Activity/process Budgets: A Tool for Change Management

By Sharman, Paul | CMA - the Management Accounting Magazine, March 1996 | Go to article overview

Activity/process Budgets: A Tool for Change Management


Sharman, Paul, CMA - the Management Accounting Magazine


The essential reason we prepare organizational budgets and track results is to influence people to do different things and to do things differently. To succeed in this, we need to identify risks and opportunities before they happen. The key is a much tighter integration of operational and non-financial measures with our financial measurement systems.

What differentiates management accountants from financial accountants is, indeed, their focus on managing, and this focus is both forward-looking and operational. Of particular importance in managing are planning, budgeting, and monitoring of performance. This is true for management accountants in all organizations and industries. The management process engages us in a series of activities that include establishing financial and non-financial goals, developing operational plans to meet the goals, and preparing budgets to reflect the operational plans. We then execute the plans, record performance and, finally, adjust operations to respond to actual circumstances.

Planning and budgeting has been a fairly specialized field within the finance function of most organizations. It is often combined with analysis of business cases for new products, or acquisition of capital equipment. Planning and budgeting groups are sometimes described as financial planning and analysis departments (FP&A). In most cases, the FP&A department works with operational functions, which are responsible for developing non-financial goals, such as sales, transaction volumes, customer and employee satisfaction targets, and interpreting their impact on functional budgets. In most cases, the finance department's role is to organize the planning and budget timetable, develop assumptions, receive budget data from the operational departments, roll up the numbers, check them, analyse them, and schedule review meetings. Analysis tends to be quite sophisticated and is designed to validate the data and explain significant trends and variations.

This approach to budgeting has left the actual interpretation of goals and non-financial information in the hands of operational functions. Unfortunately, this forces the finance analysts into the role of messengers. Accountability for performance resides with the operations folks themselves. The problem is that this forces the financial measurement system to report on plans based on assumptions made by others, and to report on results with explanations provided by the operations functions. Thus, management accounting budgeting and reporting mechanisms are perceived to be trailing indicators. Little wonder that groups such as the Conference Board have criticized accounting measurements for being too financial and rearward-facing.

The primary purpose of budget preparation and results tracking, as with any measurement system, must be to influence people in the organization to do different things and to do things differently. After the results come in is too late to take corrective action. What is required is a better way to identify risks and opportunities before they have happened. This involves a much tighter integration of operational or non-financial measures with financial measurement systems, in both the planning and budgeting mode. In addition, the integration of non-financial measures enables operational measures to provide a predictive or leading indicator of financial consequences.

It is now well accepted that activity/process-based performance measurement systems exist to provide the desired level of integration. Most applications have been developed as modelling applications of historical performance, where "what if" applications have been developed to support decision-making processes. More advanced users of activity-based costing have turned a historical, or a trailing, perspective into broader activity-based management application. This has been accomplished by understanding the links between activities and cross-functional processes, and then establishing complete operational and financial management plans and budgets for each process. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Activity/process Budgets: A Tool for Change Management
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.