Académique Documents
Professionnel Documents
Culture Documents
Raphael Etim
Department of Accounting, University of Uyo, Nigeria
Iwora G Agara
Consultant/Practitioner- Accounting and Management,
Nigeria
Abstract
Budgeting is the single most discussed topic in management, finance and accounting
literatures. Most of the discussions on budgeting had focused on the strong side of the
control model with passive attention on its evil side. However, from the late nineteen
nineties, after the maiden criticism of the traditional budgeting system by the duo of Jeremy
Hope and Robin Fraser, there was a paradigm shift in the reverence hitherto given to
budgeting especially by practitioners leading to a renaissance in the challenge of budget as
an effective management control mode . Thus currently there two divides in the debate
about the budget: those who call for the complete abandonment of the budget and the other
that supports the restructuring of the ex ante budgetary system to sustain its usefulness.
This article is the first part of our two-part discussion of the relevance or otherwise of
budgeting in today’s information age. The article focuses on the theoretical and empirical
evidences from the survey of some companies in American and Europe. We have provided
the basic insight into the concept of Beyond Budgeting and reflected the opinions of the two
blocks: those for and those against, budgeting. From the empirical evidences the traditional
budgeting, although gravely criticised by Hope and Fraser, is unlikely to be binned in the
near future but rather shall continue to remain a dominant management tool for an
appreciable length of time. Nevertheless, there are indications that the emerging
management philosophy, the Beyond Budgeting, is a potential alternative to the ex ante
traditional budgeting system suggesting that its application, within the framework of its
suggested success pillars, could find place in developing economies in no distant time.
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INTRODUCTION
The emergence of the factory system and the industrial revolution of the nineteen century brought
with it concomitant managerial challenges. Some of these challenges are the control of operations,
evaluation of the performance of managers and sub-ordinates, basis for employee reward, and
motivation of managers for greater performance. The most popular management control mechanism
adopted by firms to assist in resolving these challenges is Budgeting and Budgetary Control System
(BBCS). The Budget is single accounting or financial control instrument that permeates the entire
organization: every aspect or unit of the organization tends to be affected by the provisions and
direction of the budget. The budget, according to Becker, et al.(2010) is the cornerstone of the
firm’s management accounting and control system. This is why the budget continues to remain
despite the rage of criticisms against it. In fact, the result of several surveys, and in particular that of
some North American companies by Libby and Lindsay (2007) indicate that, most managers feel
budgets are indispensable and they (managers) are yet to settle for a better alternative fearing that
they could not manage their companies without the budget. Jacobs (2003) also confirms that many
managers cannot conceive of managing a company in any other way than using the budget while
companies that do without the budgeting system run the risk of being considered poorly managed.
One of the explanations for the seeming indispensability and the ubiquitous use of budgets and
“ largely due to its ability to weave together all the disparate threads of an organization
into a comprehensive plan that serves many different purposes, particularly performance
2
Said to have commenced in the 1920s as tool for managing costs and cash flows, by the 1960s the
budget has become a fixed performance contract between superiors and subordinates basing
rewards and punishments on it (CIMA, 2005). However, in spite of its integrative function and as
the basis for performance evaluation, budgetary control system is said to have many limitations,
which have resulted to intense debate as to whether or not to abandon the traditional budgetary
control system. There are currently two broad camps in this debate. These camps, we refer to as the
extreme radicals camp and the conservative camp. The extreme radicals camp, is spearheaded by
the Beyond- Budgeting Roundtable (BBTR) of Hope and Fraser. The camp postulates that the
traditional budgeting practice should be abandoned because it is repressive and a major bane of
corporations. The conservatives, made of a conglomerate of some popular accounting scholars such
as Collins Drury, Charles Horngren, T Lucy, David Dugdale and a host of practitioners, appear to
support the continuous use of the traditional budgeting system, but with modification in its
implementation to reflect the dynamics of the individual industries and economic blocks.
Unfortunately, as observed by Hansen et al.(2003), scholarly literature has largely ignored the
budgetary concerns but have continued to promote budgeting as an ideal managerial tool. This
article has been compelled by this controversy especially as it concerns the developing economies
which are still fragile and need to be protected and nurtured managerially to maturity. There
certainly exist concerns with budgeting. Is there a solution in sight to this rage of discontentment
against the budget? What do the criticisms against the budget potent for enterprises, especially in
developing economies, and their ability to perform in the global information age in terms of
innovation and response to customer complexities and expectations? The theoretical and empirical
evidences on the subject of budgeting have help to provide an insight into the understanding of
budgeting process and how it is being used, the status of the traditional budgeting practices among
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majority of the companies, and whether there is any need to be worried about the ongoing
controversy.
