Discussion And 2 Replies
Prior to beginning work on this discussion, please read the articles Who Needs Budgets? (Links to an external site.), Traditional Budgeting vs. Beyond Budgeting (Links to an external site.) in the Financial Planning page of the CFO Edge website, and Traditional Budgeting Versus Beyond Budgeting: A Literature Review (Links to an external site.).
In the words of GE’s legendary ex-CEO Jack Welch, Jack Welch, “The budgeting process at most companies has to be the most ineffective practice in management. It sucks the energy, time, fun, and big dreams out of an organization (…) [and] brings out the most unproductive behaviors (…)” (Welch & Welch, 2005, p. 189).
Some argue that the purposes of budgeting can be achieved without the conventional budgeting process. These companies espouse an idea called beyond budgeting that proposes to replace annual budgets with rolling forecasts of key performance indicators (Hope & Fraser, 2003). Others disagree, pointing out that the work of continuous planning is costlier than budgeting and that doing something continuously tends to make the process superficial.
So, the jury is still out. But so far, GE still prepares budgets! Discuss in an initial post of 200 words whether the controversial concept of beyond budgeting is a better approach for financial planning and analysis (FP&A) than traditional budgeting.
Guided Response: Review several of your peers’ posts. In a post of at least 100 words, respond to at least two of your peers’ posts in a substantive manner. Provide information that they may have missed or may not have considered about whether traditional or alternative budgeting methods are better and have a positive impact on businesses, or which has more practical usefulness. Do you agree with your peers findings? Why or why not?
Post by classmate 1
Traditional Budgeting and Beyond Budgeting approaches both have their place in business. From a management standpoint, one is not better than the other. Choosing the budgeting method primarily depends on the type of operations a company conducts. The core of the Traditional Budgeting method is command and control (Rothberg, 2011). The Beyond Budgeting method’s core is empowerment and coaching within operations (Rothberg, 2011).
A company’s budgeting methods can be different for decentralized or centralized businesses. A decentralized company could benefit from the “Beyond Budgeting” method and allow divisional managers to make budgeting decisions that could affect their core divisional operations. A centralized company could benefit from the “Traditional Budgeting” method as fewer hands controlling the budget under one roof can make more streamlined operations from quick and decisive decision making.
I align more with the Beyond Budgeting approach. While varying company operations can change which method I would use, I find the Beyond Budgeting approach more flexible. Empowering the right people in the right place can create the proper budget. When a business trusts its managers to operate its divisions effectively, the company can see more innovation, cost-cutting, and proactive business decisions.
The stock market has seen the worst losing streak since 2001, and many companies like Target have lost nearly 25% or more in their company’s valuation. Target was plagued with not identifying decreased customer demand and inventory overage, which led to their negative future outlook. Divisional managers should have caught this before it became an issue. A company is only as good as the weakest link; therefore, no matter what budgeting approach, the right people need to be in the right place.
Rothberg, A. (2011, April 21). Traditional Budgeting vs. Beyond Budgeting. CFO Edge.
Post by classmate 2
This week’s discussion focuses on two controversial budgeting approaches; Traditional Budgeting (TB) and Beyond Budgeting (BB). Traditional Budgeting is considered to be a more conservative business financial command and control of how actual and estimated should be measured and controlled; decisions are solely made by top-level executives and pass down to department managers. Whereas the Beyond Budgeting approach is more geared towards open communication from all levels of a company, it empowers and coaches decentralized teams closely connected with customers (Ruthberg, 2011). In a TB, executives assume that they are better equipped to set the company goals and initiatives for increasing productivity without input from lower plant managers. It leads to setting impractical and unrealistic expectations for employees without practical approaches for measuring performance adequately. TB creates budget constraints and delays decision-makings necessary to increase production or eliminate waste.
Under the Beyond Budgeting (BB) approach, front-line managers and top-level executives work closely together without setting fixed targets, providing lower-level managers with the authority to analyze problems and use their judgment when making decisions that benefit the company. The BB approach uses the empower and coach approach, emphasizing on the means or process of reaching the goals (Ruthberg, 2011). Using this approach generates creativity and initiative because businesses’ teams and managers act more financially responsible as they are held accountable for their actions. In decentralized units or departments, front-line managers relate closely to customers. They can see whether the products or services can be improved with minimum additional resources or if production constraints cause the company to lose revenue due to lower customer satisfaction. In the TB, this information has to be routed up the chain of command, losing time and revenue while pending a decision.
After reading all the articles, I believe that Beyond Budgeting is more suitable for a large business because delaying simple production decisions on how much money or time is needed to eliminate a constraint cost profitability; “Time is Money.” Furthermore, TB focuses on cost reduction, whereas BB concentrates on value creation and is reviewed frequently for changes in the market. Lastly, Traditional Budgeting (TB) prevents reactions to changes in the market, is not strategically focused, and tends to rely upon previous years’ financial figures, creating departmental barriers between front-line managers and high-level executives. In my opinion, TB is more suitable and beneficial for new entrepreneurs or relatively small businesses.
Ruthberg, A. (2011, April 21). Traditional Budgeting vs. Beyond Budgeting.
