8). In order to develop a budget, there is a need for an underlying plan by which the organization's objectives are expected to be achieved and which serves as the basis for the cost structure underlying the budget. .
Traditionally, budgeting was considered as a central management control mechanisms, since it is one of the few techniques capable of integrating the whole breadth of organizational activity into a single coherent summary. The strong point of budgeting is that it provides a rigid, quantifiable framework in which the business can function. Just like the M-form structure (explained below), budgeting divides responsibilities to individuals and suggests a clear ladder of hierarchy. Thus, theoretically, it facilitates for a better understanding of the organization and of performance both at the individual and global level. Most significantly it harmonizes the organization as a whole by allowing for internal financial benchmarking to be made in all operations and divisions of the organization. However, over the past few years, budgets have been increasingly criticised as a management control technique, which is no longer useful or appropriate. Budgets, for example, have been linked to various behavioural problems including motivation, budget games, etc. There appears, therefore, to be two divergent views on the usefulness of budgets.
Proponents of budgeting argue that budgets have several important roles. Blocher et al. (2002), for instance, argue that budgets help to allocate resources, coordinate operations and provide a means for performance measurement. Hilton et al. (2000) agree with this view and claim that the budget is the most widely used technique for control purposes. Clarke and Toal (1999) too, are of the opinion that budgets are still essential and can, for example, be incorporated as part of the financial component of the Balanced Scorecard. Pierce and O'Dea (1998) also subscribe to the view that budgets are still relevant to today's business environment.
