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Topic 2 Reading Practice Developments In Budgeting Notes

Accounting Notes > Management Accounting, Budgets and Behaviour Notes

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Topic 2: "Practice developments in budgeting: An Overview and Research Perspective" (Hansen, Otley &
Van der Stede, 2003)

"Practce developments in budgetng: An Overview and Research Perspectve" (Hansen, Otley & Van der Stede, 2003) Introducton

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Practitioners argue that budgets impede the allocation of organizational resources o Encourage myopic decision making and other dysfunctional budget games Traditional budgeting is financial, top-down and has a command-and-control orientation (Schmidt 1993; Bunce et al., 1995) Two practice-led developments in budgeting o Improving the budgeting process o Abandoning the budget There are apparent disconnects between budgeting practice and research

Problems with Budgetng in Practce

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By the time budgets are used, their assumptions are typically outdated Time-consuming Add little value Based on unsupported assumptions and guesswork Developed and updated too infrequently

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5. Budgetary controls impose a vertical command-and-control structure Constrain responsiveness Rarely strategically focused Concentrate on cost reduction Strengthen vertical command-and-control Encourage gaming and perverse behaviours

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Organizational and people-related budgeting issues

1. Do not reflect the emerging network structures

2. Reinforce departmental barriers

3. Make people feel undervalued

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Schmidt (1992) and Hope and Fraser (1997) support the perception of widespread dissatisfaction with budgeting in practice Seems odd that the vast majority of US firms retain a formal budgeting process (97 percent of respondents in Umapathy (1987)) o Budgets are so deeply ingrained in an organization's fabric (Scapens and Roberts, 1993) Budgeting is "the only process that covers all areas of organizational activity" (Otley, 1999)

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