Accounting, finance and management literature is replete with discussions on budgeting. The
budget is a plan, which is expected to enable an organisation to manage her resources efficiently
and achieve her targets within set time horizon. Becker, et al.(2010) indicate that budgeting is one
of the first management accounting practices to attract researchers’ attention because of its
dominant role in corporate financial management. Hence, the budget is often referred to as the
literature. We shall specify a few in this article. The CIMA Terminology (2005) defines a budget as
a:
“quantitative expression of a plan for a defined period of time. It may include planned sales
volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows”
(P.5)
Agara (2006:50) defines budget as a detailed plan, expressed in quantitative terms, that specifies
how resources will be acquired and used during a specified period of time, usually a year to achieve
specific objectives. John (2007) sees budget as a quantitative plan of activities and programs
expressed in terms of assets, liabilities, revenue and expenses. Drury (2000) considers budget
simply as the plan of activities to be undertaken in an organisation in the future. Elbert and Aagtje
(2008) also see the budget as a plan of action for a unit or activity covering a fixed period, broken
down by sub-periods. All the definitions of budget recognise that a budget is a plan of how
resources (i.e. revenue or other cash inflows) are to be obtained and how such resources are to be
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applied( i.e expended) during a specified period of time. All organisations have objectives which
are expected to be facilitated by the budget. This implies that budgets are relevant to all
organisations- both profit oriented and non-profit oriented organisations. Drury (2000) indicates
further that the budget serves several functions which include planning of annual operations, co-
ordination of the operations of various departments and units of the organisation, communication of
plans to the various responsibility centre managers, motivation of managers to strive to achieve the
goals of the organisation, controlling and evaluation of the performance of managers via budget
variance analysis.
Carolyne, et al (2007), say the budget is one tool that has provided the link between control and
performance. However, according to the authors, effective level of budgetary control has a positive
effect on performance. They explain the word “effective level of budgetary control” to mean one
that is reflective of the needs of the organization and meets the objectives of the analyst. This
suggests that implementation of budgets must consider the needs of the organization. In other
words, that an expenditure item is in the budget does not justify the spending of resources on it but
rather resources are expected to be expended according to the needs of the organization. However,
to be able to decide on whether a budgetary item is irrelevant in the current circumstance calls for
motivation of the managers to enable them to think about the success of the company and not about
themselves. Motivation means managers have the opportunity to operate flexibly within the
framework of the strategic objectives of the firm by using their resources to achieve set objectives
rather than tying them to the inflexible contract, called the budget. The focus should not be
compliance with budgetary provisions but rather on achieving the objectives of the firm using the
environment where there is leverage for them to apply their acumen legitimately to further the
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interest of the company. Unfortunately, as noted by Morlidge(2005) most managers, are blamed for
not spending their budgets which confirms one of the criticisms against the continued use of the
A critical assessment of the functions of budgets reveals its pivotal role in the management of
Jensen (2003), the budget is so prominent in the management of organisations that managers of
organizations or companies cannot conceive of managing their organizations in any other way
except through the use of the budget. Jacobs (2003) believes strongly that there is no alternative to
budgeting and budgetary control. This explains probably why managers are so passionate about the
use of budgets, at least if not for any other reason, for the reason that budgets have become a major
In spite of the seeming indispensability of the budget as a management tool, there have been severe
criticisms against the traditional budgeting system . According to Hope and Fraser (1999) Jack
Welch, Chief Executive of General Electric, sees budget as “bane of corporate America”, Bob
Lutz, former Vice Chairman of Chrysler, says budget is a “tool of repression” , and Jan Wallander,
former Chief Executive of Svenska Handelsbanken, The Swedish bank, regards budget as an
“unnecessary evil”. Quoting Welch further, Elbert and Aagje(2008) report Welch’s anger against
“ Not to beat around the bush, but the budgeting process at most companies has to be the
most ineffective practice in management. It sucks the energy, time, fun and big dreams out
of an organization. It hides opportunity and stunts growth. It brings out the most
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unproductive behaviours in an organization, from sandbagging to settling mediocrity. In
fact, when companies win, in most cases it is despite their budgets, not because of them. And
Central among the criticisms against the traditional system of budgeting are:
• That the budget is a tool of repression and encourages cheating, skimming and lying and
• That budgeting process consumes too much of the valuable executive time, about 20% of
management time in crunching figures that completely distort peoples’ behaviours, without
• That the budget, at its current state, does not enable the front managers to make quick
decision in response to the complex customer demands in an information age and global
economy with stiff competition because of the cap placed by the budget. Therefore,
management is deprived of market information since the front line managers have no
adaptation to the challenges of the information age (Hope and Fraser: 2001 a and b).
