Annual Budget Model Essay

1608 words - 6 pages


Budgeting is a process in which every firm has to be involved with not only the board of director (Principle) who authorize the budget but also management team (Agent) who use it as well. In other words, budgeting need communication with every level of employee in the company in order to construct the goal or strategy of the company. Moreover, budgets are an instrument of power as well as being a reflection of power (Ashton et. al., 1995, p.289). Budgets that are not based on well-understood activities and costs are poor indicators of performance (Drury, 2005). Nowadays, at the time of information and technology the conventional budgeting is not good enough for withstand the rivalry in the global market. As Hope and Fraser, 2000 cited from Young, 2006 say the traditional performance management model cannot reflect today’s discontinuous change economy, which is why they point that annual budget model may be seen as having a number of intrinsic weaknesses and acting as a barrier to the effective implementation of alternative models for utilize in the success of strategic change. Therefore, I separate my essay into two parts. First, indicate and criticize on five inbred weaknesses of annual budget model. Second, explain ways in which the conventional budgeting process may be seen as an obstacle to accomplishment of the aims of Benchmarking, Balanced scorecard, and Activity-based models for the fulfillment of strategic change.

Discuss on inherent weakness of annual budget model

There are many weaknesses of traditional budgeting model and it has been the matter of considerable caviling. From recently research by Libby and Linsay, 2010 cited from Hansen et. al., 2003 encapsulated several discussions of budgets and assumptions regarding the use of budgets obtained from the academic research and practitioner literatures. The issues are following:

1. Budgeting depletes a lot of managerial time, which makes it an overpriced
process and may not worth the cost.

2. Budgets restrain firms from adapting to changes in a timely way due to
their unyielding nature.

3. The budgeting model is disconnected with strategy thereby putting it out of state with the competitive demands facing firms.

4. The use of the budget as a fixed performance contract leads to unreliable performance evaluation and promotes budget gaming.

5. Conventional budgets provide little relevant information for managing the costs of support activities (Drury, 2005).

In this following section, it is the extent to which such criticisms are shared by respondents in North-American sample of firms using budgets for control purposes (Libby and Lindsay, 2010).

Discussion 1: traditional budgets consume too much time to prepare

Libby and Lindsay, 2010 asked respondents to indicate how many weeks the annual formalized budgeting process takes to complete in their business unit (FIRM WEEKS). Survey respondents were also asked...

Find Another Essay On Annual Budget Model

Eurozone for SouthEastAsia? Essay

3376 words - 14 pages ......................................................................................................... 3 c. Annual Common Budget ......................................................................................................... 4 3. Economic Integration Policies .................................................................................................... 5 4. Common Currency ...................................................................................................................... 6 a. The good

Understanding of Budgets Essay

3001 words - 12 pages the competition, not the budget;2. Devolve strategy to the front line and make it a continuous process, not a top-down annual event;3. Co-ordinate by managing cause-and-effect relationships across business units and responsibility centres, not by using departmental budgets;4. Use a few key leading and lagging indicators to measure performance, not detailed historical reports5. Give managers the freedom to act.Early in 1998 CAM-I Europe initiated a

Sequestration and Monetary Policy

2566 words - 10 pages impasse, on entitlement reduction or tax revenue, the law states that sequestration will automatically be put into practice. Involuntary budget cuts are instituted automatically across all branches of government except for paying the interest on the debt, military salaries, and social security. This sequestration cut takes an annual reduction of $85 billion and partitions it up among defense and domestic expenditures. The military would absorb the

United States National Security

1784 words - 8 pages national defense. Thus, by constraining the resources that goes into these policies, the direction it takes will also be limited. In addition to public opinion, budget processes also play a key role in determining policies in that it can also affect the amount of resources that goes into implementing them. Farnham (2004) argues against the rational actor decision making model which states that policy-makers (namely, national security policy

Analyse the role and implementation of monetary and fiscal policies as tools of macroeconomic management to manage the Australian economy through the current global economic crisis.

1483 words - 6 pages of different factors such as:•Monetary policy is more flexible because the RBA board meets every month except January as opposed to the annual changes made to the budget.•Fiscal policy is harder to tighten politically due to public objections to spending cuts or tax increase.•The floating of Australian dollar has increased the importance of monetary policy.• Fiscal policy has become more of a political than economic instrument

To What Extent Does Contractionary Policy Contribute to a Decline in Economic Activity?