Retrieved from: https://www.cfoedge.com/blog/financial-planning/traditional-budgeting- vs-beyond-budgeting-three-core-differences/
Prior to beginning work on this discussion, please read the Budget of the United States Government (Links to an external site.).
Congress is responsible for creating the federal government’s annual budget. For agencies and their programs to be funded, Congressional authorization committees must pass, and the President must sign, all 12 authorization bills by September 30—the last day of the current fiscal year—so the country can have a new budget in time for the start of the next fiscal year (USA.gov, n.d.).
Access the Government Publishing Office (Links to an external site.) to obtain Historical Budgetary Tables following the steps below:
- Click on the link to access the Budget of the United States Government (Links to an external site.)
- Click on the “Fiscal Year 2018” link
- Scroll down and select “Historical Tables”
- Obtain the .xls (Excel) file format of Table 1.1 and Table 1.2 to complete the two requirements below:
- Table 1.2 shows the budget of Surpluses or Deficits (–) as Percentages of gross domestic product (GDP). Determine how many times since 1950 the budget has shown a surplus and how many times it has shown a deficit using the data in the Total column, “Surplus or Deficit.” Also, identify the 3 years with the highest deficits, and the year with the highest surplus as a as a percentage of GDP. What were the surplus and deficit percentages for these years?
- Table 1.1 shows the budget Summary of Receipts, Outlays, and Surpluses or Deficits (–) from 1789–2022. Identify whether the highest deficits incurred in the identified years from Table 1.2 were paid with tax revenues (receipts) or borrowed funds (outlays). Discuss how the government gets money and where the government spends money on.
- Click on the “Fiscal Year 2018” link, scroll down and obtain the PDF file for “Major Savings and Reforms” to complete the last requirement. The Major Savings and Reforms volume describes major savings and reform proposals included in the 2018 President’s Budget.
- Discuss major discretionary budget eliminations. Why is it important that government budgets accurately estimate future revenues during economic downturns?
Your initial post must be a minimum of 200 words
Guided Response: Review several of your peer’s posts. In each response post of at least 100 words, respond to at least two of your peers’ posts in a substantive manner. Provide information that they may have missed or may not have considered about the 2018 President’s Budget. Do you agree with your peers’ findings? Why or why not?
Post by classmate 1
Determine how many times since 1950 the budget has shown a surplus and how many times it has shown a deficit using the data in the Total column, “Surplus or Deficit.” Also, identify the 3 years with the highest deficits, and the year with the highest surplus as a as a percentage of GDP. What were the surplus and deficit percentages for these years?
Since 1950, the budget has shown a surplus 9 times and I calculated a deficit 65 times. The 3 years with the highest deficits were: 2009 (-9.8), 2010 (-8.7), 2011 (-8.5) which completely make sense since that is when the Great Recession from 2007-2009 hit us and turned the economy upside down. The year with the highest surplus in GPD was in 2000 which was 2.3.
Identify whether the highest deficits incurred in the identified years from Table 1.2 were paid with tax revenues (receipts) or borrowed funds (outlays). Discuss how the government gets money and where the government spends money on.
The highest deficit years 2009-2011 were paid for with borrowed funds. The government gets money from taxes and spends on everything from social security benefits to maintaining our armed forces.
Discuss major discretionary budget eliminations. Why is it important that government budgets accurately estimate future revenues during economic downturns?
Discretionary budget eliminations are usually made to different programs and services such as education, health and human services and housing for low income citizens. It is important for the government to budget accurately future revenues during economic downturns because if the economy drops and people lose jobs and start holding onto money, it will cause and effect the economy. If we are prepared, it could be less of an impact than if unprepared.
Post by classmate 2
Surplus and deficit Percentages
Since 1950, there were 65 deficits. the 3 years with the highest deficits are 2009,2010, and 2011. I took an Economics class that referenced the market crash of those years. The year that had the highest surplus since 1950 was the year 2000.
Identify whether the highest deficits incurred in the identified years from Table 1.2 were paid with tax revenues (receipts) or borrowed funds (outlays).
The government used borrowed funds called outlays to pay the highest deficits for those years. The government spends a lot of money on Social Security. The government gets the majority of its money from taxes.
The discretionary budget aid the President and Congress in deciding what to use the money for in the upcoming year. “Discretionary spending, which is provided in the 12 appropriation acts, now makes up only about one-third of all federal expenditures” (United States Committee on Appropriations). Eliminations are necessary to determine what is important and appropriate fund. Elimination is also important because some programs and grants are duplicates and redundant. During economic downturns, budgeting is important for the government to avoid a recession. The government tries to maneuver as best it can to avoid a tragedy in the economy.
U.S. Government Publishing Office. (n.d.). Budget of the United States Government (Links to an external site.). Retrieved from https://www.gpo.gov/fdsys/browse/collectionGPO.action?collectionCode=BUDGETLinks to an external site.
United States Senate Committee on Appropriations. (n.d.). Budget process (Links to an external site.). Retrieved from https://www.appropriations.senate.gov/about/budget-process
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