• That in managing performance, budgets represent fixed term performance contracts and
such a performance management system does not help to ensure teamwork and agility
(responsiveness to changes in the market) required for organisational success( Hope and
Fraser, 2003).
• That budgets reinforce the features of centralization which emphasizes coercion, forcing
managers to co-operate against their will, inflexible planning, and command and control
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which are inappropriate for modern companies(Gre van Mourik:2006,). Hope and
Fraser( 2003) observe in this connection that modern organisations reject centralisation,
inflexible planning and command and control and wondered why organisations would still
cling to a system( i.e. traditionally budgeting system) that reinforces these tendencies?
• On the issue of innovation, a sine qua non condition for enterprises to withstand global
David, et al(2006), while economic entities are expected to be innovative to survive the
global competition , budgets do not facilitate the imperatives of innovation because whereas
innovation demands creativity and risk-taking budgets encourage courteousness and risk-
averseness.
There are also other serious concerns raised about the budget. Daum(2002) observes that budgets
are fast loosing their relevance in the contemporary business world and are outdated by reality,
therefore, the continuous use of the budget as a management tool is questionable. Hope and
Fraser(2003) agree with Daum(2002) and that at extreme, in the attempt to meet budgetary targets ,
corporate governance of the company may break down. Becker, et al.(2010) submit that budgets do
have some level of dysfunctional attributes. The effect of this is that line managers engage in
gaming as part of their normal business life style (Jensen, 2003). Jensen (2009) adds that budgets
lack integrity and sincerity to support their use as a basis for compensation or any form of reward
and suggests that to ensure good corporate governance and systems integrity the budgeting system
“budget-based systems reward people for lying, and for lying about their lying, and punish
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This means efficiency in the use of resources is not encouraged by the traditional budgetary system.
Steve (2005) confirms this opinion and notes some constant clichés among superiors:
“Yes I know it’s the right thing to do … but it isn’t in the budget”.
“Cost and bureaucracy: Resources are wasted in this exercise and ... benefits are dubious,
Bad behaviour: the quality of budget data is compromised by cautious behaviour and...
Inflexibility: It takes too long (usually about six months) to complete the process and as a
consequence plans are often obsolete before the results are published” (p.181)
CIMA (2007) identifies some of the pitfalls of budgets to include that budgets:
• add little value, especially given the time taken to prepare them
Scarlett(2007) calls budget a dependency model, which provides fixed plans that guide actions of
managers while the plans themselves(i.e. the budgets) quickly become obsolete soon after being
made. Budgets are suitable for centralized organization with a vertical commend structure.
Information flows from top to bottom and the bottom is only to carry out instructions with little
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inputs into the budget. Thus those further down the organizational strata are judged by the extent to
which they comply with such orders. This approach, also according to Scarlett (2007) breeds
various organizational challenges and has been linked to some high-profile business failures.
Neely, et al(2001) presents a summary of the most cited weaknesses(concerns) about the traditional
budgeting system, drawn primarily from the practitioners literature, to include the following:
2. Budgets constrain responsiveness and flexibility and are often a barrier to change.
4. Budgets add little value, especially given the time required to prepare them;
7. Budgets do not reflect the emerging network structures that organizations are adopting;
11. Budgets reinforce departmental barriers rather than encourage knowledge sharing; and
Hansen et al. (2003) synthesizes the sources of dissatisfaction against budgeting by relating the
above twelve most acknowledged weaknesses of budgeting to the popular criticisms. He posits that
claims 1, 4, 9, and 10 relate to the recurring criticism that by the time budgets are used, their
assumptions are typically outdated, reducing the value of the budgeting process and weakening the
ability of the company to handle current competition and customer challenges. Claims 2, 3, 5, 6, and
8 relate to another common criticism that budgetary controls impose a vertical command-and-
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control structure, centralize decision making, stifle initiative, and focus on cost reductions rather
than value creation. Finally, claims 7, 11, and 12 reflect organizational and people-related budgeting
issues. (Hope and Fraser, 2003) , in this regard argue that vertical, command-and-control,
responsibility centre-focused budgetary controls are incompatible with flat, network, or value chain-
based organizational designs which are required for companies to be effective in the information
age, and impede empowered employees from making the best decisions , de-motivate them and
Submitting further on why the traditional budgets must go, Hope and Fraser(1999c) argue that the
value of the company is dependent on the calibre of staff that work in it. For a company to attract
the right calibre of staff and management talents with adequate motivation to engender innovation,
“In a recent McKinsey survey the top three reasons why managers chose one firm over
another were ‘values and culture’(58%), ‘freedom and autonomy’ (56%) and ‘exciting
challenge’ (51%). Budgets are well known for reinforcing the command and control culture,
constraining freedom and autonomy, and stifling the very challenges that excite prospective
managers. So in the battle for management talent, budgets have a lot to answer for” p.17.
Continuing, Hope and Fraser(2003) argue that the growing discontent against the budget and its
inability to support innovation in organisations amid stiff competition in the information calls for a
better planning and control system to immediately replace it. They advise that in the absence of the
budget, enterprises would perform better using other financial and non-financial measures such as
cost to revenue ratio, return on capital, profit margin, cash flow, time to market, customer
responsiveness, quality of service index, and adopt internal external benchmarking of performance
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against the best internal or world standards among external and internal competitors. Again, we ask,
given the rage of criticisms against the budget, is there an alternative to budget as a management
tool? Daum(2003) provides an insight into a possible alternative- The Beyond Budget Management
The Beyond-Budgeting, which means looking beyond budgeting, is the new management
philosophy proposed by the Jeremy Hope and Robin Fraser in the nineteen nineties in response to
the mounting discontent against the traditional budgeting system. The journey to the new paradigm
started in the mid 1990s following the discussions on budgeting organised by the CAM-I an
international research organisation based in Europe and USA. During the 25th CAM-I’s Anniversary
meeting in 1997 the Beyond-Budgeting Round Table (BBRT) was established to propagate the
ideals and imperatives of the new management concept. In the excerpts of the interview with Hope
in 2003, Daum(2003) quotes Hope’s explanation for the drive to propose the new management
concept as follows:
“ The budgeting system influences the behaviour of managers and employees in a way that
is counter productive to strategic management. The budget ties managers and people to the
old management system and its paradigms. This is the reason why many change
fundamental change. ..If the new management model for the 21st century organization is to
crucial that the model is built on trust between managers, workers, customers and partners.
But this trust can be easily undermined when managers are faced with short-term
difficulties and are quickly driven back to “managing by the numbers”. People know that if
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they follow the plan and meet their annual fixed target, they will survive. Conversely, if they
fail to meet their contracted numbers they will be punished. This can mean people losing
bonuses and possibly their jobs. The pressure this exerts can lead to actions that defy
common sense and that ultimately destroy the value of the company” (p168).
Defending the new ideology, Hope(2008) adds that even with incessant review of regulatory
frameworks aimed at ensuring efficient resource utilisation and elimination of fraudulent activities
in companies, the culture of greed and unethical behaviour would still hold sway as long as the
command and control management model of the traditional budgeting exists. He adds that where
there are no negotiated fixed targets, no budget based rewards, no annual plans; no budgets, no
annual resources allocations and no actual-budget-variance type reports, then management would be
continuous and does not stop and start according to accounting deadlines. This would lead to
elimination of sandbagging, gaming and spinning of numbers as there would be no motivation for
this. Rather, each manager is evaluated on how well he or she has improved against the past
performance in relation to other benchmarks such as peers and best practices. This calls for trust
between the managers and the superiors without which the purpose for this new revolution would be
defeated because building the tortoise-like(adapt and ensure) organisations is based on truth,
transparency, and trust is the new agenda for business leaders(Hope, 2008). In support of this
mindset, Hope and Fraser(1997) canvas for the complete abandonment of the traditional budgeting
model and the adoption of a devolved and network model of organisational structure, that he called
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current information age which calls for highly customer responsive management models that would
allow the frontline manager the space to take actions quickly in response to available opportunities
in the interest of the company. The N-Form model has processes and teams that focuse on aligning
operations with the needs of the customers and offers the manager a clearer view of which work is
