Importance of Budgeting in Organizations: Findings from Two Research Studies

This paper explores the importance of budgeting in organizations through two research studies. It discusses the similarities and differences in the findings of the studies, and provides four lessons for management accountants. The studies focus on the relationship between budgeting practices and accountability perceptions, and the drawbacks of traditional budgeting practices. The paper concludes that budgeting is an essential tool for managing personal and organizational finances. Subject: Managerial Accounting, Course Code: N/A, Course Name: N/A, College/University: N/A

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MANAGERIAL ACCOUNTING
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Executive Summary
Budgeting is a term used in referring to a process by which a plan for using or spending
income or money is developed and adhered to. By developing a budget, one is able to determine
in advance if he or she has enough money or resources for carrying put or performing activities
or plans which have been established. The main purpose of this paper is to give an exploration of
the findings or outcomes of two research studies which relate to a real life organization with
regard to budgeting and its importance. These two study articles are namely “Practice
Developments in Budgeting (An Overview and Research Perspective)” and “Budgetary Practices
and Accountability Habitus (A Grounded Theory)”.
In accordance with the findings of these two studies, the modern budgeting practices have
not been adequately responsive to environments in which organizations operate. This is
attributed to the rapid or quick changes which have been experienced by those organizations, as
well as the extremely high costs of the budgeting practices which are believed to be outdone by
the benefits associated with the practices. With regard to this, there are several developments and
improvements which have been suggested and established on the budgeting practices for
purposes of overcoming their various limitations. This includes even minor changes which are
believed to teak the process of budgeting slightly, and also huge changes that adopt several
performance standards of budgeting. Besides, it has been found out in research that the grounded
theory enables individuals to acquire an expansive understanding or knowledge regarding the
practices of budgeting especially concerning the relationship between the local government and
accountability perceptions.

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TABLE OF CONTENTS
CHAPTER PAGE
Introduction.................................................................................................................................................4
Discussion on the Topic (Budgeting)...........................................................................................................4
The Purpose of the Two Research Studies and Research Questions Explored About Budgeting.................5
Similarities and Differences in the Findings of the two Research Studies...................................................6
i. Similarities…………………………………………………………………………..……..…..8
ii. Differences……………………………………………………………………. . .……………10
Four Specific Lessons Learned from the Outcomes of the Two Studies Which are Useful to Management
Accountants………........................................................................................................…………………11
Conclusion.................................................................................................................................................12
Bibliography..............................................................................................................................................13

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Brief Introduction
This paper is mainly purposed for giving a discussion and explanation on the findings of
two studies on budgeting which are based on real life organizations. Regarding this, budgeting
has been explained with much detail in this paper in one of the sections below. Additionally, this
paper has given a detailed discussion on what the two studies have been purposed, as well as the
research questions regarding budgeting which have been set to be explored. Furthermore, the
paper provides a summary of the various differences and similarities in the outcomes of the
research articles. Besides, four lessons or outcomes that are specific for use by management
accountants operating in Australian companies have been discussed in this paper (Gapenski and
Reiter 2008, pp. 102).
Discussion on Budgeting
Budgeting can be explained as the process through which a plan for spending or using
one’s income or money is developed. The spending plan is what is referred to a budget. Through
establishing or developing a budget, an individual or an organization is able to determine if the
funds available are adequate for performing the set objectives or tasks which have been
scheduled for execution (Guney 2009, pp. 65). Due to the scarcity of economic resources,
budgeting is considered a very useful and essential planning tool for setting priorities of spending
and helping the organization or the individual in concentrating much focus on accomplishing
tasks or projects which are considered most essential. Budgeting also allows an individual to
establish a spending plan, which in turn assists him or her in in ensuring that there is adequate
funds for carrying out the set objectives as prioritized by significance. By adhering to the
prepared budget, one is able to keep himself or herself out of debts, and also helps him or her in

MANAGERIAL ACCOUNTING 5
paying off current liabilities or debts through establishment of an adequate payment plan (Gray
2013, pp. 459).
A budget gives a forecast of expected income and costs or expenditures over a particular
time period. It is possible to develop budgets for families, individuals, an organization or even a
group of persons and a country as well (Nandan 2010, pp. 22). The basis for establishment of a
budget is the aspect of use of funds for particular set purposes or objectives. Budgeting for
companies is used as a major tool for establishing internal strategies or plans which are essential
for the company’s top management although the company is not required by any law or
regulation to disclose their budgets to any external parties or stakeholders. Despite the fact that
preparation of budgets is not mandatory, it is a critical determining factor of an organization’s
financial performance as well as success (Needles, Powers and Crosson 2013, pp. 25).
Developing a budget is very simple and easy, and it is important for every individual and
organization with or without limited or scarce economic resources with regard to funds. The
practices and process of budgeting helps organizations and persons who have all sizes of
expenditures and spending habits as well as revenues to make rational financial or economic
decisions with regard to their priorities in income allocation. Budgeting also assists individuals to
make rational savings in order to achieve various objectives including retirement plans, asset
purchase, education and emergencies as well as other purposes that an individual or an
organization may see fit (Guilding 2014, pp. 12).
The process of budget development and establishment begins with establishing or setting
assumptions with regard to the upcoming forecasting or budgeting period. The axioms must be
often based on the expected sales or revenue trends as well as the expenses trends forecasts and
the entire nature of the industry or market in which the firm operates (Matherly and Burney

