1. Lecture 5

2.  Understand the primary approaches to budgeting  Some practical examples of how budgeting is used  Be introduced to the ‘beyond budgeting concept’

3.  Imposed style (‘top down’)  Participative style (‘bottom up’)

4.  When best used:   During periods of economic hardship  When operational managers lack budgeting skills  In very small businesses

5.  Benefits  Strategy likely to be linked directly with the budget  Based on what the company can actually achieve/afford  Budget construction time/cost is minimised  No need to train staff in budget preparation  Problems  Management/staff likely to be de-motivated  Will lack local knowledge – so unachievable  Budget will be seen as a ‘stick’  Will ignore local external conditions

6.  When best used:   A structured business  Financially aware/trainable managers/staff  Where elements of the business are profit centres

7.  Based on local knowledge  Motivation improved  More realistic  Increase managers commitment to organisational objectives  Problems  Time consuming process  Managers/staff may need training  Managers may set easily achieved budgets  Changes by senior management may cause dissatisfaction  Benefits

8. Budgetary control in a hotel Flexible budgeting in McDonalds Performance Measurement & BSC in McDonalds

9. 9 © 2000 Colin Drury Style of evaluation: Budget-Profit-Non- constrained conscious accounting Involvement with costs High High Low Job-related tension High Medium Medium Manipulation of accounting information Relations with superior Relations with colleagues Budgeting & Performance Evaluation Budget-constrained style (Hopwood, 1976) Profit-conscious style Non-accounting style

10.  ‘The budget – an unnecessary evil’  (Wallander, 1994, 1999),  ‘Bye bye budget.. the annual budget is dead’  (Gurton, 1999)  ‘Take it away’  (Hope and Fraser, 1999)

11.  Beyond Budgeting Round Table: An independent research collaborative  www.bbrt.org www.bbrt.org  proposes that budgeting as most organisations practise it, should be abandoned.

12. 12 Time consuming and expensive Failure to focus on shareholder value Too rigid and prevent fast response Protect costs rather than reducing them Stifle product and strategy innovation Divorced from strategy Reinforce dependency culture

13. Move towards devolved networks with personal responsibility