This report contain or tells about most of the popular techniques or approaches of
budget used by most of the enterprises in today's world. In this report various advantages as well
as disadvantages of incremental and zero base budgeting and the procedure for using these
techniques has been described in it.
PART 1
I. An understanding of how Leeworthy Ices benefits from having a budget and how the budget
process helps development of the business
A budget is an estimate of costs or revenue which reflects the future financial condition
of company. It an important tool for the company and it also used as an action of plans to be
prepared for targeting the quantified objectives, standard for measuring the actual performance
etc. In Leeworthy Ice company, the managers has to properly understand the benefits of budget.
Budgeting is that process or tool where the managers prepare the budget for deciding the where
to allocate the funds in different activities (Grigg and Votaw, 2011). A common objective of the
creating the budget is for judging the employee performance every year with the use of various
variance of the budget.
A budgeting process is typically begins with a strategic planning which are made by the
senior management. These plans include a sales budget, direct material budget, production
budget etc. These all plans should be roll up into master budget which contains the financial
statement of the company. A good budget process is always responsible for adhering the budget
and proper implementation in organisation objectives for creating the budget. Following are the
budget process which help Vinita to prepare proper for the company.
Determining the flow of information – The company has to gathered all the information
or data which should be compile a budget in one or two ways. The senior management has to
establish priorities and projection that which has to be achieved first.

Deciding what measures are taken by organisation – The manager has to decide that
what he/she will take measures that whether the information is related with products or project
will based on its region of operations.
Gathering historic data – Once, the company has decide that in which segment they
have to perform their functions properly, then they have to gather the historic performance of
information (Hansen, 2011). The historic performance of data includes the financial statement of
the company. The manager has to use proper tools and techniques which will help them to
collect specific data.
Making Projections – The forth step is to make the projects for coming years. With the
help of budgeting process Leeworthy can make good projections. These projection can be simple
or complicated.
Determining break-even point - In last step, the manager has to understood whether the
company is earning the profits or not. Break even point are depends upon many ways such as
break even in units or sales.
Further, the benefits of budget can be prepared from a range of strengthened management
to increase the financial support (Henttu-Aho and Järvinen, 2013). The following are the benefits
of budgets.
Budget provides the financial road map - Budget help the organisation in outlining the
resources that how much required by the company. Budgeting process serves a powerful
planning tool for the higher authority.
Budget is an effective tool of management - Through the budget the company can
track their goals and make corrections if needed to achieve the goals of the organisation.
Budget provides internal control – It helps the organisation to effectively monitor the
finance. The company has to make budget on regular basis to diversify the financial risk.
ii. The application of traditional budgeting approaches to a business Leeworthy Ices, key areas of
the business which the budget process needs to address
In every business traditional budgeting is a important tool. Budget plays a important role
of tool for formulating the business strategies planing their implantation allocation of resources
monitoring the expenditure improving the performance Traditional budgeting is inflexible and
inefficient. In dynamic and demanding business environment traditional budgeting helps in

managing the budget process (Hope and Fraser, 2013). Many people give their different
strategies and theories for explain the current theory for budgeting.
Advantages of traditional budgeting:
Framework for effective control: for every company budget is a important part of
organisation culture. It is a very risky decision and it include the fundamental methods for
operating the business activities. it provide a effective framework or controlling the budget
actives
Part of business organization culture: Traditional budgeting effective for coordinate the
companies financial activities and it creates references.
Disadvantages of traditional budgeting:
Time consuming: traditional budgeting is a very long processes and it consumes to much
time. For implantation of traditional budget it require many management resources. In in
traditional budgeting process there is a low percentage of involvement of parties.
Leeworthy ices use the traditional budgeting in their business activities for setting the
budget for different departments.
Master budget: Master budget include the financial statements, cash forecast and
financial plans (Hou and et. al., 2011). The master budget presented in monthly and quarterly
format and it cover the companies fiscal years. It assist the company for accomplishing the goals
and define the companies strategic direction.
Cash budget: Cash budget use for ascertain the companies operations and other activities
which provide a sufficient amount of cash to meet a projected cash requirements. Several other
budgets are the inputs of cash budget. It comprise two main area sources of cash and uses of
cash.
Finance budget: Tough choices involves in budgeting and it having the goal for start the
planning for future. The financial budget refers to projecting the organizations income and
expenses for both short term and long term basis the financial budget is related to what is the
financial goal of the company .
Production budget: Lee-worthy ices use the production budget for calculate the numbers
of units of product to be manufacture. Production budget presented in monthly and quarterly
format. The production budget is used in material requirement planing and manufacturing
system. It is a combination of sales forecast and planned amount of finished good inventory.

