Strengths of the traditional budgetary process
Budget is one of the activities that almost all organizations employ. It can play an essential role in managing different functions in the organization by effectively managing and allocating financial resources. In the budgeting process, the management aims to allocate the capital and financial resources to the organization’s current needs. For example, in the production department, the manager seeks to decide the budgeted cost of production.
After the completion of the production, they address the gaps between budgeted and actual results. Through the help of its management can reduce the cost and expenses across all the functional divisions of the origination, which can be essential to increase the overall organizational profits and revenues. Through the help of the budgetary process, a company can achieve organizational goals by effectively managing the financial resources across the organization. One of the main tasks of the managers who design the budget is deciding on the budgeted sales, overviewing the production and overhead expenses, and the capital requirement of the organizations to conduct the company-wide operations.
A traditional or classical budgeting system is one of the earliest budgeting processes in which a budget is formulated annually. In this system, usually, the management formulates the budget based on the previous year’s budget and, based on specific changes, are adjusted in the new budget. These changes or amendments can be essential to eliminate the company’s issues in its previous budget; therefore, it is referred to as an incremental approach. One of the main benefits of using this system is that it provides a budget limit in the allocation, which means that the company cannot spend more than the allocated amount. For the formulation of the budget, previous financial information of the company and its performance are analyzed, with fewer changes in budget allocation.
Weaknesses of the traditional budgetary process
Along with it, some of the advantages of this system also have certain weaknesses. One of the main disadvantages is that the company’s strategic plans matter a lot, but under this system, these plans are not focused. This omits the company’s ability to focus on organizational plans. The system cannot be used when the budgeting system requires major changes to achieve new opportunities as it only focuses on the marginal changes. The system determines a lot of change responsiveness, due to which companies cannot focus on innovation in their organizational systems.
Reviewing the old budgetary system will increase the period to review the old budget. Therefore, it takes a much longer time to prepare the budget. The budgetary system did not incorporate any external factors, making it inflexible towards organizational change. After the budget formulation, the management cannot change it if any changes are required to overcome errors identified; only fewer changes can be made if required. The system is less focused on motivating the desirable behavior of employees to achieve the organizational objectives.
The viability of the traditional budgetary process
In today’s world, every organization wants to focus on innovation and creativity to gain a competitive advantage in the industry. Innovation and creativity have led to some changes in the business environment and today’s organizations. Today management uses new and innovative approaches rather than old ones as it uses decentralized hierarchy and enhances organization-wide communication. Old techniques like centralized hierarchy and authoritative leadership have been omitted from the organizations.
These approaches were used to address the changing needs of the industry. The organizations have adopted these changes to survive in the market and achieve new growth opportunities as traditional budgetary systems are not focused on their flexibility and adaptability to industrial changes; they cannot be used. Express Delivery services is a vast industry, and all the companies are high profile in the market.
Furthermore, the changing needs of the customers and the increase of competitors have also increased the need to focus on new and innovative management approaches and techniques. Therefore, the Traditional budgetary system cannot be employed due to its inability to meet these changing needs of the industry. Some of the budgeting processes have been discussed, which can be used to meet the changing needs and gain a competitive advantage in the industry.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.