Disadvantages of Budget

Topics: Management, Goal, Control Pages: 20 (5264 words) Published: April 7, 2011

Bachelor’s Thesis
Faculteit der Economische Wetenschappen
Sectie: Accounting, Auditing and Control
Studie: Bedrijfseconomie

Is the use of budgets out of date?

S.A.D. Sardjoe
July 12, 2009

Table of contents

Chapter 1 Introduction2

1.1 Purpose2

1.2 Method2

1.3 Scope2

1.4 Outline3

Chapter 2 Budgets4

2.1 Definition of budgets4

2.2 The use of budgets5

2.3 The process of budgeting5

2.4 The advantages of budgets6

2.5 The disadvantages of budgets7

2.6 Conclusion8

Chapter 3 The relevance of budgets within Management and Control10

3.1 Management control system10




3.2 Budgeting within the Management control system11

Chapter 4 Beyond Budgeting13

4.1 The Beyond Budgeting concept13

4.2 Advantages of Beyond Budgeting14

4.3 Disadvantages of Beyond Budgeting15

4.4 Differences between the traditional budgeting system and beyond budgeting15

4.5 Conclusion16

Chapter 5 Conclusion and recommendations17


Chapter 1 Introduction

For a long time, budgets have been the most important management and control tool. Budgets are being used to give direction to an organization and provide targets. Today, thanks to the enormous success of budgets throughout the years, budgets are being used in almost every company. However, like nature, the management and control tools evolve. There are new management and control tools which are developed. One example is the beyond budgeting model. Yet almost every company is still using budgets.

1.1 Purpose

This thesis attempts to give a clear understanding what budgets are and how there are being used. In addition the beyond budgeting model will be examined as a newly developed management tool. This leads to the following main question of this thesis:

Is the use of budgets as a management and control tool out of date?

By answering this problem statement, this thesis gives a clear understanding of: • Budgets – what they are and why they are being used and should they still be used? • Beyond budgeting – what is it, why should it be used and what are the differences with traditional budgeting?

1.2 Method

I constrain myself to a literature-study because of the limited timeframe given to write the thesis. Since there is a lot of useful information already available on this subject, using existing literature should not decrease the quality of this thesis. My conclusion will be based on existing knowledge.

1.3 Scope

The thesis is built on the assumption that beyond budgeting is the best alternative for traditional budgets. Therefore it is chosen to compare it to the traditional budget model.

1.4 Outline

The analysis in the thesis is done in the following order. First the management tool budgets is defined, in addition the advantages and disadvantages of using budgets are set out. Next follows a chapter, which explains the meaning of management and control. Chapter four will discuss the beyond budgeting concept in detail. The concept is outlined; advantages and disadvantages are presented followed by a comparison with the traditional budget. Chapter five contains the general conclusion of this thesis where I will answer my main question.

Chapter 2 Budgets

This chapter will discuss the management tool budgets. The chapter is divided into five sections. First of all the term budgets is defined. Next is a description of the use of budgets and the process of budgeting, followed by the advantages and disadvantages occurring when using budgets. Finally, a conclusion is given which summarizes the topics discussed in this chapter.

2.1 Definition of budgets

There are many different definitions of budgets. In order to make it clear what I believe is the correct way to describe budgets...
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