BUDGETING

Empirical evidence suggests that budgeting is principally the pivotal control system in today's fast-moving environment and has been viewed as the central instrument of management control systems. A simple definition of a management control system and an explanation of how budgeting allied with it will be the starting point of this essay. Then a summary of the suggested developments in management structures as organizations progress from the industrial era into the information era are outlined, together with proposed alternatives to budgetary/cost control. Are these alternatives better or is budgeting still possible?

Management control system is defined by Lowe (1970) as:

A system of organizational information seeking and gathering, accountability and feedback designed to ensure that the enterprise adapts to changes in its substantive environment and that the work behaviour of its employees is measured by reference to a set of operational sub-goals (which conform with overall objectives) so that the discrepancy between the two can be reconciled and corrected for.

Budgeting achieves the aim of MCS by setting standards, collecting actual cost and revenue information and reporting accounting variances on a routine and regular basis. It is the translation of what your organization wants to do (goals/objectives/plans) into the resources needed to accomplish them over a specified period of time. As Otley, D.(1999) states: "Performance is defined in essence to profitability; in a profit centre, the overall measure of performance combines an output measure revenue with an input measure cost and the budgeting process seeks to keep the two elements in balance. Cost centres are more problematic as results can no longer be measured in financial terms, and thus cannot be directly compared with costs. The budgeting process tends to assume a given level of output or sales and attempts to determine an appropriate

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