e organisation since the process may take up to six to complete.
Argument on budgeting
Some experts suggest businesses should abandon budgeting entirely and replace them with form of rolling forecasts and key performance indicators that shifts strategic decision making to customer-facing edges of the organization. Others advocate significant changes: Housing the budgeting and strategic planning functions in one office, establishing top-down goals two to three years out, and requiring all organisations to explore budgeting implications of several strategic alternatives.
In some instances, the budget process consumes up to six months and 20 percent of management’s time. Hope (2004) states that, “Most companies’ approach to budgeting increases the chances that the process will be arduous, expensive, and frustrating.” Hope (2004) also added that, “There’s terrific pressure on everyone to make those targets; hence the distortion, misrepresentation, and gaming that can happen in even the most ethical companies.” For example, a manager trying to increase spending or get a project approved, would put in for 30 to 50 percent more than he/she needs, knowing that he/she would get argued down by senior management to the originally figure wanted. Hope (2004).
Hope (2004) went further to say that, “The fixed-performance contract fosters the fear in managers that if they don’t spend what’s left over in their budgets at the end of the year, their funding for next year will be reduced.”
Hope and Fraser (2004) argue that; “As long as budgeting, a vestige of the old command-and-control approach to management, remains in place, the newer tools designed to decentralize strategic decision making will never achieve their full potential.” Hope and Fraser (2004) concluded that; “the solution is not better budgeting but rather abandoning budgeting entirely and building an alternative management model.”
Other experts are not as eager for total eradication of the process. Bruns (2005) says, “I’ve seen some annual budgeting processes that didn’t take any time at all. After each unit’s sales and capital need forecasts are complete, senior management holds a three-day meeting to discuss them and then makes its decisions.” Bruns (2005) continues that, “Of course, at the other end of the spectrum, you have these 200-page budget books that get produced, requiring months of meetings.” Bruns (2005) then suggests “keeping budgets but restructuring compensation programs so that managers no longer have an incentive to favour short-term goals over the longer-term health of the company.”
Clarke (2002) states that, “ there should be changes in budgeting process to reforge the link between a company’s strategic planning and resource allocation.” The finance department typically oversees budgeting and performance, and whereas planning is coordinated by a
strategy department. Clarke (2002) lamented that, “Often, the two processes aren’t well integrated, resulting in strategies that are often dictated by the budgeting process instead of vice versa.” When it comes time for senior management to review the units investment proposals, their decisions are often blind to their impact on long-term value. Clarke (2002).
Clarke (2002) continues that, “Resource allocation should be about putting funds behind th
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