Encouraging rigid and incremental way of budgeting format.

A top-down budgeting to organizational budgeting will require the senior management team
to develop a high-level budget for the entire organization. Funds are then allocated to
individual departments, who must then use those numbers to further create their own budgets
under the constraints of the executive-level budget. This will cause the feeling of team spirit
to disappear. Traditional MA techniques have involved rigid planning and a failure to
change.  AirAsia Berhad’s business culture heavily relies on the cost plus pricing method in
their budget preparation. However, if there is any unexpected cost needed by one of the
departments to carry out a project, it will become difficult for that department to do so. This
will cause the employees to be less motivated as they are not given any opportunity to be
involved in the budget preparation work. Besides, when AirAsia made a mistake in
calculating budgeting in the current year and also will have a mistake in the future year. This
is because the incremental budgeting will construct future years on the current years’ results
and add an extra percentage to estimated inflation of the future year. 

Excluding key drivers of shareholders’ values.

Traditional MA techniques will motivate managers and staff to achieve the lowest target
instead of attempting to achieve the target set. This is because traditional MA techniques
calculate the cost based on volume. The cost volume profit (CVP) analysis is used by AirAsia
Berhad to calculate the break-even point. Break-even point analysis is used to calculate the
lowest sales to cover the total costs. At the moment, managers may not know how much they
will earn based on the sales, so they feel that when the sales are enough to cover the cost,
there will not be huge losses. Therefore, managers will not try to achieve the highest sales
targets to help companies earn more profit. This is because the more the sale achieved by the
sales manager during the current year, the higher the target for the future year.

Having dysfunctional behaviour in achieving the budget.

Based on traditional MA techniques, this will allow the manager and staff to achieve the
target set by the company no matter what method is used to achieve although the method is
proper or improper. AirAsia Berhad received a lot of complaints from their customers on the
problem of no refund on tickets. In order to maintain the sales, AirAsia often decides to
refund customers via retiming their trips instead of refunding in cash and also delays their
refund procedure to customers despite approving the refund. Due to the cost plus profit will
become the selling price of the ticket,if the company wish to earn higher revenue, then they
need to cut off the cost. Therefore, there will not have any extra service for customers such as
no free food and beverage on board.

Not aligned with company’s strategic objectives.

Traditional MA techniques have increased the barriers between top management and the
subordinates and also have barriers between departments. AirAsia Berhad had a very top-
down approach in the management culture. This will result in miscommunications and
misunderstandings to occur, which might make the workers become less interested to work
for the company. The barriers also prevent information and knowledge sharing between top
management and subordinates. This will create a scenario that the employees are not up to
date with the company’s operation and updates. This will also cause barriers between
different departments as workers only care about their department’s conditions.