Company planes production budget for draw down inventory quantities and termination of
production (Lai, 2010).
iii. Traditional budgetary method and its benefits
Traditional budgetary system-
A traditional budgetary system is a plan which indicates the amount of money that
has to be allotted in the business. All the financial obligations such as the rent
insurance etc. it is a method of managing the cost and the cash flow of the firm.
From where the money has to be gathered and what all are the places where it has
to be invested. Some steps are to be followed in the traditional budget plan they are
as follows-
 Prioritise the objectives of the corporate financial planning.
 Assessing the available resources.
 Identifying all the inputs that are needed to fulfil the objectives.
 Assigning the resources to attain the aims.
Benefits of the traditional budgetary system are as follows-
 Control- It help in providing the controlling of the resources related to the
finance. It helps the finance manager to do the monitoring of the actions in
an easy manner.
 Part of organisation- It is a very important aspect of the firm as because with
this the culture of the firm can be influenced is taken positively the firm can
get benefits.
 Principle of communication- Traditional method of budgetary promotes the
communication and the coordination.
 It is a guideline for the action that has to be done in the firm in terms of finance.
Traditional budget helps in future:

Traditional budget has many advantages which relates to the future business of an organisation.
Some of the benefits of traditional budgeting are as follows-
 Budgeting consists of planning which delivers the future requirement of the business.
 It makes people to future oriented and start to think about the future.
 It communicate financial plan to those who are accountable for this.
 Traditional budgeting gives fair view of the business to the people which motivate
individuals to act in the interest of organisation.
 Traditional budgeting defines the future limitation of the expenditure.
 Financial budget plan for the future growth.
 It can be used to identify future considerable saving and the cost.
 It helps to monitor progress of the business and provide database for decision making.
 Budgeting provides specific deadlines to divert the attention from one to another.
 Budgeting provides future work and how to complete the task.
 Traditional budgeting provides actual framework of the organisation which overall help
in to take the future decision.
 It provides amount of money that is required to complete over a time.
It helps to send income of the business to execute plan to increase future profitability.
iv. Alternative methods of budgeting and its importance
Alternative budgeting system is used with the purpose from the overcoming from the
traditional budgeting approach. It is dynamic and flexible in nature. It also helps in getting the
risk control of the organisation. This is one of the best way in this modern world accounting. It
shows that in this modern world many expenses are such in nature who arise accidentally and
enterprise is not prepared for them properly. So, this modern budgeting approach helps them and
force an organisation to use those technique because with the help of this technique it became
possible for them to prepare for unforeseen calamities.
So by using this approach it is clearly mention that they have to made a special provision
for such type of accidental expenses. This is an important element because it helps in getting
overcome from unforeseen crises. Benefits of using this approach are as follow:
1. Firstly it is dynamic in nature and flexible because it can be changed at any time with the
course of time and by measuring the disasters which take place.

2. Another thing which shows the importance of this approach is that it is risk capable in
nature. Firms can use this technique from overcome from any situation.
3. By reducing the risk it increase the number of chances of for survival and growth of the
firm.
4. This modern approach is totally based on the activity planning. In this approach a
separate provision is made in which all the activities are considered.
5. This is based on the activities which are taking place in the organisation. So, this can
also be called as the activity based budgeting.
6. Rolling forecast is the important term because it is a planning forecasting which may
affect the business in near future time. In this method forecast remain constant but the
visibility of business does not stop at the end of year.
7. Due to activity based budgeting this is flexible mode of preparing budget. Organisation
can change their budget according to the need and demand of time. So this is another
important tool for the preparing modern budgeting.
This approach is an important term because in this modern world business activities are
not certain and fixed. They may get vary with the course of time. So for this concern this type of
budgeting is prepared.
PART 2
V. Traditional approach of budgeting
Traditional approach of budgeting include spent money on the activities of the business
according to the given or set plan. Under this method of budgeting first a plan is made by the
business firm according to the expenses which can occur in during the specific course of
business and according to that a budget is allocated to the all activities of the firm(Bierman Jr,
and Smidt). This is an very old and one of the simple method of making a budget for the
enterprise.
Advantages of Traditional approach of budgeting

