M.Accounting Indivindual Assignment 1

MN2041K Managerial Accounting

InDIVIDUAL ASSIGNMENT

1

College Number(Bottom Left of College

Card)

100859089

Year: 1

Course Code MN2041K

Course Tutor: Dr John Ahwere-Bafo & Dr Leonardo Rinaldi

Assignment No.: 1

Degree Title: Bachelor of Science (Honours) in Management

Question No. & Title: Budgetary ControlEvaluation

Word Count 2930


B u d getary Control Evaluation

“Budgetary c o n t r o l i s p a r t o f ove ra l l o r g a n i s a t i o n con t ro l a n d i s concerned primarily with the control of performance. The use of budgetary control in performance management has of late taken on greater importance especially as a more integrative control mechanism for the organisation”. Critically evaluate this claim, supporting your discussion with both theoretical arguments and practical examples.”

(Assignment 1)

Student Names: Koh Shen Rui (Lawrence)

Lecturer: Dr John Ahwere-Bafo

Dr Leonardo Rinaldi

Subject: Managerial Accounting (MN2041K)

Course: Bachelor of Science (Honours) in Management

Due Date: 04th August 2016

Word Count: 2930

Choice of example / company:


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Contents Page

Abstract 4

Introduction 5

Traditional Budget Control 6/7/8/9

Participative Budgetary Control 9/10

Progressive Budgetary Strategies 10

Activity Based Budgeting 10/11

Zero Based Budgeting 11/12

Balance Scorecard 12/13/14

Beyond Budgeting 14/15

Conclusion 15

Reference List 16/17/18


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Abstract

This analysis focuses on the perceptive of impact of how environment changes,

technology evolve, organization green growth and management ideology.

However this assessment will require background to study, the presentation of

problem, purpose of the study, objective, outlook and momentous of the study

has on business alignment as for budgetary control and conduct/achievement

are matter.

The business organizations in the contemporary society are currently

witnessing a highly dynamic, sophisticated, and intensely competitive

international trade arena. Besides, the business organizations such as DB

SCHENKER are witnessing tough economic times, high inflation, and

currency volatility rates. The tough economic times have led to the massive

increase of production costs in modern firms. Consequently, business managers

are continuously formulating effective cost-cutting strategies such as budgetary

control to monitor expenditure. Ideally, budget control revolves around

analyzing the effective use of the available resources in relation to fulfilling a

company’s strategic plan. Therefore, budget control is a crucial metric that

helps in comprehensively evaluating the performance of an organization such

as DB SCHENKER. The subsequent discussion seeks to analyze the use of

budget control as an integrative control mechanism within organizations.

Besides, the discussion uses theoretical foundations and examples to analyze

the importance of budget control as a metric for performance management.


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Budget Control

Introduction

So far, organization managers are formulating metrics to enhance their firms’

competitive edge in the highly dynamic and intricate international trade arena.

The business managers are formulating metrics such as the use of budget

control to measure the performance of their organizations (Barksdale & Lund

2016, p.8). A budget is a comprehensive financial planning of the allocation of

an organization’s available resource to particular vote heads (Houghton, 2009).

Ideally, a budget facilitates the accurate allocation of the available resources to

particular vote heads over a specific financial year. Moreover, business

analysts indicate that a budget is among the significant tools that facilitate the

effective and timely implementation of projects within an organization

(Reeves, Haanaes & Sinha, 2015). Besides, a budget is a critical

communication tool within an organization. Ideally, the budget postulates an

organization’s mission and strategic plan over a specific duration. Besides, the

contemporary society is witnessing a rise in corruption. Therefore, a budget is

among the significant tools that enhance the accountability of resources (In

Caprio, In Arner, In Beck, In Calomiris, In Neal & In Veron 2013, p.56).

Ideally, budget control revolves around the use of an organization’s budget as

an effective control mechanism to measure the performance. Therefore, a

control exercise focuses on using a budget as a tool for planning and

controlling various activities such as procurement, production, and marketing

within an organization (Babunakis 2011, p.89). Besides, the use of the

available budget for control enables organization managers to coordinate and


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organize the relevant systems within an organization to work towards the

achievement of the set strategic plans (In Caprio, In Arner, In Beck, In

Calomiris, In Neal & In Veron 2013, p.56). Besides, the budget control enables

the organization managers to communicate the organization’s strategic plan in

an orderly and systematic manner (Black 2012, p.34). Business analysts also

indicate that the use of budgets as a control metric enhances the development

of an organization’s profitability, productivity, and competitive advantage in

the global market arena (Nelson, Nelson, & Public Library Association 2012).