to be done and how to do it faster and more efficiently. Above all, the model is based on trust
between managers, workers, customers and partners. Trust, according to Hope and Fraser (1997)
can easily be undermined in companies that manage with numbers- budgets. As long as budgets are
left in tact, Hope and Fraser (1999b) believe that all efforts by managers of enterprises would fail,
the value of the firm would erode and corporate governance and acceptable corporate ethics cannot
be achieved. They assert therefore that the traditional budgeting process should completely be
abandoned for a more responsive management practice to be based on twelve principles, which they
event;
allocations;
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annual plans and budgets;
• Controls: Base controls on KPIs, trends and relative indicators not variances
against plan
meeting targets;
• Freedom to act Devolve decision making authority to frontline teams don’t micro-
manage them;
centralized hierarchies;
internal targets
• Information Promote open and shared information don’t restrict it to those who
‘need to know’
Hope et al.(2004) posit that the adoption of the Beyond-Budgeting brings with it some
immeasurable benefits. According to him the idea would make organisations to:
• Eliminate a process that is too protracted, expensive and adds too little value;
Hope and Fraser, therefore, believe that the adoption of the new management model would address
the challenges of the traditional budgeting system and provide companies a platform to be
innovative, attract the best talents, and perform maximally. Hope and Fraser(1998) indicate further
that the new model is capable of providing the platform for managers to think and act like owners,
they will be more willing to take risks, stand by their targets, be accountable for performance, and
improve the bottom line. The added further that in today’s world the managers of Strategic Business
make fast decisions to counter competitive threats and take new opportunities as they arise.
There is no time for approval procedures and management meetings. They need the self
confidence to act and the right tools and information to improve their chances of success.
None of this is new, but so many companies attempt to implement this type of business
model without appreciating the hidden barriers that lie in wait within the
Organizational success according to Hope and Fraser(1998) does not come through beating a rigid
set of numbers, contained in the budgets, that were set six or nine months previously that become
irrelevant at the implementation target but rather from beating one’s contemporaries in other parts
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They defended their position with case studies of companies that have operated without budgets and
have performed creditably well over time. In fact, at the time the new model was being popularised,
it was discovered that Svenska Handelsbanken, the Scandinavian financial giant, had abandoned the
budget in the 1970s about two decades before the Beyond-Budgeting renaissance.
The home page of the Beyond Budgeting Round Table (BBRT) indicate that several companies
have operated without the budget while others are in the process of abandoning the traditional
budgeting. We reproduce here some of the testimonies by companies that have operated without
budgets:
• Carnaud Metal Box. Under the leadership of Jean-Marie Descarpentries, this an Anglo-
French packaging company was transformed from a debt-laden company worth only $19m
in 1982 to a market value of $3bn in 1989. By abandoning the fixed performance contract
and encouraging business unit teams to set stretch targets (disconnected from a rewards
• Groupe Bull. Descarpentries was recruited from Carnaud Metal Box (CMB) to transform
this French government owned mainframe Computer Company in the early 1990s. By
deploying the same management principles that he used so successfully at CMB, the
company turned around from losing FF5.5BN in 1993 to making a profit of FF600m in
• Fokus Bank. After abandoning the budgeting model in 1997, this small bank transformed
itself from the worst performing bank in Norway with the highest costs to the best
performing bank with the lowest costs and the highest return-on-capital-employed. Fokus
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Bank was acquired by Danish bank, Den Danske Bank, in 1999 at almost three times its
products abandoned budgeting in 1995. A fast, open information system with a strong
emphasis on relative performance now provides the necessary controls for self-governance
by local units. Ahlsell is now the sector's most profitable company in Sweden in both of its
main lines of business (heating and plumbing, and electrical products) - a major
• Leyland Trucks. This UK truck manufacturer had tried every improvement initiative from
total quality to process reengineering but none of them led to improved performance. The
difference came when CEO John Oliver abandoned piece work and the fixation with
volume on the assembly line. In the first two and a half years after making these changes
(from 1989 to 1991), the company reduced its operating costs by 24 percent (halving its
breakeven level), and improved its return on sales to over ten percent (beating most of its
European rivals). It was later sold to the US company, PACCAR, to gain access to greater
all its rivals in Europe on the key ratios of cost-to-income and costs-to-total-assets. It is
interesting how it communicates with investors. The CEO's annual message in the
to-income and share price performance against its main competitors. It also spells out how
Source: www.bbrt.org
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Also, Hope and Fraser (1999c) indicate that Volvo Cars recovered from huge losses of the early
nineteen nineties to one of the most profitable and highly innovative car manufacturers in the
world , after abandoning the traditional budgeting system. The abandonment of budgeting by Volvo
Car enabled it to build a intense management model that has helped it to face the intense
competition in the auto industry, released the budgeting time (about 20% of management time) and
transformed the company into an action oriented company in which decisions are made in time by
managers at the appropriate levels to meet changing conditions. Hall(2007) reports that Park
Nicollet Health Services , a non-profit health institution serving the Minneapolis-St. Paul has
abandoned budgeting in 2003 and has ever since operated successfully. The theory behind dumping
the traditional budgeting according to Hall (2007) is that cost is not reduced just by operating
budgets but by adopting better processes that are more responsive to the needs of the organization.
