Budgeting has been considered as one of the most important tools used by managers for decision making purposes. Budgeting is also believed to be as the foundation stone of the management accounting system. Organizations have identified several benefits of using budgeting and this is the reason why many organizations have been using this technique for years. It is used by managers for different purposes and some of the most important purposes of using budgeting are; forecasting financials of the company, controlling costs, managing cash flows, evaluating the performances, resource planning, setting up objectives of what the organization should achieve in the time to come and many others (Bunce, Fraser, and Woodcock, 1995, p. 255). As budgeting is used for different purposes by the organizations therefore it realizes how important it is for the management.
With the passage of time, the perception of people has changed regarding budgeting. Managers have realized that budgeting is a time taking process and it consumes a lot of resources of the organization. Moreover, budgeting does not give sufficient rewards or returns to the organization when it is analyzed with the resources it consumes. Therefore, the point of view of managers has been changing and they have started shifted their focus to beyond budgeting techniques from traditional budgeting (Player, 2003). This technique encourages decentralization and empowerment of employees. According to beyond budgeting technique, the front line managers have sufficient skills and knowledge and they are directly facing and interacting with the customers, therefore they should be allowed to make the decision at that particular time according to the situation and in the best interest of the company (Daum, 2001).
In this research report, I will be analyzing and identifying reasons why organizations are shifting their focus from traditional budgeting to beyond budgeting technique after using it for so many years. Moreover, in this research report I will also explore and investigate organizations that have started adapting the concept of beyond budgeting and whether these organizations have been successful or not.
Bunce, P., Fraser, R., and Woodcock, L. (1995). ‘Advanced budgeting: a journey to advanced management systems.’ Management Accounting Research, vol. 6, no. 3, pp. 253-262
Daum, J. H. (2001). Beyond Budgeting: A Model for Performance Management and Controlling in the 21st Century. German newsletter: “Controlling & Finance”. Available at http://www.juergendaum.de/articles/beyond_budgeting.en.pdf
Player, S. (2003). ‘Why some organizations go beyond budgeting.’ Journal of Corporate Accounting and Finance, vol. 14, no. 3, pp. 3-9.