Cost Accounting Essay

2180 Words Sep 27th, 2010 9 Pages
According to the Beyond Budgeting by Hope & Fraser, they defined budget as the “year-end profit forecasts”. Budgets have been using by companies for years since decades ago as a tool for management to use to achieve its strategic goals. A company plans its expedition toward its strategic goal in a planned method, and its preparation for the expedition with a strategic plan called a budget.

Critics of budgets claim that budgets are bad for business and no longer sufficient and are “fundamentally flawed” as a planning and control model in today’s complex and highly unpredictable business environment (McNally, 2002). Stewart (1990) claims that experts criticize budgets are being insufficient. According to him, “Budgets, says experts
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According to McNally (2002), he argues that the budgeting process takes a long time, costs too much, and consumes too many corporate resources. For some companies, the process may take as long as six to eight months. That is the reason for many smaller company may not make a budget if the company has a very limited managerial staffs. Besides that, the budgeting model must be clearly understood by all the managers at various levels to be successfully implemented. In large organisations, the volume of forms may be so large that not one person could understand it all. It may be more managers to be involved in order to administer and communicate the budgeting. The essential to train the managers incur another cost to the company. Consequently, when the budget is issued, it may no longer accurate and this causes problems for businesses in “today’s unpredictable and fast-paced business climate” (McNally, 2002).

Jack Welch, the Chairman of General Electric, claims in his best selling book Winning, the budgeting process is “the most ineffective practice in management”. It is wasting the energy, time, and the uncertain profit out of the organisation. Therefore, many companies, especially the European companies are replacing the traditional budgeting process to the rolling forecasts or other methods of constant planning. The Beyond Budgeting Round Table has spent countless time to examine the performance management models of many large companies and…

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