A key element in any successful business is budgeting, as seen in 2007 where budgeting was one of the key factors that increased managerial performance, CIMA (2007). Budgeting is the process of compiling detailed financial plans for acquirement and use of financial and other resources over a stated time period. In order words, budgeting is the outcome of the transition from a businesses plan for the future to financial values that can be easily measured. It requires a lot of time and resources, as reports from the previous year are needed in in order to plan for the future financial year to come. CIMA conducted a survey which highlighted budgeting as one of the most commonly used management accounting tools for companies of all sizes, industries
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Drury refers to traditional budgeting as " where once per year the manager of each budget center prepares a detail budget for one year", (Drury, 2009) or as ‘annual budgeting’. Traditional budgeting does present itself with some benefits such as providing a sturdy framework of control, Block (2000). The main aim for traditional budgeting is to mangage the company’s finanical ongoings and thus the budget plan §becomes a reference point or a center pinpoint for activites. Consequently this provides an environment that allows a company to manage department’s activities with stability. Companies still practicing budgeting using the annual budgeting method do see it as a device of stability in the managerial sense as it helps check against factors such as inflation, Aaron Wildosky (1978). The traditional budget system is easy and quick to prepare meaning that it has less preparation costs and is easy to understand. Moreover, the style of traditional budgeting prevents any conflict between departmental leaders as its consistent approach is carried out throughout the whole …show more content…
One of these methods that presents a better approach to budgeting is called better budgeting. This alternative is used by companies who still want the formal budgeting system. This consists of five methods that have been shown to improve the budgeting sytem, hence the umbrella name of better budgeting, Adams (2003). Activity based budgeting is one of the five techiniques used. This involves planning and controlling value adding processes and activites. The buisness processes are structed so that they meet the external needs of the company and meeting customers needs, Reyhanoglu (1999). A techinique that is also associated with better budgeting is zero based budgeting, this approach depends on operating on the buisness environments stability. It does this by predeterming what expenditures are rejustified during each of the budgeting cycles which helps to avoid building on the miscalcualtions and shortcomings or previous history. This techinique gets managers to justify their budgets every year in order to try and stop fraudelent behaviour and bad budgeting, Swanick (1978). Another technique that is used is profit planning. This technique is used to plan finaical cash flows of the profit cash centres so that business can asses whether or not a product or unit genreates economic value and draws enough finiancial resources for investment. It also makes sure that
Drury refers to traditional budgeting as " where once per year the manager of each budget center prepares a detail budget for one year", (Drury, 2009) or as ‘annual budgeting’. Traditional budgeting does present itself with some benefits such as providing a sturdy framework of control, Block (2000). The main aim for traditional budgeting is to mangage the company’s finanical ongoings and thus the budget plan §becomes a reference point or a center pinpoint for activites. Consequently this provides an environment that allows a company to manage department’s activities with stability. Companies still practicing budgeting using the annual budgeting method do see it as a device of stability in the managerial sense as it helps check against factors such as inflation, Aaron Wildosky (1978). The traditional budget system is easy and quick to prepare meaning that it has less preparation costs and is easy to understand. Moreover, the style of traditional budgeting prevents any conflict between departmental leaders as its consistent approach is carried out throughout the whole …show more content…
One of these methods that presents a better approach to budgeting is called better budgeting. This alternative is used by companies who still want the formal budgeting system. This consists of five methods that have been shown to improve the budgeting sytem, hence the umbrella name of better budgeting, Adams (2003). Activity based budgeting is one of the five techiniques used. This involves planning and controlling value adding processes and activites. The buisness processes are structed so that they meet the external needs of the company and meeting customers needs, Reyhanoglu (1999). A techinique that is also associated with better budgeting is zero based budgeting, this approach depends on operating on the buisness environments stability. It does this by predeterming what expenditures are rejustified during each of the budgeting cycles which helps to avoid building on the miscalcualtions and shortcomings or previous history. This techinique gets managers to justify their budgets every year in order to try and stop fraudelent behaviour and bad budgeting, Swanick (1978). Another technique that is used is profit planning. This technique is used to plan finaical cash flows of the profit cash centres so that business can asses whether or not a product or unit genreates economic value and draws enough finiancial resources for investment. It also makes sure that