Faculty of Management

Bournemouth University Business School

Department of Accounting, Finance & Economics

Week 6 Lectures/Workshop

Libby, T & Lindsy, R.M. (2010) Beyond budgeting

or budgeting reconsidered? A Survey of North-
American budgeting practice. Management
Accounting Research, 21(1): 56 – 75

Dr Akanga
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 Learning Outcomes

 Understand the criticisms of budgets

 What alternatives?

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 Introduction

• Budgets have been argued to have outlived it’s

usefulness within organisations
• “Broken”, “unnecessary evil”, “something of the
past”
• Growing dissatisfaction with budgetary system

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 Criticisms of budgets

• Time consuming
• Doesn’t fit with changing business environment
• Manipulated and used to reward managers to lie
• Not meaningful to line managers
• Eliminates the drive for continuous improvement
• Not aligned to strategy

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 Results

• Almost 900 surveys were conducted

between organisations in Canada and
USA
• Results were almost unanimous except
for performance evaluation

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 Results

• Time consuming
 Getting different departments to come up with their
budgets
 Streamline line the budgets to make sure that they
meet with the organisational strategy

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 Results

• Doesn’t fit into the present day business

environment
• Recall: Strategic analysis requires short term
budgets for short term planning and long term
budgets for long term planning.
 Are we able to change our budgets to help us
meet some goal?

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 Results

• Performance evaluation:
 Targets for managers

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 Results

• There are strong arguments for producing two

measures to evaluate managerial performance.
• We link performance to profits
 Managerial Performance: Manager can be promoted
for succeeding in improving performance of a division
even when the division remains unprofitable because
of factors such as overcapacity, or declining market
 Economic Performance: Managers performances
might be unsatisfactory in a profitable division given
favourable economic conditions. He is not promoted.

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 Results

• Not meaningful to line managers

 How useful is production budget useful to
factory foreman?
• Continuous improvement
 Key success factors to customer satisfaction;
Quality, time, innovation, & Cost
• Not aligned to strategy?

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 What alternatives?

• Continuous budgets
• Zero budgets
• Flexible budgets

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