Overview of Traditional Budgeting
The term “Traditional Budgeting” can be also termed as “fixed budgeting”. The concept of traditional budgeting is perhaps a platform that enables income and facilitates expenditure plans. It also spells out some specific list of financial obligations that also includes some of the household and domestic needs and some of the entities that are required for specific period with certain income level. The present discussion is basically based on the statement that elaborates upon the fact that is still traditional budgeting prevalent. The essay clearly evaluates that traditional budget plays a very important role in identifying some of the main potentials of the actions and also evaluating the strategic options and monitoring the results that to be retrieved (Berland et al. 2018). The overview of the traditional budgeting includes the key points like requirement for budget and the probable arguments that are both in favor and against.
The term budget is very important to the common enterprises as it plays a massive role in achieving the main objectives of the corporate sector. Budgeting is almost the key elements that allows the business to survive right from the time of its formation to its right and accurate implementation. The accounting system relies heavily on the strategies of cost functioning and target information along with the performance and standards (Réka et al. 2014). Budget also specifically keeps an exact record goal communication, organisational performance strategies. The business accounting proforma consists mainly of the cost that is incurred, target information and the principles standard of the business organisation. Budget also enables the control mechanism to be effectively pursued within an organisation. However, on evaluating today’s present scenario, the business environment is completely very different from that of the time of 1920s – 80s. The impact of “Globalisation” and even the fourth Industrial Revolution has almost created an extreme environment filled with hostility. It is perhaps the place where nimbleness and innovation have become the key elements for survival of a organisation.
Traditional budgeting is a significant method of preparation of budget where the last year’s company budget is also taken as the specific and firm base. The current year’s budget can only be prepared by making some of the relevant changes to the previous year’s organisation budget by rightly adjusting the expenses that are based on the sudden inflation rate and the increasing consumer demand with compliance to the market situation etc. While facilitating and preparing the traditional budgets the company’s past year’s revenues as well as the costs form needs to be considered an integral part for constituting the current year’s budget plan. It is only because the current year’s budget can only be prepared by taking all the constituent as a the base platform (Henttu-Aho 2016).
Traditional Budgeting vs. Zero-Based Budgeting
Zero-based budgeting is the modern budgeting procedure where the calculations are done taking zero as the base if there are no such past or availability of historical data. All the items that arrive in the cash flow needs to be clearly justified (Lorain et al. 2015). A new expense route or an income, as well as availability of old expense or income out rightly requires a proper justification. Preparing the traditional budgets can only include those items that are almost over and the last year’s budget also need to be justified clearly. To be ln the specific note, only the incremental changes specifically require an elaborative explanation. The rest part can be left with precision.
The “Budgeting Framework” is vast that includes household, individuals or the corporate organisational management that can include heads of unit, government, managers and the government. The principle user is the household and the management. The relationship that is constituent between the household and the management can be well compared to that with the man and the personal computer system (da Silva 2015). The context of “Garbage in and Garbage out” can be well established. It can be well assumed that the output is completely dependent on the availability of input
Budgeting in mainly based on setting off the main objectives that can be linked eventually to the plan for future constituting on what to commit and what to expect. It also includes the main financial plans on what has been spend and what has been received. It includes the cash budget, loss budget, functional budget and significant profit accounts. In addition, the managerial evaluation is very important considering the pricing rate along with the inflation rate (Asogwa and Etim 2017).
At the end of the year in a corporate organisation, there is usually an assessment of individual performance in accordance with the performance level. High performance gets commendable rewards and the low performances are charged penalties. The main key functioning of the budget is to carefully avoid the chances of dysfunctioning of behaviour among the employees. There is initiation of self-assessment for listing the targets to be achieved, plans to be set and the reasons behind for not yet achieving the targets listed (Pickering and Byrnes 2016). Various types of analysis like break-even analysis and various other kind guide upon the management.
The top managerial cadre within a corporate organisation is expected to communicate to the ultimate lower cadre via the estimations of budget scheme. For instance, it is expected from everyone in an organisation to have an ultimate and clear understanding of his or her respective job role and fictions. This would obviously enable them to set their respective targets and achieve a budget that has been set upon (Wienhold 2015). This also initiates the management to get concerned upon oversight of the compliance, along with ethics, conduct, and the governance.
