Is company budgeting necessary? There are two general opinions in management theory. Malcolm Howard is standing behind the statement that “budget is still a worthwhile exercise – as long as you stick to five basic principles”. He argues that some of the problems claimed to be budgeting issues are clearly management problems. It's manager's mission to set the goals for the coming year and develop a strategy, a plan, including milestones. It is the manager's responsibility to finalize that plan.
According to Howard, there are five basic principles of budgeting:
1. All employees should be involved.
2. The budget must be realistic.
3. The outputs must be linked to the inputs.
4. Managers to recognize the concept of flexibility.
5. Managers have to learn from the process.
Howard's message to managers is that they should involve the staff in the process. Communication has to come on first place and budget has to be a bottom-up creation. Rewards and incentives must be included for those whose dedication brought the fruits of success.
[...] The Beyond Budgeting model is rarely adopted in such organizations but as small firms grow it's recommended for them to bypass traditional budgetary. Other authors as W.H. Wiersema (need to budget, The) are supporters of the theory that small companies should benefit from the budgeting practice of the large companies. Wiersema stands behind the thesis that “budgeting has benefits for any size of company”. In my opinion, budgeting takes too much of manager's time and still there's a danger of it becoming inadequate to the changing market situation. [...]
[...] The Beyond Budgeting model is one of the best decisions of the present day. David Dugdale and Stephen Lyne's investigation from 2006 show that most of the manufacturing companies in the UK are using budgets. Large companies usually have complicated structures. Most of the financial controllers and the finance directors say they regard budgeting as a key element in their structural and procedural planning. Most managers agree that budgeting is too time-consuming process. Banks and other financial institutions are prime candidates for decentralisation, following the example of Handelsbanken. [...]
[...] According to Jeremy Hope and Robin Fraser (Figures of hate) “offering a challenging environment is crucial to engaging and keeping the right people, but the budgeting model with its overarching bureaucracy, head-office memos and directives, and detailed rules and procedures, undermines such an environment”. Managers in BB companies grow innovation by sharing knowledge across networks. They have an incentive system to encourage those who have been devoted to achieving goals during the whole process. The good manager has to be a good motivator. [...]
[...] He gives us an appropriate example with Handelsbanken a company that abandoned budgeting in the early 1970's. Svenska Handelsbanken is a classical case of the Beyond Budgeting Management Model. Handelsbanken is a Swedish universal bank the success of which is based on its decentralized organization and decentralized leadership model. The German ALDI is pointed to be a case study for managing without budget as well. Its success is based on the same secret decentralization. Howard insists on budgeting as a necessity. [...]
APA Style reference
For your bibliographyOnline reading
with our online readerContent validated
by our reading committee