 It provides a framework of control: The traditional approach of budgeting has one one the
biggest advantage that is that it provide a control on expenses or on unnecessary
expenses.
 It is a part of organisational culture: Budgeting is one of the old method or culture of
most of the organisations so it will not create any sense in abolishing the culture( Libby,
T. and Lindsay, R. M.).
Drawbacks of traditional approach of budgeting
 Inefficiency: Inefficiency is one of the major drawback of the traditional approach of
budgeting. This technique takes a much more time in making budget for the enterprise
and also there are many chances of creating errors in this while making the budget.
 Low change responsiveness: Most of the organisations used a year to calculating or for
making change so after that time the budget become obsolete and doesn't helps the
enterprise to use it for further purposes.
 Failure to motivate desirable changes: The old method of budgeting has lack of
effectiveness and is unable to motivate the employees in doing a act in the interests of the
business. The old method of budgeting includes gaming and corruption and this
technique fails to help the enterprise in achieving its objectives.
 Disconnection from strategic plan: The traditional approach of budgeting include or give
focuses on cost reduction of products and services rather than creating value for the
customer(Bennouna, K., Meredith, G. G. and Marchant). So this objective of traditional
approach of budgeting gives lower priorities on objectives of strategic plan.
Non traditional approach of budgeting
The non traditional approach of budgeting follow the new concept for making budget for the
enterprise. This technique of budget says that the world is emotional not logical or in the
organisations there are many unthinkable expenses which can occurred in the
organisation(Aminbakhsh, S., Gunduz, M. and Sonmez, R.). So there should be a provision in
the budget to meet the expenses of the other expenses which can occur in the organisation. The
non traditional budget is much more flexible than the traditional budget.
Advantages of non traditional approach of budgeting

The non traditional approach of budgeting is much more flexible and useful than the traditional
approach of budgeting(Rubin, I. Ss). It help the business firms in making a provision for
situational or unexpected expense and make enterprise able to meet that expenses.
Disadvantages of Non traditional approach of budgeting
This technique require much more changes in the budget from time to time which required a
specialised task force for doing this(King, R., Clarkson, P. M. and Wallace). Many changes in
the budget from time to time make it more complex activity.
VI. Analysis over the methods (or a combination) would be more appropriate to Leeworthy Ices
Budget-Collection of data in a single year is known as budget. It calculates the overall budget in
one financial year
INCREMENTAL BUDGETING
The process of making increment to the current budget allowance is known as
incremental budgeting. The previous year budget is carried forward to the next financial year it is
adjusted for new factors like additional services, resources, inflation, legislative requirements
etc. Incremental budgeting is based on fundamentally different view of decision making than
rational approaches(Wampler, B.). Because there is negotiation settlement between interested
parties require a willingness to compromise.
Key stages of incremental budgeting:
 Establishing the base: Full year effects of staff appointment , Full year effects of capital
programme,salary increment, non-recurring items etc.
 Adding to the implications of developmental budget.
 Aggregation and producing the new budget.
Advantages of Incremental Budgeting:
 Stable and thus changes are gradual: Incremental budget are not fluctuating they are
stable and thus the changes can be implemented gradually.
 Straightforward decisions are made-Decisions are taken at the same time and thus it is a
cheaper method as compared to others
 Useful tool where output are difficult to define- It act as a powerful tool where the results
are difficult to obtain

 Alloys policy to concentrate on areas of change implementation.- It allows policy to
concentrate on those areas where the changes are to be implemented and elected
representatives are not required to read detailed budgetary documents.
Disadvantages of incremental budgeting
 Backward looking- It focus more on the previous year budget than the financial year
budget.
 It does not allow the managers for overall performance overview.
ZERO BASE BUDGETING
 It indicates that the budget line should not be carried forward from one year to another
because they occurred previously.
 Zero base budgeting implies that all the transitions will be carried out on a fresh and new
planning period. It requires that all the budgetary objectives should be clearly stated and
thus a different way of delivering these objectives before budget is allocated.
 This process require minimum level of service specification the current level and the
incremental level.
Advantages of zero base budgeting
 It allows challenges to status quo and questioning about the position of the budget.
 It focuses on the overall objectives of the budget and how to achieve these objectives
efficiently so that outcomes can be achieved.
 Zero base budgeting can adapt according to the changes in circumstances and situations.
 It helps in effective and efficiently utilization of resources in preparation of the overall
budget.
 It actively involves the operational manager to handle the budget rather than handling
them from down to above
Disadvantages of Zero base budgeting
 It is more time consuming as compared to incremental budgeting because the budgets are
prepared from a new financial year.
 It needs specific skill and training to calculate this budget.
 Difficulties can arrive in the identification of suitable performance measures and
decisions.

