Advanced Management Accounting Essay: Budgeting Method Comparison

This essay critically examines and compares three key budgeting approaches: Traditional Budgeting, Beyond Budgeting, and Better Budgeting. It begins by defining each approach and highlighting their core principles and practices. The essay delves into the weaknesses of Traditional Budgeting, such as its inflexibility and time-consuming nature, contrasting them with the more adaptive and decentralized nature of Beyond Budgeting. Better Budgeting is presented as an approach that aims to improve upon traditional methods by incorporating employee participation and focusing on strategic performance. The essay explores the principles and practices of each approach, including leadership and management processes for Beyond Budgeting, and techniques like Activity Based Budgeting and Zero Based Budgeting within Better Budgeting. The analysis considers the implementation challenges, success rates, and effectiveness of each method, drawing on academic literature to support its arguments. Ultimately, the essay argues that Better Budgeting, with its emphasis on continuous improvement and strategic alignment, offers significant advantages over both Traditional and Beyond Budgeting methods, particularly in terms of adaptability and employee engagement.

ADVANCED MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Beyond budgeting and Better budgeting.....................................................................................1
Traditional budgeting and it weaknesses....................................................................................2
Principles and practices of beyond budgeting and better budgeting ...........................................3
Practices under Better Budgeting ................................................................................................5
Better budgeting approaches are above the traditional budgeting and traditional budgeting......5
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Budget refers to estimation of expenses and revenue for specified time period and is re-
evaluated and compiled on periodic basis. Budgets for companies and organisation is works as
internal tool for management use. It is not prepared for external parties. Budgets are basically the
financial plans for given period. They are prepared for enhancing the growth and success of
organisation. Corporate budgets are prepared mainly for operating at efficiency (Rubin, 2019).
Present report will provide about the traditional budgets and its flaws causing corporates to make
shift to concepts of beyond budgeting and better budgeting. It will also provide about the
approaches of better budgeting for organisational management and planning are superior from
traditional budgeting and beyond budgeting methods.
MAIN BODY
Beyond budgeting and Better budgeting
Butter budgeting
Better budgeting is most frequently occurring aspect. Better budgeting is not a technical
aspect but is concerned with active participation of employees. Better budgeting approaches are
more focusing towards the assigning and involving lower level management in decision making
and preparation of budgets. There are also other aspects which are crucial in better budgeting. It
is to an extent related to the traditional budgeting purposes. There should be some discretion
between the budgetary spendings. Budgeting is an ongoing process which could be adjusted for
constantly focusing over the strategic performance issues. Better budgeting is required to be
enhanced further rather than just focusing over controlling the expenses. Better budgeting is for
identifying the challenges and inefficiencies, evaluating impact of hires and to serve as
performance monitoring technique. Functions of better budgeting involves separating incentives
from the budgets for avoiding the budgetary gaming, using explicit forecast models for
increasing the reaction speed & company flexibility (Laval, 2016). It is also concerned with
integrating IT systems for enhancing data quality.
Beyond Budgeting
Beyond budgeting can be defines as a principle where companies are required to move
beyond the budgeting as there are number of inherent flaws in the budgeting process. Beyond
budgeting suggests that techniques like market related target and rolling forecasts could be used
for replacing the traditional budgeting. Beyond budgeting is much faster and adaptive process in
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comparison with the traditional budgeting. It is decentralised process, as its not only the leaders
who plan and have central control over the organisation. It includes most important leadership &
process principles for achieving the complete benefits of beyond budgeting. The management
principles given under beyond budgeting are not a defined management recipe or a checklist.
They are based over observations about what in practice. Significant element of beyond
budgeting is aligning leadership and management process (Bogsnes, 2016). They are framed for
inspiring and guiding organisations who are striving to implement concept of beyond budgeting.
The beyond budgeting journey is bases over 12 principles in which 6 are leadership principles
and 6 are management process principles.
Traditional budgeting and it weaknesses
Traditional Budgeting
Traditional budgeting can be defines as a process involving projections of revenues &
expenses of business for coming year on the basis of previous budgets. Budget of current year is
made by making alteration and adjustments to budgets of previous years. The adjustments made
are relating to inflation rates, demands of consumers, market conditions and like factors affecting
the organisation. In this budgeting costs and revenues of last year is integral part of the budget
for current year. All the items that are over & above the budgets of last year are required to be
justified by the business (Asogwa and Etim, 2017). Traditional budgeting has been used from
years by companies for having control over its expenses.