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2013, pp. 562). There are various factors which must be taken into account while making a
forecast of expenses since they have significant impacts. These factors must be identified and
addressed as necessary. In the budgeting process, the sales budget is normally and often prepared
preliminarily prior to any other budget because it provides a basis for forecasting the associated
expenses or costs after the future cash flows have been adequately ascertained. A company
prepares budgets for each and every department or branch. In cases of manufacturing
organizations, separate budgets are often prepared for direct materials and direct labor as well as
overheads (Walther and Skousen 2010, pp. 41).
Budgets are categorized in to two main classes, that is, fixed and flexible budgets. A
fixed budget, also known as a static budget, is that which does not change or vary during the
whole budgeting period or duration as its amounts remain the same despite any changes or
alterations that may occur. However, a flexible budget has values or amounts which relate
significantly to certain variables. The figures in this type of budgets can be altered depending on
changes in sales levels, production levels or any other factor that may have impacts on the
budget. There are also personal budgets that are mainly prepared by individuals and families as
opposed to fixed and flexible budgets that are often developed by companies (Pertsemlidis 2012,
pp. 23).
According to the above discussion, it can be concluded that the practice of budgeting is
very essential in managing personal as well as organizational finances. It is used by
organizations and individuals as a financial planning tool which assists them in achieving various
objectives such as buying fixed assets, making retirement benefits, entrepreneurship and many
others (Palmrose 2009, pp. 283).

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The Purpose of the Two Research Studies and Research Questions Explored About
Budgeting
a. Research Article “Budgetary Practices and Accountability Habitus (A Grounded
Theory)”
This study provides a detailed discussion on how governance and accountability of the
UK local governments relate. The research uses the grounded theory methodology in
establishing how the participants to the study perceived this relationship regarding four
organizations within the UK Local government (McCrary 2009, pp. 102). According to the
findings of the research studies, the budgeting system is considered an important process in
organizations which helps them in enhancing their accountability. This article focuses primarily
on how accountability perceptions relate with budgeting practices. This study explored four
cases and established that budgeting practices and accountability were perceived in quite
different ways. The study has also developed a grounded theory with regard to the case studies in
order to provide an explanation of the identified differences or variations (Moore 2009, pp. 333).
This study mainly focusses on the basic relationship or link between accountability
perceptions and budgeting practices. Therefore, the research study gives an exploration of the
question regarding the relationships among the four cases studies that were being studied. It was
established by the findings of the study that there was a direct link or relationship among the four
cases. This study also explores the differences or variations which are identified in every case,
regarding the relationships between budgeting practices and accountability perceptions (Lewis
2012, pp. 78).

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Regarding accountability, this study provides a detailed discussion on the perceptions of
accountability by organizational members and managers, with consideration of the duties and
roles of every party and how accountable they are with regard to their roles and responsibilities.
Additionally, the study provides a summary of the differences in the perceptions of roles of
several parties or individuals within an organization. With regard to this, the study focused on
exploring if interactions and accountability relationships among the several parties resulted from
heavy impacts of trust that existed among them, and the powers that each party held (Hsu 2008,
pp. 1318).
b. Research Study “Practice Developments in Budgeting (An Overview and Research
Perspective)”
This study is mainly focused on providing an explanation of the drawbacks of traditional
budgeting practices. Regarding this, the research study established two methodologies that were
meant to address the identified limitations. For example, the study recommends a methodology
that seeks to improve the budgeting process and focusses primarily on the challenges faced when
evaluating performance of the budgets. Therefore, the study is mainly purposed for providing
perspectives and an overview of the two methodologies for improving the budgeting processes.
The study mainly sought exploring and discussing on the challenges faced by most practitioners
in the budgeting processes and why they find them to be dissatisfactory (Jaelani 2016, pp. 47).
The study also gives an explanation on the two methodologies for improvement while
simplifying the budgeting processes for use by practitioners and using their views in making
necessary developments as seen fit. In addition to this, the study gives an overview of how the
current budgeting practices have been criticized against. With regard to this, the study puts much

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focus on discussing how the practices of modern budgeting can be improved in order to increase
the benefits obtained by organizations and the practitioners involved. Two main approaches have
been suggested by this study which include adoption of activity based budgeting approach and
the beyond budgeting approach (Fomina 2015, pp. 392).
Similarities and Differences in the Findings of the Two Studies
i. Similarities
In these two studies, the budgeting practices concept has been discussed in the findings of
the studies. For example, in the article “Budgetary Practices and Accountability Habitus (A
Grounded Theory)”, the budgeting cycle was recognized and viewed as an important accounting
practice for achieving accountability in almost every case. The budgeting plans of many
organizations are based on system of control and implementation which are developed
rigorously. The system of budgeting is necessary for achievement of organizational and
structural accountability by implicitly determining objectives and plans as well as organizational
policies. In a similar way, the article “Practice Developments in Budgeting (An Overview and
Research Perspective)” considers the budgeting practice as a the foundation or cornerstone of the
management control process in every organization. In this study, various concerns were alarmed
by several practitioners and managers regarding efficiency of budgeting practices and processes
while making plans and evaluating organizational performance. Most of the practitioners
complained that allocation of organizational resources was done appropriately, thus enabling
them to make viable economic and financial decisions in their organizations (Fields 2016, pp.
99).