The Budgeting Framework
Budgeting is used for financial enshrining in a particular organisation that would at the same time initiate communication. It would also establish proper managerial control within the organisation. It would also help to evaluate and monitor the actual expenditure and the real income that would rightly identify the problem. It also ensures variance of analysis and at the same time compares them to the actual budget figures ensuring correct actions (Nnoli et al. 2016). It also goes for forecasting the right financial statements like identifying the causes that initiates adverse sales, volume vacancies and also monitors the control mechanisms, coordinates the entire working team and motivates the working force for further upliftment (Shah 2018).
According to the expert comments, the budget is not itself a issue to create problem but its implication is much relevant to determine whether it is anyhow relevant for making a organisation run smoothly. Some of the key elements the accounting management is based on the concept of “Budgeting” only. It is accepted in most of the corporate organisation. However, the role of budgeting is much criticised by some of the critics. While at the same time, some argues upon its true importance, whereas the other sees it as a complete unnecessary distraction created (O’Grady and Akroyd 2016). The research for budgeting within an organisation is still very much prevalent and the concept of traditional budgeting methods are very much used by top corporate organisations even after the widespread criticism.
There are ample criticism that prevails towards traditional budgeting can be vehemently argued along with some of the excellent references. Some experts comments that improper budgeting often leads to misconception among the organisation’s employees and often distorts and initiate a dysfunctional behaviour within them. At the same time, it also consumes management’s time and at the same time affects the flexibility of the working force. It also affects the adaptability of the employees in the organisation’s working place. It does not lets the officials and the employee structure to adapt to the business place and neglect the changes that takes place within the corporate sector (Bogsnes 2016). This reason makes it obsolete and uninteresting.
Conclusion
In the conclusion it can be estimated the concept of Budgeting can be included along with the words “broken”, “obsolete” and “gratuitous” that obviously cannot be vehemently proceeded for substantial maintenance. Even as for the human, budgeting needs some of the specialised operational guidelines, that can control the excesses and also help in pursuing the targets and spend within the right means that are established in this work of budgeting. To be precise and specific in the concluding note, the concept of traditional budgeting is perhaps the panacea of controlling the series of enforcement. The act of budgeting builds upon planning extensively and lays a platform for coordination and motivational sprit that maintains and tries to establish a working environment within the organisation. Traditional budgeting mainly focuses centrally around playing the pivotal role for managing the success in most of the business organisation. Moreover, the term budgeting is relevant for all business organisations and business environment because it helps a business organisation to have a specific objective and pursue the ongoing targets. It also establishes some of the basic standards that are needed to be followed for enabling the business transaction successively.
References
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.
Berland, N., Curtis, E. and Sponem, S., 2018. Exposing organizational tensions with a non-traditional budgeting system. Journal of Applied Accounting Research, 19(1), pp.122-140.
Bogsnes, B., 2016. Implementing beyond budgeting: Unlocking the performance potential. John Wiley & Sons.
da Silva, A.P.S., 2015. Nors case study: traditional budgeting process transformation into beyond budgeting model.
Henttu-Aho, T., 2016. Enabling characteristics of new budgeting practice and the role of controller. Qualitative Research in Accounting & Management, 13(1), pp.31-56.
Lorain, M.A., García Domonte, A. and Sastre Peláez, F., 2015. Traditional budgeting during financial crisis.
Nnoli, U.F., Adeyemi, S.S. and Onuora, O.A., 2016. Zero-Based Budgeting: Pathway to Sustainable Budget Implementation in Nigeria. Business Trends, 6(3), pp.28-35.
O’Grady, W. and Akroyd, C., 2016. The MCS package in a non-budgeting organisation: a case study of Mainfreight. Qualitative Research in Accounting & Management, 13(1), pp.2-30.
Pickering, M.E. and Byrnes, V.A., 2016. The Changing Role of Management Accountants in a Lean Enterprise–From ‘Bean Counter’to Delivering Customer Value. Cost Management, pp.38-47.
Réka, C.I., ?tefan, 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).
Shah, A., 2018. Unit-5 A Primer On Performance Budgeting. IGNOU.
Wienhold, M., 2015. Better Budgeting methods: a comparative effect analysis on traditional budgeting problems (Doctoral dissertation).
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