Therefore, the analysis of the different arguments that support the use of a

budgetary control as a metric for financial performance will equip modern

investors in companies such as DB SCHENKER with knowledge of the

strategies that enhance a firm’s competitive edge.

Traditional Budget Control

Scholars in the contemporary society argue that budgets are significant

components that enhance the integration of activities within an organization.

The effective use of budgetary control facilitates the coordination and planning

of all activities within an organization (Blue & White 2014, p.8).

Consequently, the suitable integration of activities within an organization

enables the managers to monitor the performance of the relevant stakeholders

within an organization. Besides, budgetary control is a crucial tool that

enhances the effective allocation and utilization of the available organizational

resources in facilitating the attainment of particular goals (Cohen, Eimicke &

Heikkila 2013, p.87). Business analysts in the contemporary society also

indicate that the effective utilization of the human and capital resources within


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organizations such as DB SCHENKER has led to an increase in the firm’s

productivity, profitability, and competitive advantage. Besides, a large portion

of business analysts indicates that the formulation of challenging budgets

within an organization help in boosting the employees’ morale in working

towards the achievement of the organization’s strategic plan (Daniels 2016,

p.34). Moreover, organizations such as DB SCHENKER use budgets as reward

metrics. The management at the German Logistics company DB SCHENKER

formulates the employees’ rewards system in relation to the accomplishment of

the organization’s budget. Therefore, the budget control acts as a crucial factor

that helps in the effective integration of activities within the logistic firm.

Besides, the budget control strategy facilitates the motivation of the employees

in attaining the organization’s objectives within a particular fiscal year to reap

high rewards (Dressler 2014, p.87).

However, various scholars and financial experts critique the effectiveness of

the traditional budget control approach in enhancing the integration of control

mechanisms within an organization. The scholars highly criticize the

incremental approach managers apply in the traditional budget control strategy.

Ideally, the incremental approach revolves around the up and down adjustment

the budget of the subsequent year from the previous fiscal year (Harvard

Business Review Press 2013, p.56). Financial experts postulate that the

incremental approach encourages the managers in modern firms to spend the

entire budgetary allocation of the previous year. In most instances, the

incremental approach leads to the embezzlement and the wastage of an

organization’s resources in buying unnecessary items. For instance, a manager


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case in a government office in Hong Kong, Wong Ming, postulates how the

incremental approach can lead to the wastage of organization resources (Hitt,

Ireland & Hoskisson 2014, p.67). For instance, Wong used the surplus

budgetary allocation to issue free travel allowances to the government office’s

employees. Wong also used the surplus expenditure to make impulse

procurement of unnecessary office equipment. Wong’s case postulates the

wastage and inefficiency that incremental budgeting encourages among

managers in the contemporary society. Besides, the traditional control

approach lays much emphasis on achieving the integration of the control

mechanism within an organization through the budget implementation

(Houghton 2009, p.90). However, financial experts indicate that inadequate

integration of an organization’s systems through the budget can be a result of

behavior problems among the employees. For instance, the management team

in organization such as DB SCHENKER should facilitate the motivation of the

employees in working towards the successful implementation of the set budget.

Besides, logistics firms such as DB SCHENKER should formulate measurable

and achievable budgets that facilitate the inculcation of high motivation among

the employees. Ideally, high motivation among the employees enhances the

development of harmony in working towards the achievement of an

organization strategic plan (In Caprio, In Arner, In Beck, In Calomiris, In Neal

& In Veron 2013, p.56). Therefore, managers in logistic firms such as DB

SCHENEKER should understand that budget control is among the significant

components that enhance the integration of various systems within an

organization. Consequently, the managers should also analyze the


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psychological and behavior implications of a particular budget among the

employees. For instance, a measurable and realistic budget enables the

employees to work harmoniously towards the achievement of the set

organization goals. Subsequently, a budget that lacks a clear scope facilitates

the decline of the employees’ morale leading to a massive downfall in a firm’s

productivity, profitability and competitive advantage (Nelson, Nelson, &

Public Library Association 2012).