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Furthermore, the outcomes of these studies focus on explaining various perspectives
concerning budgeting practices and processes. For example, the Study “Practice Developments
in Budgeting (An Overview and Research Perspective)” provides a discussion on how budgets
are perceived as well as the drawbacks associated with budgeting practices. Various practitioners
in many organizations complained that the assumptions on which budgets were developed were
not up to date and this led to deterioration of the benefits obtained from such practices and
processes. Similarly, the findings of the Study “Budgetary Practices and Accountability Habitus
(A Grounded Theory)” provides the results of several interviews which were conducted in order
to acquire an understanding of the budgetary and accounting practices in organizations. As per
the outcomes of the study article, budgeting practices and accountability have been perceived by
many people as distinctive in different firms or organizations (Epstein, Nach and Bragg 2009,
pp. 50).
ii. Differences
The findings of these two studies have exhibited various differences or variations. For
example, the results of the Study “Budgetary Practices and Accountability Habitus (A Grounded
Theory)” mainly concentrates on explaining and discussing the importance of budgeting and its
practices as well as how it is linked to accountability. The results of these studies also provides a
discussion on theoretical variations that are established in most of the practices and perceptions
of budgeting and accountability as well. On the other hand, the outcomes of the Study “Practice
Developments in Budgeting (An Overview and Research Perspective)” attempts to discuss and
explain challenges that are faced by practitioners in the modern budgeting practices. The
outcomes of the study demonstrates the usefulness and reliability of the two methodologies
which improve the current practices of budgeting and helps practitioners to overcome the various

MANAGERIAL ACCOUNTING 11
drawbacks and challenges faced in their routine budgeting processes in their respective
organizations (Du 2011, pp. 8).
In addition to this, the results of the Study “Budgetary Practices and Accountability
Habitus (A Grounded Theory)” provides that the various perceptions of trust, power and
accountability are significantly impacted by several conditions and factors as well as actions and
interactions which have certain consequences. These outcomes also sought to describe the
accountability perceptions as well as how they vary significantly with practices of budgeting
(Droms and Wright 2010, pp. 32). It has been established by this study that various
accountability relationships did exist in the four cases which were being studied. The outcomes
of the study “Practice Developments in Budgeting (An Overview and Research Perspective)” on
the other hand, are very different. For example, the outcomes discuss mainly the drawbacks that
are associated with the modern budgeting practices. Practitioners perceived these budgets as very
hard to establish, and were also considered as barriers which prevented organizational change
from being implemented. The outcomes of this study also highlights that there are two
improvements which can be made on the budgeting practices such as the ABB and BB
approaches. In accordance with this study, ABB approach helps in developing improvements that
are moderate to the modern budgeting practices. The BB approach, on the other hand, is a more
complex improvement which involves complete abandonment of the budget as a whole.
Furthermore, this study gives an explanation on how budgets, operations and strategies are
linked and related (Demski et al. 2009, pp. 133).
Four Specific Lessons Learned from the Outcomes of the Two Studies Which are Useful to
Management Accountants

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i. Study “Budgetary Practices and Accountability Habitus (A Grounded Theory)”
 Management accountants may adopt the outcomes of this study in gaining an
understanding with regard to how power impacts or affects organizational practices
and processes due to individual power and group power as well. It has been explored
by this study that accountability perceptions does not result into significant impacts
on accountability practices. They also understand how power and authority are
distributed among managers and organizational members (Byrne and Flood 2008, pp.
202).
 In addition to this, management accountants get to know that enormous tension
regarding accountability responsibilities and roles increases distrust among members
and managers at various organizational levels (Baker et al. 2012, pp. 45).
ii. Study “Practice Developments in Budgeting (An Overview and Research
Perspective)”
 Management accountants can learn the various shortcomings associated with the
modern budgeting practices as well as how they can be improved. The ABB
Approach assists them in knowing how budgets can be generated from the activity
based models of an organization. The approach also assists management accountants
in balancing their requirements of operations, thus helping them avoid unnecessary
calculations. On the other hand, the BB approach assists management accountants to
set budget targets with use of benchmarks of performance which are both internal and
external (Amoako 2013, pp. 73).

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 In addition to this, management accountants learn the various variations which
complementary control and management control. These are mainly operational
planning as well as strategic planning (Amidu, Effah and Abor 2011, pp. 146).
Conclusion
According to the above discussion, the two studies give outcomes which have several
differences and similarities. For example, one study describes how accountability perceptions
and budgeting practices are linked or related, while the second study provides a discussion on the
drawbacks associated with the modern budgeting practices and processes as well as approaches
for making necessary improvements.
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