Study note on budgeting in management accounting

Study note on budgeting in management accounting

References with extracted contents

Mathew Tsamenyi PhD , Jennifer Mills PhD & Ven Tauringana PhD (2002) A Field Study of the Budgeting Process and the Perceived Usefulness of the Budget in Organizations in a Developing Country-The Case of Ghana, Journal of African Business, 3:2, 85-103, DOI: 10.1300/J156v03n02_05.

"This paper reports on a field study undertaken to investigate the budgeting process in four large-scale organizations in Ghana. The perceived usefulness of the budget within these organizations was explored using data collected from questionnaires and interviews with forty-eight managers in the four organizations. This examination of the budgeting process suggests that the managers have minimal participation in budget decisions. Furthermore, the budget was minimally perceived as a planning and control device. The managers perceived the budget’s resource allocation role as its most useful purpose";

Pieter Bleyen, Daniel Klimovský, Geert Bouckaert & Christoph Reichard (2017) Linking budgeting to results? Evidence about performance budgets in European municipalities based on a comparative analytical model, Public Management Review, 19:7, 932-953, DOI: 10.1080/14719037.2016.1243837.

"PBs [performance budgets] are linking financial resources allocated in the budget period with some kind of information about the expected results of policies. This type of budgeting requires information about strategic planning regarding the mission and objectives of an organisation and requests quantifiable data together with the allocation of resources providing meaningful information about program outcomes (Jordan and Hackbart 1999). The degree of linkage between financial resources and performance may differ in PBs between very loose coupling and a strict ‘mechanical’ connection between both sides";

"Various governments around the world have introduced PBs at national as well as at subnational and local level during the last decades. The scientific debate about PB dealt primarily with the design of PBs, with experiences implementing such concepts and – more recently – with the use of PBs during the budget cycle for budget planning and for monitoring budget execution .... Most of these publications focus at the managerial function of budgeting whereas the allocative and particularly the external accountability functions of the budget seem to be less developed in research (Schick 2009; Anessi-Pessina et al. 2016)";

Paul J. Speaker & A. Scott Fleming (2010) Benchmarking and Budgeting Techniques for Improved Forensic Laboratory Management, Forensic Science Policy & Management: An International Journal, 1:4, 199-208, DOI: 10.1080/19409044.2010.491894.

"Budgeting provides a tool in the planning process that connects an organization’s mission to its strategic plan and offers specific metrics to highlight the laboratory’s progress toward meeting that mission. Properly implemented, the budgetary process becomes an integral part of a forensic laboratory’s business plan. The process helps to organize a measurable plan, offers control and monitoring mechanisms, provides the necessary metrics for internal and external communication of performance, and has a built-in feedback mechanism for continuous performance improvement";

"Budgeting is a management tool used to plan for both financial and operational purposes over a specified period of time. Hagen and Harden (1995, p. 772) describe the budget as “a list of revenues and expenses during a certain period of time . . . It is the answer to the question, who does what, when, and how in the preparation and the implementation of the budget.” Additionally they note that the budget is a process to reduce uncertainty, can be used as a device for commitment to fiscal discipline, and that the rules used in the budgetary process affect fiscal performance. Often considered to be solely a planning device, the budget also assists in the control, evaluation, and communication of performance";

"Different methods exist for developing a budget. Incremental budgeting uses the prior period, usually the prior fiscal year, as the foundation and incrementally adds resources to become the new budget. Zero-based budgeting, on the other hand, is a budgeting method where each budget is developed and justified from scratch each year. This method is generally considered to be more comprehensive but also more time consuming. Research into the effectiveness of each method is mixed";

Amans, P., A. Mazars-Chapelon and F. Villesèque-Dubus. 2015. "Budgeting in institutional complexity: The case of performing arts organizations" Management Accounting Research 27, Elsevier: 47-66.

"When organizations are confronted with multiple logics, budget uses are likely to be influenced by these logics. The various uses of the budget have been largely developed in the management accounting literature. Two types of uses, some of them rather instrumental, others more symbolic, have been distinguished, in particular by Meyerand Rowan (1977), Burchell et al. (1980) and Covaleskiand Dirsmith (1983, 1986, 1988a,b)";

"Our research about budgeting is built on the socio-logical approach to management accounting mentioned by Covaleski et al. (2007) ..... According to Covaleski et al. (2007), budgets were explored from this perspective, furthering the workof Argyris (1952, 1953), by March and Simon (1958) in early sociology-based studies through organizational theories. The sociological perspective of budgeting is very broad, and works including contingency theories are well developed in accounting literature (Chapman, 1997; Chenhall,2003). Covaleski et al. (2007) also highlight several studies based on contingency theories .... that have been developed, following the work of Hopwood (1972) and Otley (1978, 1980). Even if these theories consider organizational heterogeneity, all these studies have been carried out in order to characterize the fit between contingencies and organizational variables, rather than to explain accounting processes";

Stephen C. Hansen (2011): A Theoretical Analysis of the Impact of Adopting Rolling Budgets, Activity-Based Budgeting and Beyond Budgeting, European Accounting Review, 20:2, 289-319.

"Although budgeting is an important control system for most organizations (Simons, 1995; Armstrong et al., 1996; Ekholm and Wallin, 2000), many managers are dissatisfied with their current systems and are actively considering changes (Comshare, 2001; Neely et al., 2001). One aspect of budgeting complicates the evaluation of potential alternatives. The budgeting system is used for many different purposes, and each organization designs their system to address its most important problems. For instance, a steel mill’s budgeting process may focus on operational planning, whilst a telemarketing organization’s process may focus on performance evaluation";

"Rolling budgets generate improved forecasts and change the forecasting function (Comshare, 2001; Serven, 2002).  Beyond budgeting switches employee compensation from budget-based to relative performance contracts (Ekholm and Wallin, 2000; Hope and Fraser, 2003) and changes the performance evaluation function. Finally, activity-based budgeting increases the sophistication of the operational planning system .... and changes the operational planning function";

"Since the budgeting system may perform multiple functions, and different alternatives focus on changing different functions, an important question is: How will introducing a specific budgeting alternative affect the individual functions of the organization? For instance, if rolling budgets improve the forecasting/ planning function, will it lead to an improvement or a decline in the operational planning function?";

Player, S. 2003. "Why some organizations go "Beyond Budgeting"" The Journal of Corporate Accounting & Finance March/April : 3-9.

"For most organizations, the annual budgeting process results in a fixed performance contract between superiors and subordinates. It typically does the following: • Sets fixed targets; • Attaches incentives to those targets; • Sets out a detailed plan and budget that must be followed; • Spells out the resources available to meet the budget; • Includes any commitments that must be met across the organization; and • Contains details about how performance will be evaluated and which reports must be produced";

"The budgeting process assumes that managers can “predict and control” their way to the future. It provided a rational and coherent approach to managing performance when market conditions were relatively stable, capital was the primary constraint on growth and improvement, strategy and product lifecycles were lengthy, and the management behavior required was one of compliance with plans and procedures. But in the competitive climate in which most organizations operate today, it is no longer effective";

"Implementing strategic management models such as the balanced scorecard is  another approach taken by an increasing number of firms that are trying to shift their emphasis from being “budget focused” to being “strategy focused” organizations. But the full power of the balanced scorecard is constrained by the short-term performance drivers of the annual budget";