Participative Budgetary Control

The participative control revolves around the coordination of an organization’s

managers and employees in formulating a budget. The managers involve the

employees in determining and allocating the available resources towards the

attainment of diverse organizational objectives. Financial experts postulate that

the participative budget control is among the effective strategies that enhance

the integration of the relevant control mechanisms within an organization (In

Caprio, In Arner, In Beck, In Calomiris, In Neal & In Veron 2013, p.5). The

involvement of the employees in the formulation of the budget inculcates high

morale in working towards the achievements of the set objectives. Besides, the

involvement of the employees leads to the maximum utilization a company’s

resources in fulfilling the set organizational goals. Besides, the involvement of

the managers in the formulation of the budget boosts their ego and morale

towards coordination and organization the relevant systems within an

organization in achieving the set organizational goals. Therefore, logistic firms

such as DB SCHENKER should focus on involving the managers and

employees in the formulation of the budget for each fiscal year. The


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involvement of the relevant stakeholders in the formulation of the budget for

the logistics firm will enhance the firm’s performance, productivity,

profitability, and competitive advantage (Reeves. Haanaes & Sinha 2015,

p.89).

Progressive Budgetary Strategies

However, scholars and researchers have formulated progressive budget

strategies to address the criticisms against the traditional budgetary methods.

The progressive budgetary strategies have helped to improve the integration of

the control systems within an organization (In Caprio, In Arner, In Beck, In

Calomiris, In Neal & In Veron 2013, p.89). Besides, financial experts postulate

that the progressive approaches have enhanced the effectiveness of budgets as

important tools that enhance the success of modern organizations such as DB

SCHENKER. The progressive budgetary strategies include Activity based and

zero-based budgeting. Besides, the progressive budgetary strategies also

include the balanced scorecard and beyond budgeting model.

Activity Based Budgeting

Modern scholars and financial experts also refer to the ABB strategy as the

Activity Cost Management. The ABB revolves around an activity framework

that uses the available financial data on cost drivers in the formulation of a

budget (In Caprio, In Arner, In Beck, In Calomiris, In Neal & In Veron 2013,

p.56). The ABB differs from the traditional budgetary approach in various

ways. For instance, the ABB focuses on the activities within an organization

that facilitate the achievement of various organizational objectives. Besides,

the ABB postulates that there exist a number of cost drivers unlike the


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traditional approach where managers believe that the volume of the end

product is the single cost driver within an organization. According to (In

Caprio, In Arner, In Beck, In Calomiris, In Neal & In Veron 2013, p.9)

managers who use the ABB help in integrating the planning process of the firm

with other activities leading to the achievement of the firm’s strategic plan,

profitability and competitive advantage. Besides, the ABB strategy enables

managers in logistic firms such as DB SCHENKER to enhance the effective

allocation and utilization of the available resources.

However, financial experts claim that the ABB system is costly and difficult to

implement. McCullough (2011, p.9) points out that ABB strategy is often

misinterpreted during the decision-making process. For instance, a slight

reduction in a firm’s production costs may mislead the managers to think that

the firm is maximally utilizing the available resources towards the achievement

of the set organizational goals. Besides, the ABB system requires numerous

calculations in order to determine the pricing of an organization’s products and

services (Tulsian, Tulsian & Pandey 2008, p.87).

Zero Based Budgeting

The ZBB strategy aims at providing an efficient and integrative mechanism

within an organization such as ZB SCHENKER through the reduction of the

limitations that result from the adoption of the traditional budget approach.

Besides, the ZBB aims at addressing the drawbacks of the incremental

approach to facilitate the maximum utilization of an organization’s resources

towards the set vote heads (Levenson 2015, p.7). Ideally, the ZBB gained

significant prominence when U.S President Carter advised all the state


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governments to adopt the budgetary approach in order to reduce the

misappropriation of funds. In most instances, the ZBB approach revolves

around evaluating a company financial performance from a zero base. The

evaluation of the company’s financial performance from a zero base enables

the firm to respond to the emerging issues and trends in the highly competitive

international trade arena. In most instances, vote heads that facilitate the

wastage of the available resources are removed from the budgetary allocations

(Wheelen & Hunger 2008, p.9). Besides, the strategy enables logistics firms

such as DB SCHENKER to maintain the efficiency of the diverse cost drives.

