Significance of Traditional Budgeting in Information Age

Management Accounting

Table of Contents
Introduction......................................................................................................................................3
Relevance of traditional budgeting in information age...................................................................3
Critical anaysis OF TRADITIONAL budgeting.............................................................................5
Budgeting practices in Australia......................................................................................................7
Conclusion.......................................................................................................................................8
References......................................................................................................................................10

INTRODUCTION
In order to manage a business in the present information age, an organization require to plan,
organize, control as well as coordinate. Planning is referred to as an initial stage at which the
main objective of the company is set. Further, forecasting is believed as the essence of
management as it comprises analysis of future and ascertaining predictions relating to same.
Budgeting is the last stage of planning procedure comprises details relating to the business
objectives of the initial year of the operating plan. The main purpose of traditional budgeting is
to generate a system for assessment of the performance of employees as well as enhancement in
the motivation of all employees through increasing coordination as well as communication
within the organisation. The present study emphasizes the significance of traditional costing in
the present information age. Further, the application of traditional costing has been criticized in
accordance with the assessment of different authors. Lastly, different budgeting practices in
Australia has been discussed in order to analyze the significance of traditional budgeting
RELEVANCE OF TRADITIONAL BUDGETING IN INFORMATION AGE
Traditional budget can be referredas a complementary tool as well as a quantitative statement
that is used for an action plan.1 Commonly it is connected with the business elements like
expenses, cash flows, liabilities, assets to a certain period. A traditional budget is constructed by
means of incremental amounts like inflation or intended increases in sales prices and expenses,
to the current annual budget. Traditional budgeting is mostly used with the top-down approach
because of the hierarchical state of mind. However, it means, former budget is created by central
management as per the strategy of the company for all department, and further sub-departments
involves budget as per their needs2. Income and expenditure forecasting is developed through the
1 Ditillo, A., &Lisi, I. E. (2016). Exploring sustainability control systems' integration: The
relevance of sustainability orientation. Journal of Management Accounting Research, 28(2), 125-
148.
2 Asogwa, I. E., &Etim, O. E. (2017). Traditional Budgeting in Today's Business
Environment. Journal of Applied Finance and Banking, 7(3), 111.

assistance of the traditional budgeting. By means of traditional budgeting sources and application
of 1D funds are planned, and it describes the utilization and spending of the company3.
Traditional budgeting provides a strong system as it is totally dependent on a reference point (the
data points of the previous year) due to which management of financial performance within the
organization gets easier. On the other hand,the orientation point helps the business decidesits
budget on a strong framework which is easy to control and execute.
Traditional budgeting helps to support decentralization. As by keeping in mind the spending of
the previous year,the budget of the next year can be decided, and such an idea turns out to be
decentralized. Traditional budgeting now days became a part of the organizational culture, and
it’s the easiest technique of budgeting. This technique is applied on a continuing basis inthe long
term. In case an innovative approach is followed by the company like zero-based-budgeting than
it will be risky Endeavour for the organization.
Traditional budgeting playsa significant role in the following areas-
Organization planning- Budgeting comprises planning of objectives which are connected with
the future plans relating to expectation relating to the performance of employees4. Financial plans
are included in it which considers the aspects like what to spend and what to receive, cash
budget, profit and loss budgeted accounts as well as performance budgets. Moreover, market
structure, exchange rate, pricing, income level, as well as the inflation rate is considered by the
household and the management5.
3 AYDIN, E. (2017). The Usefulness of Traditional Budgeting in Today’s Business
Environment. Technology, 17, 6626
4 Wienhold, M. (2015). Better Budgeting methods: a comparative effect analysis on traditional
budgeting problems(Doctoral dissertation).
5 Bhimani, A., Sivabalan, P., &Soonawalla, K. (2018). A study of the linkages between rolling
budget forms, uncertainty and strategy. The British Accounting Review, 50(3), 306-323.