Magazine article Management Services

Companies 'Straight-Jacketed' by Traditional Annual Budgets, Say KPMG Management Consulting

Magazine article Management Services

Companies 'Straight-Jacketed' by Traditional Annual Budgets, Say KPMG Management Consulting

Article excerpt

Companies are failing to take advantage of the opportunities that an efficient and effective budgeting process can bring to an organisation, according to KPMG Management

Consulting. Speaking at a recent conference organised by IIR, 'Re-engineering the budgeting Process' John Fanning, consultant at KPMG Management Consulting commented: "The traditional budgeting method continues to be financially orientated and functionally-based, despite the changes which have affected businesses over the last two decades. Greater globalisation, shorter product life-cycles, increasingly sophisticated customers and the technology explosion have led to the development of innovative approaches in other areas of financial management. But companies have singularly failed to use the budgeting process to bring added value to the organisation. Companies should be encouraged to think outside of the orthodox concept of the budget. Traditional thinking dictates that the budget is an annual occurrence which is cast in stone and used as a control mechanism for the organisation. However, if an organisation is to benefit from the budgeting process in full, it must be flexible. Are annual budgets the most appropriate for a business? The budget time scale can differ according to different industry sectors. In fashion retail, for example, the time scale can be much shorter. whereas in the regulated utilities sector, the time scale can be much longer.

In order to obtain greater mileage from the budgeting process, the business units used for budgeting purposes should be designed so as to reflect similar activities within the organisation. …

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