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Beyond budgeting movement is founded by the Beyond Budgeting Round Table organization in respond to shortcomings encountered with the use of traditional budgets. The traditional budgets are the annual budgets that organizations use to allocate resources and plan and implement in a fiscal year.
An investigation was conducted by ‘Beyond Budgeting Round Table organization’ to establish the effectiveness of the traditional budget. Their findings formed a base to justify their ideas on beyond budgeting.
The Beyond Budgeting Round Table organization is a movement that advocates for exchange of ideas concerning business management by giving out experiences as well as utilize research findings. The aim of the movement is to “help organizations introduce ways to achieve more adaptive control and continuous planning” (Beyond budgeting Round Table, 2005, pp 1).
Beyond budgeting movement incorporates the community using ideas that will enable organizations survive in a competitive surroundings. This paper will critically discuss how the traditional budget is inappropriate for modern business while the beyond budgeting movement is effective for modern business.
Discussion of Beyond Budgeting Movement
There are two group of doctrines that the beyond budgeting movement believe in. The First doctrines focus on the process of management while the second doctrines focus on the leadership of the organization. The process entails incremental growth in the objectives of the organizations where individual employers receive rewards on projects completed.
The capital for a project is given upon request and the employees coordinate their activities towards a common goal. The leadership on the other hand is transparent and it encourages a tradition of achievements. The leadership let the employee make own targets and take responsibility of the outcome.
The communication is open and shared within the organization. The procedure put more emphasis on how to satisfy the consumer needs by investigating their mannerisms and their beliefs
The movement argues that the inflexibility of the official procedure within organization is detrimental to the growth of an institution. The processes that cause delays due to long processes of business can be changed to allow for flexibility. In return the organization will experience enlargement.
Additionally the organization upon embracing the beyond budgeting movement becomes accustomed to the transforming environment and in response increase the profits for the company. Operating cost incurred as a result of the hierarchical structure of the traditional organization structure is reduced as the procedure is decentralized (Beyond budgeting Round Table, 2005, pp 1).
However, the beyond budgeting movement are effective in a dynamic environment. In an environment where the environment is predictable the traditional budget can be effective as long as the customer’s needs are met (Perks and Leiwy, 2010 p17).
In accordance with Daum (2007, Para 2) the traditional annual budgeting is ineffective in the modern world. The process is void of incentives to workers and consumes a lot of time without fulfilling its targets. The organization is easily carried away by politics within the organization where the workers are preoccupied with personal success rather than the success of the organizational goals.
The budget itself has limitations because it does not adjust to the surrounding environment; what is planed has to be followed. The company’s expansion or growth cannot be limited by the budget. Beyond budgeting movements encourage strategy with aspirations that guide the organization.
It is noted by Daum (2007, Para 4) that the budgetary mechanisms raises a suspicious way of interaction among workers. Constrains within the organization emerge when there are changes within the market environment.
For instance if the organization is required to introduce a marketing strategy when the products are not selling, the organization deals with the problem incongruously. Therefore, the business organizations can manage to maintain their expected income as well as stay at the top in competition if the organization embraces beyond budgeting.
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Beyond budgeting movement entails making the distribution of resources flexible whenever market trends change. This will enable business to maximize on profits as resources are allocated according to the needs of the consumer, thus what the consumer wants is produced (Daum, 2007, Para 4).
Beyond budgeting Round Table organization (2005, pp 1) argue that the beyond budgeting model does not exclude planning, instead it is a solution to the failure of the traditional budgets that has driven companies to do quarterly and short-range budgets.
Therefore, the beyond budgeting model is a strategy that an organization can adopt to avoid making losses. As a result, the organizations are not affected by the irregular market drift that leave the organization with a deficit.
The traditional annual budgets that were fixed where meeting the target was of high value is replaced by overall goals set by the executive and articulated by the workers who make their own targets in line with the overall goals.
Most often as Beyond Budgeting Round Table Organization (2005, p 4) note the executive had pressure to meet targets that were the measurement and rewards in the traditional budget, at times the engaged in manipulative behavior. With the beyond budgeting movement, the executive have no predetermined targets hence the manipulative behavior is turned into rewards given upon assessment of the organizations advancement.
Dyson (2009, p. 8) indicate that the traditional budget give a false hypothesis that future is taken care of in the budget whereas shortly after the financial the organization encounters budgetary difficulties.
