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Are budgets still needed? David Dugdale and Stephen Lyne investigate whether companies have heeded the call to scrap them and find that, in most organisations, they are still alive and kicking.
In recent years the use of budgets has been roundly criticised. Some writers have suggested that companies need to move beyond budgeting entirely (see panel). This led us to investigate whether these ideas have actually had an effect on businesses.
We surveyed financial and non-financial managers in 40 companies and followed these up with interviews in eight of them. Our main conclusion is that budgeting is alive and well. All the companies in our survey used budgets and, generally, both financial and nonfinancial managers thought they were important for planning, control, performance measurement, coordination and communication. The use of budgets for motivation was less well supported. There was almost no difference between the responses of financial and non-financial managers - if anything, non-financial managers valued budgets more.
To find out how problematic they found their budgets, we made 20 critical propositions. For example, we asked whether managers agreed that there were too many budget games and too much budget padding, and whether budgets led to buck-passing and so on. Our respondents tended to disagree with the propositions. In only two areas did more than half of the financial managers agree or strongly agree that budgets were problematic. These were that:
* Budgets are too time-consuming.
* Managers might be constrained by budgets and delay necessary actions.
Non-financial managers were even less concerned here - perhaps because they don't have to spend as much time working on budgets.
Our visits to companies confirmed the importance of budgets. They also revealed the importance of understanding budgets in specific contexts. Typically, large companies have complicated, tiered structures. Business units usually report to a managerial level that, in large companies, reports to a still higher level. They typically comprise profit and cost centres and can be complex. Two companies in particular provided excellent examples of this complexity and the case studies in the panels on the following pages show how managers organised their businesses to promote motivation, co-ordination and control.
The two case studies and the results of the questionnaire survey show that most organisations use budgeting...