1600 words - 6 pages model will be provided and contrasted to other theories and models. Contractionary fiscal policy, which is a reduction in the budget deficit, works through government spending and taxes. However, it is easier to separate them into three tools, namely, government purchases, taxes and transfer payments to see their effect on economic activity in the short run, medium run and long run. Government purchases are government expenditures, which are

Financial Planning in an Engineering Business

5104 words - 20 pages shown that accounts receivable runs around 30% of sales. Therefore for estimated annual sales of £ 1800,000 the account receivable will be £ 1800,000 x 0.30 = £ 600,000.Preparing a Detailed Budget:1. Budgeted Income Statement involves preparation of several budgets. For VALUEFONES based on estimated monthly sales of 16,000 units the Production Department will need to budget for materials, labor, and overhead based on what the

MBA 510 Business Problem Paper Final

2986 words - 12 pages . "Independent Variable: One of the variables that is thought might influence the value of the dependent variable in a statistical model" (Clapham & Nicholson, 2005).The state has announced that they intend to reduce college funding by 6%. A decisive budget has not yet been released therefore the percentage of reduction could vary. This independent variable will have direct influence on the dependent variables and the amount of impact is still to be

Comparing Three Methods of Physician Payment in Ontario

2029 words - 8 pages flexibility and forces physicians to budget their spending. It provides physicians with a strong incentive to offer a cost effective care because less cost per person will increase their profit. With this model, doctors also tend to provide complete and careful assessment of patient problem in one episode so that further hospital visits are prevented. They only prescribe test and treatments that are necessary in order to reduce cost. Capitation

Mini-Case Financial Planning

1311 words - 5 pages forecasting model. The model includes data from the balance sheet including assets, liabilities, and owner's equity. Using an excel spreadsheet, the data will include growth, tax, interest rates, sales, and payout ratios. Once the formulas are entered, the data can be manipulated, enabling George to forecast the results of certain decisions and better aid in the planning phase.Projection of Future YearsGeorge is developing a financial plan by comparing the

Steel Works, Inc.

1392 words - 6 pages high impact on the annual revenue since they have very high demand and medium selling prices. The kink in Chart 1 tells us where products should be classified; in this case, we will divide them into two classes.Table 1: Percentage of Annual Value for Each Product ($ in thousand)ProductSelling PriceAnnual DemandAnnual ValueCumulative Value% Annual ValueDuraBendTM R15$1.0329,563$30,331.64$30,331.6467.3%DuraBendTM R12$1.0012,096$12,096.00

Similar Essays

Australian Economic Issues Essay

1879 words - 8 pages economy’s short-term direction, and year on year growth to show annual progress. These measures are necessary so that policy decisions can be implemented accordingly. Fiscal policy may only be implemented once per year in the annual budget while monetary policy may be conducted 12 times per year (RBA meetings occurring once per month). Therefore, fiscal policy is used to influence annual growth/the business cycle while monetary policy is used

An Internet Article Review Winning The Cost War By Scott H. Graham Is To Emphasize The Importance Of Cost Management

807 words - 3 pages and campuses (there is some duplication of services at various campuses, so efficiency between campuses can be tracked). Each division has a manager whose job it is to provide an annual budget and to track that budget on a weekly basis. More extensive quarterly reviews are also done and give a better picture as to what is happening within each division.At the Orlando campus, two of the larger divisions are the Marine Department and the Motorcycle

Performance Management In The Framework Of Public Accountability In Estonian Local Governments

807 words - 4 pages information can be made between performance reporting as an accountability tool and performance management as a steering tool (Greiling 2006). Over two-thirds of OECD countries include non-financial performance information in their budget documents (Curristine et al 2007). According to Estonian legislation Local Governments in Estonia currently have to compile strategic plans, prepare the annual budgets in accordance with the strategic plans

Business Model Development For Freight Railway Company

1603 words - 7 pages -five-competitive-forces-that-shape-strategy/ > [Accessed 9 October 2013]. PPM Management Team. (2012) Business Model Canvas: Penerapan di Indonesia. Penerbit PPM, Jakarta. PT Kereta Api Indonesia. (2012) Preparation to Growth, Annual Report 2011. PT Kereta Api Indonesia, Bandung. PT Kereta Api Indonesia. (2013) Preparation to Growth, Annual Report 2012. PT Kereta Api Indonesia, Bandung. Simatupang, T. M., and Setijadi. (2013) Mari Memajukan Logistik