DrWorld6097
Respond to at least two of your peers’ posts in a substantive…
Respond to at least two of your peers’ posts in a substantive manner. Provide information that they may have missed or may not have considered about whether traditional or alternative budgeting methods are better and have a positive impact on businesses, or which has more practical usefulness. Do you agree with your peers findings? Why or why not?
Post 1:
Beyond budgeting offers a transformative alternative to traditional budgeting, especially relevant in financial planning and analysis. Traditional budgeting relies on a centralized, command-and-control structure that emphasizes fixed performance targets and, beyond budgeting, champions a decentralized approach. Beyond budgeting empowers business units and teams to act on real-time information facilitates swift adjustments to market changes and aligns more closely with customer needs (Cardos et al., 2014). This adaptability starkly contrasts the short-term focus of Traditional Budgeting, which often fosters unethical practices and hampers organizational agility. Companies like UBS are already pivoting from rigid, numbers-based forecasts to more flexible rolling forecasts and trend analyses, aligning well with beyond budgeting’s emphasis on relative performance metrics over fixed targets (Rothberg, 2011). This shift indicates a more significant trend toward more adaptive, decentralized organizational structures better suited for today’s volatile business environment. Beyond budgeting also promotes ethical behavior and long-term growth by concentrating on the quality of processes rather than merely on results. Therefore, beyond budgeting stands out as a more adaptable, ethical, and effective framework for financial planning and analysis, making it crucial for fostering a culture of continuous improvement in today’s fast-paced business landscape.
References
Cardos, I. R., Pete, S., & Cardos, V. D. (2014). Traditional budgeting versus beyond budgeting: A literature review. Retrieved from https://ideas.repec.org/a/ora/journl/v1y2014i1p573-581.html
Rothberg, A. F. (2011, April 21). Traditional budgeting vs. beyond budgeting. [Blog post]. Retrieved from https://www.cfoedge.com/blog/financial-planning/traditional-budgeting-vs-beyond-budgeting-three-core-differences/
Post 2:
After reading the articles and based on my experience as a supervisor, incorporating alternative budgeting methods, like beyond budgeting vs. traditional budgeting, can be initially difficult for any organization.
It seems the people who argue that alternative budgeting methods are better are hopeful that each employee is equally responsible, a goal-getter, a high achiever, and, more importantly, self-motivated. Though it may help with morale, by making all employees equal to top management, it would be somewhat tricky for top management to hold employees accountable as it seems that depending on what alternative method is implemented and how many quarters they report on or plan for; the FP&A may be too fluid for some industries. Alternative budgeting methods can help specific sectors succeed. Still, some industries cannot afford “fluid” budgets; for example, I would work for a utility company, and we are regulated. Our GRC( General Rate Case) has to be approved by the state, which impacts operating costs and capital investments.
Hope & Fraser (2003, February) state, “In an empowered organization, people are free to make mistakes and equally free to fix them. “Because of the industry I work in, I would not trust everyone to make the right decision, and sometimes we can’t erase the mistake and move on because people can get severely hurt and even die. Since most traditional budgeting process requests their operating divisions, business units, and departments to submit forecasts before the budget is finalized; I would say all units and individuals have a voice when forecasting. If some divisions and units are not meeting their deadline for a few quarters or years, then the company would benefit from using a balanced scoreboard so the teams can properly strategize and find their bottlenecks. The articles also mention that companies, top management, and employees might be willing to lie or commit fraud to attain a traditional budget and meet quotas. Still, the reality is that anyone who doesn’t have professional morals and ethics would behave the same way under any FP&A. Beyond budgeting might work for new small businesses; however, implementing it in a firm that does business at national and international levels would be difficult because not every employee may see the big picture. Under traditional budgeting, senior management sees the big picture and maintains that control, but they are also responsible for their financial reports and must follow the Sarbanes-Oxley Act. A traditional budget might be a better option if a firm’s top management is respectful, communicates effectively with EE’s and all stakeholders, and sets achievable goals.
References:
Cardos, I. R., Pete, S., & Cardos, V. D. (2014). Traditional budgeting versus beyond budgeting: A literature reviewLinks to an external site.. Retrieved from https://ideas.repec.org/a/ora/journl/v1y2014i1p573-581.html
Hope, J., & Fraser, R. (2003, February). Who needs budgets?Links to an external site. Harvard Business Review, 81(2), 108-115. Retrieved from https://hbr.org/