This is widely used by organisations as it is simple to implement and budgets are
prepared much faster as only required changes are to be made in budgets of last year . The
budgeting approach has brought stability in the working process as this is more familiar to the
organisations and everyone is aware of the things to be done. But many experts and business
specialists has considered as an ineffective budgeting practice. Many companies have replaced
their budgeting practices to rolling forecast and other methods of budgeting. Beyond budgeting
round table after spending deep research has concluded that managers spend significant time in
preparing (Wildavsky, 2017). The traditional budgeting approach has been left due to various
problems associated with the approach.
Weaknesses in traditional budgeting
There are significant weaknesses in traditional planning and the budgeting practices.
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Major weaknesses of budgeting are classified below.
Competitive strategy – Budgets under traditional budgeting are not focused strategically and
could be contradictory. Focus of the budgets is over cost reductions instead of value creations.
The budgeting confines flexibility and responsiveness which are often termed as barrier of
change. Budget are not successful in adding value. Budget under traditional budgeting are
bureaucratic and do not encourage creativity and innovation.
Business process - Traditional budgets are very time consuming and expensive when put
together. Several predictions are required to made that could be made only on gathering
informations from various sources about the inflations market conditions that consumes
significant time . These budgets are developed as well as updated very frequently generally
annually. Budgets are based over the unsupported assumptions and predictions. It encourages
dysfunctional behaviours and gaming.
Organisational capability – In this budget strengthen the vertical control and command. They do
not reflect emerging market structures adopted by the organisations. They enforce over
departmental barriers instead of encouraging knowledge sharing (Cokins and Dybvig, 2018).
Creativity or innovative thinking is not encouraged in the organisation. A set pattern is followed
by the whole organisation where lowers departments are not involved and only executives frame
budgets. They do not help people in realizing their values.
Traditional budgeting is often considered as an inaccurate presentation of fundamental
goals and objectives of business. Projections can even be manipulated by management so that
projects seems to be more attractive. Companies are required to make a shift from the traditional
budgeting approaches to newer concepts of beyond budgeting and better budgeting.
Principles and practices of beyond budgeting and better budgeting
Beyond budgeting is guided by 12 principles that are ;
Principles of Leadership Purpose – Beyond budgeting encourage engagement of people and inspiring them for
bringing out new ideas and innovations. They restrain from focusing over short term
targets that do not add value to the enterprise but only helps in keepings costs control
measures. Values – Projections in beyond budgeting are made by sharing values and beliefs on
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basis of which sound judgements are made. They are not covered and restricted to
compliance of strict rules & regulations. Transparency – The business is transparent and information is available for making
sound decisions. Innovations and learning is encouraged and helps in sharing
information. This promotes transparency and acceptance in organisation. Organisation – It do not revolves around bureaucracy and hierarchical controls for
making the budgets. It creates strong belongingness by involving teams to make more
accountable decision and budgets. Autonomy – People under this approach are given freedom and opportunities for
achieving the set targets. They are responsibilities and are encouraged to perform better
rather than with penalties and punishments for non achievement of targets (O’Grady,
Akroyd and Scott, 2017).
 Customers – Work of every employee should be connected with the needs of customers.
It involves that budgets are prepared aligning the interests of all the stakeholders avoiding
conflict of interests within the organisation.
Principles of Management processes Rhythm – Management processes should be framed around dynamic business
environment and market conditions undergoing. Budgets should not be framed
considering the specific time frames. Financial planning considering the business rhythm
provides more accurate and reliable results. Targets - Management of the companies should make achievable and reliable goals. The
goals set by the management should be directional and be aligned with visions of
company. They should not be revolving around fixed targets that do not enhances the
performance of company. Planning & Forecasting - Process followed for framing plans and making forecasts
should be structured and an unbiased. They should be for success of company and not be
a political exercise. Resource allocation – The model of beyond budgeting is focused over encouraging a
mind set that makes resources available as required. It do not promotes yearly allocation
of resources on the basis of annual budgets. Performance Evaluation – The performance of company should be evaluated
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holistically. The performance measurement should be focused over learning &
developments. It should not be based merely for measuring and for checking the rewards
(Aksom, 2017).
 Rewards - Beyond budgeting is focused over rewarding the employees against shared
success and not on the basis of achieving fixed contracts.
Practices under Better Budgeting
Better budgeting focuses over new principle practices for generating improvements that
are ;
Activity Based Budgeting – This practice is similar to ABM and ABC, which involves planning
& controlling lines of the value adding processes and activities. Decision for capital and
resources allocations are in consistency with the ABM analysis. It involves structuring
organisational processes and business activities so they could better meet demands and
requirements of customers.