Hall continues that soon after abandoning budgeting, the management of Park Nicollet Health
Services recognized that their organisation had operated a system loaded with waste.
The survey results by (Libby and Lindsay, 2007; ICAEW/CIMA, 2004; Gustafsson and Parsson,
2010; CIMA, 2007, Mitchell, 2005, Dugdale, 2006; Shastri and Stout, 2008, etc) agree with Hope
and Fraser that budgeting is time wasting but defer in terms of the length of time used in the
budgeting process. Hope and Fraser (2001b) state that budgeting consumes between 20% and 30%
of management time. However, empirical results show a not too frustrating picture. According to
Libby and Lindsay (2007) the average budgeting cycle is 10.3 weeks to complete in contrast to the
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On the challenge of basing compensation on achievement of budgets, the survey of some US based
companies by Shastri and Stout(2008) indicate that many companies (about 78% of the surveyed
respondents) adopt a budget based compensation system. Mitchel(2005) reports that the six leading
budgetary achievement is faulty therefore there is urgent need to review the bases of
compensation. This result agrees with the indication by Libby and Lindsay (2007) where budgets
have been identified to promote gaming and unethical practice in some organisations where it is
used as the basis for compensation. Neely, et al.(2001) also note that even with the attempts by
practitioners to use other advanced management tools such as Zero based budgeting, balanced score
card, activity based costing, etc, the need to plan and budget more quickly in response to the needs
of the fast changing environment using less resources and freeing up managerial time is yet a
challenge with the traditional budgeting process still in place. They agree that some modification
would need to be made to the traditional budgeting approach as annual budgets are almost
Also managers have resulted to lobbying those in authority and responsible for approving budgets
to consider theirs (managers’) interests. This lobby system, according to Agara(2005:61) leads to
budget padding (i.e. over-estimating expenditure and under-estimating revenue) to have personal
benefits over the building in of budgetary slacks. According to Elbert and Aagtje (2008) budgetary
slacks are in some cases allowed by the budget approving authorities of companies Their survey of
Netherlands companies indicated that over 71% of companies’ top management sometimes allows
budgetary slacks in the business units to cater for environmental uncertainty. The incorporation of
slacks is a tacit encouragement of inefficiency which the critiques of budgeting say has resulted in
On the surface, one may be tempted to conclude that the end of budgeting is near. But as indicated
in the report of the joint round table discussion on Budgeting hosted jointly on 24 March 2004 by
the Institute of Chartered Accountants of England and Wales(ICAEW) and the Chartered Institute
alive(ICAEW/CIMA, 2004). Also in a survey report presented by Dr Stepen Lyne and Professor
David Dugdale, involving 40 financial managers, a whopping 71.8% indicate that the budget is
very or extremely important in the management of the affairs of companies. On the issue of the
inflexibility of the budget in response to the environmental dynamics, the survey also indicate some
companies review their yearly budgets during the year to cater for environmental dynamics. Also
the study conducted by Libby and Lindsay (2007) among 212 IMA members in North America
confirms that over 70% of the firms receive good to excellent value from budgeting. Libby and
Lindsay(2007) also indicate that the respondents overwhelmingly agree that they could not manage
their companies without the budget. To them budgeting is indispensable. The problem with budgets,
according to Libby and Lindsay (2007) has to do with how budgets are applied and some of the
roles budgets are made to play, otherwise budgets, according to the duo, have potential to be
extremely useful if appropriately applied. This opinion agrees with the opinion expressed in the
manage. Large companies in particular would struggle to plan, co-ordinate and control
without such a framework. But, even in small companies, a budget can provide a road
map detailing where the business is, where it wants to go and how it can get there” (p.2).
