Traditional budgeting

Traditional budgeting

Traditional budgeting is regarded as a process of projecting a company’s business expenses and revenue for the upcoming year based on the previous year’s budget (McLaney and Atrill, 2016, p. 504). Although this can be the best method for justifying business projection, it might not suit today’s corporate world because of the dynamic nature of business operations. That is why Wallander’s quote about traditional budgeting: ‘….an outdated way of controlling and steering a company.  It is a cumbersome way of reaching conclusions which are either commonplace or wrong,’ makes a lot of sense. This is in the sense that most often, traditional budgeting takes a lot of time, is expensive, and consumes too many corporate resources.

Reports indicate that some firms may take up to six to eight months to come up with a budget. Meanwhile, due to the detailed nature of most of the budgets, a lot of input and back and forth negotiations of many people all over the company are required. And this adds to the number of company resources consumed (Asogwa and Etim, 2017, 111). Besides, with traditional budgeting, it becomes difficult to foresee something that had not been experienced before. Therefore, when something new happens, it becomes difficult to believe in it and risky. Therefore, traditional budgeting may not help managers adjust to new situations (Sirkiä and Laanti, 2015, p. 5033), which are almost becoming the new business norms, making it irrelevant quickly.

Reference List

Asogwa, I.E. and Etim, O.E., 2017. Traditional Budgeting in Today’s Business Environment. Journal of Applied Finance and Banking, 7(3), p.111.

McLaney, E., and Atrill, P., 2016. Accounting and finance an introduction. Pearson Education Limited.

Sirkiä, R. and Laanti, M., 2015, January. Adaptive Finance and Control: Combining Lean, Agile, and Beyond Budgeting for Financial and Organizational Flexibility. In 2015 48th Hawaii International Conference on System Sciences (pp. 5030-5037). IEEE.