1. Management Accounting and Control
Issues in traditional budgeting and contemporary approach to budgeting

2. Introduction Famous quotes
Even though budgeting is practiced in corporate as a
major financial planning and controlling technique , it
has some inherited issues which are not applicable to
the today business environment.
Famous quotes
, “The most ineffective practice in management.  It sucks the energy, time, fun and big dreams out of an organization…In fact when companies win, in most cases it is despite their budgets, not because of them.”
Jack Welch-Chairmen General Electric

3. Quotes
“The culture of budgeting is the single greatest barrier to change. The average corporation spends four months and 20-30% of senior executives’ and financial managers’ time on the budget (with some organizations taking six to nine months)”. “BBRT” “Budgets, once meaningful control instruments, have become (in today’s dynamic information/knowledge economy and global buyer’s markets) a danger for lasting enterprise success,” says Steve Player, director, BBRT North America. “They prevent fast and flexible adaptation to the market so that full potential is not realized.

4. Continue
Therefore following report discussed inherited planning and performance evaluation issues in traditional budgeting as a management system of an organization. It also provides an analysis of the different budgeting approaches available and practiced in addressing the current issues.

5. Major heading 01 :Planning issues with budgeting
Budgetary planning takes a long time, costs too much, and consumes too many corporate resources.  Average 6-8 months, 20%-30% senior managers time, back and forth negotiation, Internal politics comes first than serving the valuable customers. At the planning stage focus is to departmental sub optimization and not serving to the purpose of Goal Congruence (Beyond Budgeting round table, 2007) Clear in text references is a must

6. Major heading 01 :Planning issues with budgeting
2. Budget is fixed and inflexible, and can quickly become irrelevant. 
The economy may change, industry or market conditions may change, something specific within the business may change.  Regulations may roil the playing field.  New entrants or competition may emerge.  There may be new concepts, new partnerships, new innovations, or other internal
factors with financial repercussions. 
A survey of planning, budgeting, and forecasting practices by APQC and the BBRT found that 55% of respondents felt that the assumptions used in their budgets were so different than actual results that the budgets were useless within the first six months of the year. 

7. Survey results
20% of the firms change their budgets within the Fiscal year. 85% of the management teams spend less than one hour per month discussing strategy

8. Major heading 01 :Planning issues with budgeting
3. Not fit for the purpose BBRT argued that budget tend to focus on target based on incremental changes from the previous period. There is no focus on the maximization of customer or shareholder value.

9. Major heading 01 :Planning issues with budgeting
4. Rigid top down approached to budgetary planning will not work out in today business context. Budget is highly control by the centralized body of the organization. Clear rules, communication for what to be delivered, tightly control, lack of flexibility, lack of empowerment and de-centralization. Create a dependency culture (M.Dougles, theory X 1960) Creating adaptable culture is questionable

10. Major heading 01 :Planning issues with budgeting
5. Budgetary planning block the creativity and innovation of the organization. 6. Budgetary planning leads to unethical behavior of the employees, departmental politics,

11. Major heading 02: Modern budget approaches in addressing the planning issues
Rolling forecast
The rolling forecast is a logical adaptation of the fixed budget or
forecast—largely addressing the issues raised above with the
traditional planning process.
Typically update on going basis and responding to change.
Incorporates the market, industry changes in to the rolling
forecast.

12. 1. Beyond budgeting round table (BBRT)
Major heading 02: Modern budget approaches in addressing the planning issues
1. Beyond budgeting round table (BBRT)
BBRT creates adaptable culture in the organization
following more participative/ bottom up budgetary
Approach or management style. Customer value or the
share holder value creation is the purpose of the
budget. Self control system is motivated/ employees
build up psychological contract with the organization
and there by employees are come out with new
initiatives to control the cost and improve the bottom line.
( Promote Theory Y)/ Adaptable culture

13. Major heading 02: Modern budget approaches in addressing the planning issues
2. Realistic forecast to every one of the organization. Avoid negotiation, gaming and internal conflicts. Avoid sub optimization and serve the goal congruence. It makes people spend money as if it comes from their own pocket. 3. Financial targets are based on peer group competitors. No incremental approach. Starting point may be ROCE, ROE, average production cost,

14. Major heading 02: Modern budget approaches in addressing the planning issues
4. Funding is a open source. Creativity and innovation is encourage. No constrain in funds. But open culture to say YES/NO

15. Major heading 03: Performance evaluation problem with budgeting
1. There is no continues improvement in cost structure rather than control against budget. 2. Performance evaluation is based on the financial performance measurements( Cost budgets, revenue budgets, Performa P/L) 3. There is no holistic approached to performance evaluation (Advocate by Bsc) 4. Sustainable performance measurements are not identified.

16. Sustainability performance indicators
Economic PI
Social PI (Labour practices, human rights )
Environmental PI (Green house gas emission, water consumption , wastage output)

17. Major heading 03: Performance evaluation problem with budgeting
5. Highly share holders focused (Cadboury Report) not stake holder focus (Brutlend report) 6. Budgets are divorced from strategy ( 70% of the strategic execution is failed due to poor performance management capabilities of the budget

18. Major heading 04: Addressing the issues of PE
BBRT
Balance score card system
New approached to Bsc
Activity based budgeting

19. Major heading 04: Addressing the issues of PE
Traditional cost budgets are not entertained to
control the cost. Each cost element and margins
are monitored with set KPI s.
BBRT encourage continues improvement in cost
structure rather than control against budget.
We could easily put in place a cost program instructing all business areas to reduce costs by a given number. I believe this would work against our intention of building a cost-conscious culture. If we want to become more fit, a crash diet does not work. It takes a change of lifestyle. I believe Statoil is made up of competent, responsible and commercially oriented people who will make the right cost decisions. This means always working hard to reduce bad cost, while protecting good cost. You know better than me what these are and where they are”.  (CFO Statoil Oil Corporation)

20. Conclusion and recommendation
Even though traditional budgeting has it own drawbacks most of the companies are still using it. It determines by the nature of management style, culture, company life cycle, nature of the business (Family business), nature of the industry and the market.
There is no uniform approach to budgeting

21. Free referencing https://www.citethisforme.com