However, critiques argue that the strategy is not suitable for large firms. For

instance, the process of determining and justifying each vote head in a budget

is expensive and time-consuming. However, the ZBB strategy is among the

most effective methods of integrating the control mechanism within an

organization leading to a firm’s efficiency and productivity (In Caprio, In

Arner, In Beck, In Calomiris, In Neal & In Veron 2013, p.89).

Balanced Scorecard

The (BSC) clearly stipulates a formidable framework for organizations in the

contemporary society to translate their strategies into achievable objectives and

effective performance evaluation metrics. The constructs of the BSC postulate

that the budgeting process positively correlates with a firm’s short-term and

long-term goals. Therefore, the BSC strategy forms a crucial reference point

for the integration of an organization’s control mechanism in working towards

the achievement of the set objectives. The approach also postulates that

organization should lay equal emphasis on the non-monetary and monetary


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measures. The non-financial measures include the requirements of the

consumers and the internal business processes (Johnson 2013, p.9). Besides,

the non-financial measures include the formulation of methods to enhance a

business organization’s long-term sustainability. The Balanced Scorecard

indicates that firms in the contemporary society should continuously formulate

policies that enable them to remain relevant and responsive to the dynamic and

highly evolving changes in the consumers’ tastes and preferences. DB

SCHENKER is among the organizations that make effective use of the

balanced scorecard to enhance the integration of diverse mechanisms within

the organization. For instance, the logistic firm’s management uses the

balanced scorecard to direct, inspire, and motivate the employees in working

towards the attainment of the company’s goals and objectives. The logistics

company CEO uses the perspectives in the scorecard as a crucial metric of

evaluating the managers and the employees’ performance (In Caprio, In Arner,

In Beck, In Calomiris, In Neal & In Veron 2013, p.89). The feedback enables

the CEO to integrate the relevant systems within the logistic company to

enhance the firm’s competitive edge, productivity, and profitability in the

intricate international trade arena.

However, critiques indicate that the effective use of a balanced scorecard

depends on other budget strategies. Besides, the lack of integration between a

company’s management and employees may lead to the failure of the balanced

scorecard (La 2011, p.9). Consequently, the formulation of an effective

balanced scorecard is expensive and time-consuming. However, the effective

use of the balanced scorecard facilitates the effective integration of the relevant


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systems in working towards the attainment of various set objectives (In Caprio,

In Arner, In Beck, In Calomiris, In Neal & In Veron 2013, p.89).

Beyond Budgeting

The Beyond Budgeting is a radical model that stipulates that companies should

abandon the traditional budgeting systems. The Beyond Budgeting strategy

lays the foundation of its argument on twelve dynamic principles (In Caprio, In

Arner, In Beck, In Calomiris, In Neal & In Veron 2013, p.89). The principles

indicate that managers should adopt an empowered control system that

facilitates the effective integration of the control systems within an

organization. Financial experts indicate that logistics companies such as DB

SCHENKER should adopt the Beyond Budgeting strategy in order to respond

to the emerging issues and trends in the international trade arena. Besides, the

Beyond Budgeting helps in the development of the employees’ morale in

working towards the achievement of the set organizational goals and

objectives. Financial experts also indicate that some companies such as the

Swedish bank Svenka Handelsbanken have stopped using the traditional

budgets and adopted the beyond budgeting as a key tool of enhancing the

integration of systems in working towards the achievement of the banks

objectives (In Caprio, In Arner, In Beck, In Calomiris, In Neal & In Veron

2013, p.56). The financial reviews indicate that the bank is currently outdoing

its competitors who are still using the traditional budgets as a control tool for

coordination and integration various organizational systems. For instance, the

Swedish bank ranked first in stockholder’s equity returns and revenues from

the financial year of 2016 (In Caprio, In Arner, In Beck, In Calomiris, In Neal


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& In Veron 2013, p.89). Besides, the bank managers indicate that the adoption

of the beyond budgeting inculcates a positive working morale among the

employees leading to the financial firm’s profitability, expansion, productivity,

and competitive edge. However, critiques still argue that it is difficult operating

without a clear budget plan. For instance, the lack of a budget would hinder the

effective record of sales and procurement plans. Besides, businesses that act

without a budget appear unfavorable to creditors hence hindering their quest

for expansion (In Ray & In Chakraborty 2014, p.76).