 The specification of minimum level of service provision may demotivate the managers in
performing their task.
COCLUSION
It has been concluded from the above report that the Lee worth ices company is using
both traditional and non traditional. there are certain advantages and disadvantages of both
traditional and non traditional approaches. hence cited entity should consider these before
making any decisions through optimizing these approaches and the techniques under these
approaches. Incremental and zero base budgeting also analysed because it helps the company to
prepare a an appropriate budget for every year. So it is the responsibility of higher authority to
make proper action plans.
REFERENCES
Books and Journals
Grigg, D. M. and Votaw, E. S., 2011. Bank Of America Corporation, 2011. Systems and methods
for providing position-based budgeting information. U.S. Patent Application
13/018,238.
Hansen, S. C., 2011. A theoretical analysis of the impact of adopting rolling budgets, activity-
based budgeting and beyond budgeting. European Accounting Review. 20(2). pp.289-
319.
Henttu-Aho, T. and Järvinen, J., 2013. A field study of the emerging practice of beyond
budgeting in industrial companies: an institutional perspective. European Accounting
Review. 22(4). pp.765-785.
Hope, J. and Fraser, R., 2013. Beyond budgeting: how managers can break free from the annual
performance trap. Harvard Business Press.

Hou, Y., and et. al., 2011. State Performance‐Based Budgeting in Boom and Bust Years: An
Analytical Framework and Survey of the States. Public Administration Review. 71(3).
pp.370-388.
Lai, J. H. K., 2010. Operation and maintenance budgeting for commercial buildings in Hong
Kong. Construction Management and Economics. 28(4). pp.415-427.
Østergren, K. and Stensaker, I., 2011. Management control without budgets: a field study of
‘beyond budgeting’in practice. European Accounting Review. 20(1). pp.149-181.
Popesko, B. and Socova, V., 2016. Current trends in budgeting and planning: Czech survey
initial results. International Advances in Economic Research. 22(1). pp.99-101.
Zeller, T. L. and Metzger, L. M., 2013. Good Bye Traditional Budgeting, Hello Rolling Forecast:
Has The Time Come?. American Journal of Business Education (Online). 6(3). p.299.
Aminbakhsh, S., Gunduz, M. and Sonmez, R., 2013. Safety risk assessment using analytic
hierarchy process (AHP) during planning and budgeting of construction projects.
Journal of safety research. 46. pp.99-105.
Bennouna, K., Meredith, G. G. and Marchant, T., 2010. Improved capital budgeting decision
making: evidence from Canada. Management decision. 48(2). pp.225-247.
Bierman Jr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of
investment projects. Routled.
King, R., Clarkson, P. M. and Wallace, S., 2010. Budgeting practices and performance in small
healthcare businesses. Management Accounting Research. 21(1). pp.40-55.
Libby, T. and Lindsay, R. M., 2010. Beyond budgeting or budgeting reconsidered? A survey of
North-American budgeting practice. Management Accounting Research. 21(1). pp.56-
75.
Rubin, I. S., 2016. The politics of public budgeting: Getting and spending, borrowing and
balancing. CQ Press.
Wampler, B., 2010. Participatory budgeting in Brazil: Contestation, cooperation, and
accountability. Penn State Press.
Online
Difference between traditional budgeting and zero based budgeting. 2011. [Online]. Available
through: <http://managerial-accounting.blogspot.in/2012/11/difference-between-
traditional.html>. [Accessed on 10th April 2017].
Zero-Base Budgeting. 2017. [Online]. Available through:
<http://www.accountingtools.com/zero-based-budgeting>. [Accessed on 10th April
2017].