Zero Based Budgeting – The budgeting practice approach focuses that expenditure for every
budgeting cycle needs to be re-justified. It should not be based over budgets of last year or prior
periods. It involves preparing budgets from the zero base. It avoids framing budgets over
inaccuracies and errors of previous budgets. Value of the practice is dependent over operating
environment stability.
Value based management – It is a systematic and formal approach for creating value of
shareholders over time. All the plans for expenditures are assessed on the basis of value which
will be created to the shareholders. The practice helps the management of company in linking
strategies and shareholder value in budgeting and financial planning (Tamaș and et.al., 2020).
Profit Planning – It is method using which organisations plane their future cash flows from the
profit centres. It assesses whether the organisations or units are generating adequate cash flows,
creating economic values and attracting sufficient cash flows. It also ensures availability of
financial resources to invest. It enables integrating long term and short term prospects in
financial plans.
Rolling Budgets & Forecasts – This is a practice concerned with solving the problems of
infrequent budgeting which helps management in making more accurate forecasts. Changing
circumstances are more adequately addressed by this practice but required fixed resources for
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managing. Also the problems associated with budgeting can be overcome at fixed point of time.
Better budgeting approaches are above the traditional budgeting and traditional budgeting.
Organisations are still using the budgeting techniques as an integral part of their
management processes. For attaining the success management needs to align the strategies of
organisation using strategic planning & management processes of performance. It requires the
company to include processes which are consequential, value based and continuous. It means
process focusing on identification and management of drivers for shareholder values. Better
management is upgraded concepts including improvements instead of new concept out of the
understanding of the business executives (John, 2018). It involves the processes of traditional
that makes it acceptable and understandable to the management. Beyond budgeting is based over
leadership and management processes where the better budgeting is a combination of all the
practices for achieving the organisational objectives.
Activity based budgeting as well as zero based budgeting helps in improving accuracy and focus
of budgets. They involve time but give more reliable results to the management. Value based and
profit planning is theoretical approach as very few examples and practical applications are
available. Forecasts and rolling budgets are main practice having the potential of becoming better
and regular approach of budgeting. Number of organisations are adopting better budgeting for
improving the accuracy of predictions and overcoming the time lag problems of traditional
budgeting.
CONCLUSION
Above study shows that traditional budgeting with time have not changes and improved
for success. This has affected the accuracy of forecast and the results of budgeting. Beyond
budgeting is a process based over twelve principles but is new to organisations and face
difficulty in implementation. Better budgeting is an improvement and enhancement of the
budgeting approaches used by the companies. They are much more acceptable and reliable by
the organisations.
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REFERENCES
Books and Journals
Rubin, I.S., 2019. The politics of public budgeting: Getting and spending, borrowing and
balancing. CQ Press.
Wildavsky, A., 2017. Budgeting and governing. Routledge.
John, K.C., 2018. Effectiveness of public sector financial planning and budgeting: MTEF
budgeting process in the Tanzania LGAs (Doctoral dissertation, University of Dar es
Salaam).
Bogsnes, B., 2016. Implementing beyond budgeting: unlocking the performance potential. John
Wiley & Sons.
O’Grady, W., Akroyd, C. and Scott, I., 2017. Beyond budgeting: distinguishing modes of
adaptive performance management. Advances in management accounting. pp.33-53.
Aksom, H., 2017. Infused with value? Trajectories, discourses and institutional constructions in
beyond budgeting diffusion. International Journal of Management Concepts and
Philosophy.10(2). pp.199-225.
Laval, V., 2016. IMPROVING THE VALUE ADDED OF BUDGETING ACTIVITIES. Revista
Economica.68(2).
Tamaș, A.S. and et.al., 2020. Planning, Budgeting, and Green Controlling: The Budgetary
Process of an Economic Entity. In Management Accounting Standards for Sustainable
Business Practices (pp. 52-79). IGI Global.
Asogwa, I.E. and Etim, O.E., 2017. Traditional Budgeting in Today's Business
Environment. Journal of Applied Finance and Banking. 7(3). p.111.
Cokins, G. and Dybvig, A., 2018. NEXT GENERATION BUDGETING: If you want more
accurate results from your budgeting process, it may be time to switch from traditional
budgeting to operational budgeting. Strategic Finance. 99(10). pp.38-46.
Online
Beyond Budgeting. 2019. [Online]. Available through :
<https://www.cgma.org/resources/tools/cost-transformation-model/beyond-budgeting.html>.
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