Conclusion

Empirical evidence affirms that the use of budgetary control strategies

enhances a firm’s competitive advantage in the highly competitive

international trade arena. For instance, the budget provides a crucial metric of

evaluating a firm’s financial performance in relation to the budget allocations

on various vote heads. Besides, a budget enables an organization’s managers to

organize and coordinate the activities within an organization in a systematic

and orderly manner. Besides, a participative approach in the formulation of a

budget helps in developing the employees’ morale to work towards the

achievement of the organizational objectives. Therefore, a budget is a crucial

component that enhances the success of organizations in the contemporary

society. The budget also helps in analyzing the performance of a particular

organization. Besides, budgetary controls are effective strategies of facilitating

the integration of the control mechanisms within an organization.


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List of References

Barksdale, S.& Lund, T.(2016).“10 steps to successful strategic planning”

Alexandria, Va: ASTD Press. [ access on July 28th, 2016 ]

Babunakis, M.(2011).”Budgets: An analytical and procedural handbook for

government and non-profit organizations”. Westport, Conn: Greenwood Press.

Black, K.(2012).“Business statistics: For contemporary decision making”.

Hoboken, NJ: Wiley. [ access on July 28th, 2016 ]

Blue, R. & White, J.(2014). “The new master your money: A step-by-step plan

for gaining and enjoying financial freedom”. Chicago: Moody Publishers,

Cohen, S. Eimicke, W. B. & Heikkila, T. (2013). “The effective public

manager: Achieving success in government organizations”. San Francisco:

Jossey-Bass. [ access on July 28th, 2016 ]

Daniels, L.(2016). “Fiscal decentralization and budget control”. Cheltenham,

UK; Northampton, MA: Edward Elgar Publishing, [ access on July 29th, 2016 ]

Dressler, S.(2014). “Strategy organization and performance management”.

Boca Raton (Fla: Universal Publishers). [ access on July 29th, 2016 ]

Harvard Business Review Press. (2013). “HBR's guide to project management.

Boston”. : Harvard Business Review Press, 2013. [ access on July 29th, 2016 ]

Hitt, M. A., Ireland, R. D. & Hoskisson, R. E. (2014). “Strategic management:

Competitiveness and globalization; [concepts and classes]”. Mason, Ohio

[u.a.: Thomson South-Western. [ access on July 29th, 2016 ]

Houghton, G. (2009). “Creating a budget”. New York: PowerKids Press.

[ access on July 29th, 2016 ]


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In Caprio, G., In Arner, D. W., In Beck, T., In Calomiris, C. W., In Neal, L., &

In Veron, N.(2013). “Handbook of key global financial markets, institutions

and infrastructure”. Hershey: Business Science Reference


In Ray, N., & In Chakraborty, K. (2014). “Handbook of research on strategic

business infrastructure development and contemporary issues in finance”.

Boston : Elsevier [ access on July 30th, 2016 ]

Johnson, J. (2013). “Getting to grips with budgets”. Manchester: Financial

Times Management. [ access on July 30th, 2016 ]

La, P. D. (2011). “The nonprofit strategy revolution”. St. Paul, Minn:

Fieldstone Alliance. [ access on July 30th, 2016 ]

Levenson, A. R. (2015). “Strategic analytics: Advancing strategy execution

and organizational effectiveness”. Oakland, CA : Berrett-Koehler Publishers,


McCullough, B. R. (2011). “Bonnie's household budget book: The essential

guide for getting control of your money”. New York: St. Martin's Griffin.

[ access on Aug 1st, 2016 ]

Nelson, S. S., Nelson, S. S., & Public Library Association. (2012). “Strategic

planning for results". Chicago : American Library Association.

[ access on Aug 1st, 2016 ]

Reeves, M., Haanaes, K., & Sinha, J. K. (2015). “Your strategy needs a

strategy: How to choose and execute the right approach”.Boston,

Massachusetts:Harvard Business School. [ access on Aug 2nd, 2016 ]


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Tulsian, P. C., Tulsian, P. C., & Pandey, V. (2008). “Business organisation and

management”. Pearson Education. [ access on Aug 4th, 2016 ]

Wheelen, T. & Hunger, J. (2008). “Concepts in strategic management and

business policy,eleventh edition”.[University of Phoenix Custom Edition e-

text]. Upper Saddle River, NJ: Pearson Education.

[ access on Aug 4th, 2016 ]


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M.Accounting Indivindual Assignment 1