Budgeting Process and Budgetary Control

QUESTION 1 – Budgeting Process and Budgetary Control

I have been asked to advise two entirely different businesses about the benefits and problems associated with what is termed the “traditional approach to budgeting and budgetary control”. One of the businesses operates in a very stable and static market place, where there is little change in either products or demand year on year, whereas the other business operates in a very dynamic, rapidly changing, innovative environment. If my findings suggest that the traditional approach is inappropriate for one or both of the businesses, I will suggest and discuss some alternative approaches.
Budgeting is a financial tool that serves as a help for business organisations to manage its finances efficiently so that on a short to a long term view profits of both enterprises will increase their profits by simultaneously reducing unnecessary cost and expenditures as well as by implementing certain processes or actions leading to the expansion of their market shares. Budgeting is not a simple process on the contrary it is a very difficult and complex process because different purposes of different departments have to be taken into account.
That is why budgeting does not only focus on financial functions in an organizati on but also on other functions such as giving instructions, delegations, motivation, ways of the decisionmaking process in a company, creating plans and controlling systems and measuring the performance of the organization. A function of great importance is nowadays the communication in an organization including knowledge sharing that may a huge competitive advantage towards other businesses.
At this moment, both of the businesses are using the traditional approach to budgeting and budgetary control. Traditional Budgeting is based on the incremental approach that typically involves four processes beginning with the development of assumptions and plans about the factors influencing next