The beyond budgeting movement recognizes that budgetary evaluation is done after short period of time to monitor steps forward. The workers are involved in the development and implementation of the organizational goals while taking the shortest period of time.
For that reason unpleasant long process that involved long term planning from the head offices in traditional budgeting is withdrawn (Beyond Budgeting Round Table Organization 2005, p 4). Proctor (2009, p 24) mentioned that the accountant control of the budgeting process is does not resign from doing management, the focus is shifted to managing strategies as they are implemented with the beyond budgeting model.
Beyond Budgeting Round Table Organization (2005, p 4) in their research point out that resources are disbursed within a short period of time since the long process that required authorization from the central authorities in the organization are not needed.
The members of staff are held responsible of their actions. Therefore, the decisions they make on allocation of resources must be based on established results from an inquiries. Consequently, the organization observes less wastage.
The challenge of letting employee who make own targets can result into excessive pressure from the top management. The targets might be too high and demanding on the employees. Consequently, they may feel pressured leading to stress and at times departure from the organization. The targets set must therefore be realistic and attainable.
Activities are coordinated towards meeting the customer demands within each unit. Accordingly, different departments harmonize their actions to give a fulfilling outcome to the market. In addition the focus on the budget is founded on the future rather than the past.
Rarely do the beyond budgeting trace past budget to prepare a budget for the future. To measure progress, indicators of success and the evaluation according to standards are used Beyond Budgeting Round Table Organization (2005, p 6).
The employees become motivated as they participate in decision making hence their loyalty remain with the organizational goals rather their superiors. The outcome is quality performance as responsibility is bestowed on the employees in areas within their mandate. Furthermore efficiency and effectiveness are realized on an improvement scale.
Dependency on the central management is abandoned as the employees can make decisions stimulating innovativeness although a greater risk is imposed on the organization. This is due to the fact that a wrong decision might cost the organization severe losses.
Furthermore, the team is answerable and reward able for the successes in the institute. This means that there is devolution of the authority within the organization (Beyond Budgeting Round Table Organization, 2005, p 9).
Working in teams cause employees to have attachment to the organization and introduce healthy competition that create positive results in production and contentment of consumer demands. There are no intentional transactions or trading that the company must carry out.
Besides healthy competition, the employee’s communication is improved when compared to the time when the traditional budget was in use. There is information flow with the introduction of the beyond budgeting movement.
The connection between the management and the employees has taken a new shape where the workers make few consultations with the top managers. The employees usually make decision without constantly consulting the managers.
The employees make use of the information to make informed decisions alongside with clarity in operations. What’s more is that morals are held up as the tradition of secretively hiding reality and presentation of inaccurate information is no longer in practice Beyond Budgeting Round Table Organization (2005, p 9). The challenge comes in when the information is used to create games within the organization.
These games may lead to disputes within the organization where resources allocation is based on unfair competition and create end up recalling the abandoned games practiced in the traditional budget. At times, some groups may end up without projects since employees must work to give an output. Those left without the projects may end up being retrenched or lose their jobs.
For an organization to be successful, it can adopt the beyond budgeting model to realize growth in the changing environment. The market is unpredictable and has increasing competitors in the business. In order to stay at the top the budget can be made flexible and evaluated on shorter basis.
The hierarchy and lack of information flow that characterize the budgetary process can be substitute to devolution where the employees can make decisions using the information available. This motivates employees to make own targets that are innovative.
The leaders have to be realistic in setting attainable targets while ensuring that resources are allocated on merit to avoid games. The beyond budgeting movement help organization to avoid making losses and use their full potential to gain profits.
Beyond Budgeting Round Table Organization. 2005. Finance Transformation Visionary Honored for his Dedication to the Beyond Budgeting Movement. Web.
Daum, J. H., 2007. Beyond Budgeting: A model for flexible enterprise control- Beyond fixed annual budget and ineffective traditional management concepts. Web.
Dyson, J R., 2009. Accounting for Non-Accounting Students, 8th edition, FT; Prentice Hall.
Perks, R, and Leiwy, D., 2010. Accounting for Managers Interpreting Accounting Information Decision Making, 3rd edition. New York: McGraw Hill.
Proctor, R., 2009. Managerial Accounting for Business Decisions, 3rd edition. New Jersey: Prentice Hall.