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budgeting, a tool from the devil or a gift from heaven. Abstract: The question
where this article is focusing on is why companies ...
Submitted by tupaclives on July 19, 2007
Category: Business
Words: 3966 | Pages: 16
Views: 181
Popularity Rank: 58,864
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Abstract:
The question where this article is focusing on is why companies continue to use budgeting even though everyone says that budgets are bad. The article has been written on the base of four published papers on this subject. The quality of this article is therefore somewhat limited by the quality of the other four papers.
In this article we first examine the reasons why budgets are believed to be bad. This has several reasons but the most important reasons is because companies use budgets in their performance evaluation. This causes gaming by the employees and this also causes the large amount of time needed to complete the budgets. Due the these two facts the budgets are not very effective anymore in the planning and control process and therefore are considered bad. Next to the fact that the budgets are used for performance evaluation they are also outdated. The traditional budgeting process has been developed in the 1920's when the economy was fairly stable. Now, however, we are living in a fast moving world and therefore the budgeting process needs to be more flexible.
In the article we also examine the two movements that have been developed as an answer to the dissatisfaction with the traditional budgeting process. The movements are the ABB- and the BB-approach.
The answer to our questions is that budgets are not necessarily bad but that they are used for the wrong purposes, for example as a performance evaluation. However, even though the majority of people, that are working with budgets, are dissatisfied with them, they continue to use them. This can be explained by the fact that companies are afraid for changes. They have been using budgets for years and have become to see them as a routine. Next to this we also see that the budgeting process has to be adapted to the current situations.
Introduction
Budgets have for years been used by companies as a tool in the...
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