Advantages Of Traditional Budgeting

Alternative to Traditional Budgeting

Since there is criticism towards traditional budgeting, the different approach to the traditional budget has gained its momentum. Over the years, traditional budgeting lost its relevance with the modern business world, and it no longer satisfies the needs of the managers. With new budgetary systems alternatives, it will suit better for the need of the modern business.

Zero-Base Budgeting

The key success factor for the organization is the effectiveness of the management as well as the control of its overhead costs and resources. The concept of zero-based budgeting (ZBB) is basically a management tool which complements and links the process of current planning, budgeting, and review. ZBB identifies alternative

ZBB budgets are made mainly for activities or functions that are related to objectives, hence, the measurement system concerned more towards thinking as well as influencing managerial behavior (Flamholtz, 1980). ZBB system needs an organization to first be purpose-oriented, work from the top managements to the lowest level of employee. Work activities should also be carried out according to objectives of the organization. It also requires well-organized management information system (MIS), systematic decision-making and strong communication. Also, ZBB system increases the efficiency of the organization, productivity and resources continue to be the key concern. Self-developments and training must be committed by management in order to implement effective ZBB (Lee and Shim,

The traditional budgeting core advantages are the control and performance management. Budgetary control oversees the progress of the organization as it set the standard by comparing to previous year actual figures. Negative variances force the organization to react and make changes before the problems increases. To related back to performance management, budgets set as an outline for operations and it supports manager’s decision-making process. Nonetheless, problem budgeted objectives tend to motivate members better when it is difficult to achieve but for planning wise, traditional budgeting gives the most well estimated for the next fiscal year. If objectives are easily assessable, it will serve as a motivational purpose. On the other hand, if the budgetary system is used as a basis for performance evaluation, it may lead to dysfunctional behavior where managers manipulated the figures to relieve the achievability of the objectives. Despite the criticism for traditional budgeting, most organization had turned to the use of budgeting alternatives. In this essay, zero-based budgeting system was taken into the discussion. Zero-based budgeting is an effective system to control overhead costs and resources. Zero-based budgeting lives up to its name by starting each budgeting cycle with zero. Although it is expensive and time-consuming, it helps to review each and every program meticulously as the