Traditional Budgeting – Discussion Analysis 2022

Running head: TRADITIONAL BUDGETING – DISCUSSION
Traditional Budgeting – Discussion
Name of the Student
Name of the University
Author’s Note

1TRADITIONAL BUDGETING – DISCUSSION
Table of Contents
Requirement 1............................................................................................................................2
Requirement 2............................................................................................................................2
Requirement 3............................................................................................................................3
References..................................................................................................................................5

2TRADITIONAL BUDGETING – DISCUSSION
Requirement 1
Managements of the companies face certain challenges while incorporating the factors
involved in budgeting planning process (McLaney and Atrill 2014). First, at the time of
incorporating value creation in the budgeting planning process, it is not possible to
sufficiently connect financial investments to the outcome or results that limits the capability
for comprehending and analysing of real return on investments for any provided line of
business (Barasa et al. 2017). Second, business organizations develop traditional budgets as
per the request of the competing stakeholders and each of these stakeholders justify the
projected expenditures on the basis of the needs of the departments instead of the overall
organizational goals. This creates barriers in aligning organizational strategies with the
budget planning process (McLaney and Atrill 2014). Third, the presence of high rate of
incorrect accounting assumptions can be seen in the traditional budget planning process. This
leads to huge time commitments as well as tiresome manual inputs. These aspects together
create challenges for the organizational managers in the incorporation of the factors like
innovating, development of brand loyalty, quick response to the competitive threats and
others in the budget planning process (Cardoş 2014). These are the major challenges faced by
the managements.
Requirement 2
Hello Saf,
Thank you for your contribution on the topic of budgeting.
It is an important factor to know the fact that traditional budgeting has both the pros and cons
that need to be considered by the managements of the companies. Traditional budgeting is
one of the most important tools of financial planning. A traditional budget is the budget that
the managements of the companies develop by taking information from the previous year’s

3TRADITIONAL BUDGETING – DISCUSSION
budget; and therefore, this does not require much alteration which makes it easy to develop
this budget. The main advantages of traditional budgeting include its stabilized nature,
improvement in decentralization, ease in integrating different organizational projects and
improvement in performance (Réka, Ştefan and Daniel 2014). On the contrary, the main
disadvantages of traditional budgeting include its fixed nature along with rigidness, making
the management responsible for its preparing while avoiding other staffs involved,
inappropriate details due to its full reliance on previous year’s budget and others (McLaney
and Atrill 2014). In the presence of these advantages, activity-based budgeting is considered
as one of the most appropriate budgeting process since this helps in overcoming the
disadvantages associated with traditional budgeting. Activity based budgeting justifies total
costs while assuring even allocation of organizational resources (Pietrzak 2013).
Requirement 3
There were many drawbacks of the budgeting process in the budget. However, in the
present days, the utilization of various modern and efficient methods has made it possible to
align the budgeting and planning process with the shareholders’ value creation. The
managements of the companies can expand this alignment with the help of three major
aspects; they are enhanced management, efficient management of the market expectation and
enhanced business performance (Steiss 2019). These three aspects are required to be taken
into account by the managements of the companies. In addition, through the establishment of
the alliance between efficient utilization of the tools of strategic management and budgeting
as well planning processes, the managements of the companies have become capable of
emphasising the value bases while recognizing the value drivers assisting in enhancing the
value of the shareholders (McLaney and Atrill 2014). For this reason, the alignment of
budgeting and planning processes can be regarded as a major strategic alignment tool and this
tool ensures the sustainable competitive advantage to the business organizations over long-

4TRADITIONAL BUDGETING – DISCUSSION
term (Otley 2016). Therefore, the above discussion indicates towards the crucial aspect that
the budgeting process along with the strategic management tools helps in encouraging a
shareholder-centric focus.

5TRADITIONAL BUDGETING – DISCUSSION
References
Barasa, E.W., Cleary, S., Molyneux, S. and English, M., 2017. Setting healthcare priorities: a
description and evaluation of the budgeting and planning process in county hospitals in
Kenya. Health policy and planning, 32(3), pp.329-337.
Cardoş, I.R., 2014. New trends in budgeting–a literature review. SEA–Practical Application
of Science, 2(04), pp.483-489.
McLaney, E.J. and Atrill, P., 2014. Accounting and finance: an introduction. New York:
Pearson.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Pietrzak, Ż., 2013. Traditional versus activity-based budgeting in non-manufacturing
companies. Social sciences, 82(4), pp.26-37.
Réka, C.I., Ştefan, P. and Daniel, C.V., 2014. TRADITIONAL BUDGETING VERSUS
BEYOND BUDGETING: A LITERATURE REVIEW. Annals of the University of Oradea,
Economic Science Series, 23(1).
Steiss, A.W., 2019. Strategic management for public and nonprofit organizations. Routledge.