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In a survey conducted by the Chartered Institute of Management Accountants (2009) covering
companies in Europe, Asia, Middle East, Africa, Australia, North America, and other parts of the
world on the use of management tools by companies, the use of budgets topped an enviable 80% or
more percent. Neely et al.(2001) also indicate that in spite of the criticisms against the traditional
budgeting system, 70% of the companies surveyed operated without changing their planning and
budgeting processes. In a survey conducted in Netherlands, Elbert and Aagtje (2008), indicate that
over 73% of Netherlands companies are happy with budgeting with over 81% operating budgets
and 88% indicate that budgets support their corporate strategies and that budgets are also used for
motivating and for rewarding managers. Dugdale and Lyne(2010) indicate in their survey of 40
respondents from UK companies that all the companies survey have budgets adding that
‘ There was little evidence that budgeting fails to meet the needs of managers in competitive
environments(p.4)
In Malaysia, Mahfar and Omar (2004) indicate in their survey of management accounting practices
by some Malaysian companies, using 5-point assessment criteria, that budgeting is the most
practiced management accounting technique with a mean point of 3.99 point occupying an enviable
first position is the list of 28 techniques measured in the survey. In Nigeria, research results also
indicate that most Nigerian companies operate with budgets. Adelegan(2001) indicates in her 1998
survey of some 55 Nigerian companies, cutting across banking, manufacturing and service
industries, that about 96% of the companies use budgets although information on whether managers
are prepared to manage their firms without budgets was not provided. Obiajulum and
Ngoasong(2009) also recognised the prominent role the budget places in the management of
companies in Nigeria so much that companies are unwilling to discuss their budget practices
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publicly for fear of exposing their strategies to other competitors. Ishola(2008) also notes the
companies in the Food and Beverages Industry in 2008, that there exist a strong relationship
between budgets and corporate performance. All the companies studied by Isola operated budgets
which, he noted, should be reviewed regularly to enable the budgets to be useful in supporting the
dynamic economic environment. In the course of writing this article, we conducted a preliminary
mail survey of some chartered accountants in Nigeria on the status of budget. In this preliminary
survey, all the respondents (100%) say ‘NO’ when asked whether in their opinion, the traditional
budgeting should be abandoned. Although a negligible proportion agree that the value of budgets to
their companies does not justify the time spent on finalising their budgets. All respondents,
however, agreed that budgets consume time, taking about 6 weeks to 10 weeks on the average to
conclude a budget. This time frame like the results of Libby and Lindsay (2007) is in contrast to the
time the 10 to 15 weeks budgeting time alluded to by Hope and Fraser. We intend, later to conduct a
full research on the status of budgeting in some listed companies in Nigeria. We opine that the
evidences from the expected study may not be significantly different from the results of this
preliminary survey in terms of the readiness of Nigerian companies to abandon the ex ante
budgeting process.
We have taken a look at the views of the two schools of thought: those that believe that budgets are
indispensable and that improvement on budgeting process would redeem the perceived limitations
of budgets and the other school that believes that no efforts could redeem the budget because the
budget is inherently flawed with significant inhibitions to corporate development. Given the quality
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of the case studies marshalled in support of their opinions, one could easily be in a dilemma as to
which block to follow. But what is the noise all about? Just as Hope and Fraser have provided
examples of companies that have successfully operated since abandoning the budget, there are also
examples of very extremely successful companies whose budgets lie at the heart of their
management control system. Libby and Lindsay (2007) provide the examples of such companies
like Johnson & Johnson, that is ranked as one of the best-managed firms in Fortune’s annual survey;
and Emerson Electric whose former CEO, Charles Knigt, extols the value of the company’s
budgeting system.
From available empirical evidences, one wonders why in the face of the criticisms the traditional
budget is still regarded as the sacred management tool of many organisations. Neely, et al(2001)
explains that companies still practice traditional budgeting widely because of the following factors:
• The benefits of changing the budgeting system is less quantifiable unless the change of
• Organisations that attempt to effect the change to the traditional ended up being
• Traditional budgeting is usually centrally coordinated and often covers all organisational
activities.
Again, Becker, et al.(2010) offers further explanation why traditional budgeting practitioners are
sceptical about the introduction of the Beyond Budget phenomenon. They assert that
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‘the way in which the identity of the concept was defined – namely as a comprehensive
management model rather than a tool – did not allow for much plasticity in its
Probably this opinion, much more than other reasons, explains the reason why practitioners may
continue to adore the ex ante traditional budgeting in spite of its manifest limitations. What the
proponents should consider is perhaps to suggest a modular implementation of the new paradigm
such that there could easily be a retreat to the old tract where problems manifest themselves in the
organisational set ups, that is, implementing Beyond Budgeting in some departments or Units of
If some companies operate extremely with budgets and have done well and others operate without
budgets and do well too, then the issue perhaps is not in the management tool but on how the tool is
applied. We have not read literature indicating that Beyond Budget practitioners have reverted back
to budgeting as a result of the failure of the new model. But Hope and Fraser and several
publications of the Beyond Budget Roundtable indicate that more and more company are embracing
the new model. This development in our opinion does not in any way reinforce the alleged
frustration of budgets in corporate management, but an indication that at least there is an alternative
to the budgeting. Organisations, now know that if they allow some conditions to prevail in running
their internal processes, they could be more responsive and attain their objectives without budgets
provided of course managers are prepaid to run a devolved organisations built on trust with
employees adequately empowered and motivated to perform with the mindset of and entrepreneur.
That is, the staff should be able to take actions in the interest of the companies they work in as if
25
they own the company. Given this prerequisites for the installation of the Beyond Budgeting model,
• Would companies in developing economies be ready for this new concept now or it is a
• In the face of global trade and economic integration, companies are expected to be
• Is there any way to marry the two models to take advantage of the two ends since from
empirical evidences, companies who operate budgets still attach significant importance to
budgeting vis a vis the opinion of other practitioners in the Beyond Budgeting block that see
The authors think that the above questions when answered would provide some indication as to
however, that since companies could manage without budgets and have recorded success, there
would probably not be any need to spend management time in preparing budgets where there is an
alternative to budgeting.
Katarina and Inger(2011) noted in their field study of beyond budgeting in practice that three new
rules will emerge after removing budgets: (1) Goals should be strategic and based on ambitions, (2)
Focus should be on the big picture rather than details, (3) Focus should be on possibilities and
flexibility rather than constraints. Further, the authors noted that there are at least three challenges
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(1) The ambition problem- using targets set by competitors and other sub-units rather than those set
by the departmental manager being assessed may result in pushing the departmental managers too
(2) The sub-optimalization game problem, there are potential new games new games around the
dynamic resource allocation that will emerge with the new conditions can appear.
(3) The employee exchange problem. The employee exchange problem refers to a situation where
the staff of one sub-unit department may have to exit or remain without adequate schedules in the
event of their department not having resources allocated to it because the allocation of resources is
based on good projects and value-generating activities agreed upon during the project selling stage.
The authors of this article have worked in both public and private organisations operated on the
basis of the traditional budgeting and state that practitioners do agree that budgets are inhibitions
but given the popularity given budgeting in literature, it becomes very difficult perhaps to propose
education on assurances that companies could in fact operate without the budget. One of the
authors, have worked in a firm that have operated for over three years without a formal budget. The
experience has not been disappointing but interesting. Expenditure is incurred after considering the
needs of the organisation, from a pool of common resources. In this way no every resource is active
and available to support any unit or department of the company. is required is the change of mindset
to embrace the new paradigm shift the embrace the new wave of change in the management of
CONCLUSION
We think that rather than feigning ignorance of the new management philosophy accountants and
other management practitioners should begin to acknowledge the frustrations of budgeting and
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question the rationale behind the continued use of budgets when companies could operate without
budgets. Again, to keep records straight, Beyond Budgeting is not only appropriate to full
developed economies or those with static incomes which could be said to be predictable. The world,
as we view it, is full of uncertainty therefore no thing on the surface earth is static. We can indeed
run both corporate and public organisations with the budget. Lest we be mis-understood and new
recruits of Hope and Fraser, we agree with the new thinking purely on the strength of the empirical
evidences and conviction. We submit that, though Beyond Budgeting have been testing and proven
to work effectively in organisations that have excelled yet again the dead of the traditional
budgeting system is also not soon to come. However, we must be weary of the society, business and
management culture that permeate developing economies with high a propensity of employees and
managers that are not adequately trained and equipped to performed at the height of managerial
consciousness that promotes truth, sincerity and drive for perfection which are some of the pillars of
the new model. Yes, many companies that have abandoned budgets and are operating excellently
well, so enterprises can indeed operate without the budget if the operators are ready to do so.
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