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Question 1

What is traditional (incremental) budgeting

Answer 1

Starts with previous year‘s budgets and adds or subtracts amounts depending on output or other factors

Reproduces past inefficiencies

More attention to expenditures than to their purpose

Authorisation of levels of spending

Question 2

What are the drawbacks of traditional budgeting

Answer 2

Time-consuming and costly

Lacks strategic focus

Doesn’t add value

Inflexible

Focus on cost reduction not value creation

Strengthens vertical command and control

Deters change

Question 3

What is activity based budgeting

Answer 3

Starts with authorised activities and budgets are only prepared if they’re justified by resources needed to supply those activities

Identifies drivers

Extends conventional budgeting to support activities

Recognises interdependencies

Question 4

What is the process of activity based budgeting

Answer 4

Estimate sales and production volume

Estimate demand for activities

Determine resources required

Adjust capacity

Question 5

What is the process of zero-based budgeting

Answer 5

Choose programmes

Identify activities necessary to achieve programmes

Identify resources needed to undertake activities

Question 6

What is traditional budgeting more or less defined as

Answer 6

Annual, top-down, incremental budgeting process

Question 7

What is it claimed that organisations gain when using activity based budgeting

Answer 7

Thorough understanding of their business process and cost behaviour which can be used to improve decision-making

Question 8

What is the claimed advantage that zero-based budgeting has

Answer 8

Moving to allocation of resources by need or benefits and may be strategically focused. 

Question 9

What do advocates and critics think of activity based and zero based budgeting

Answer 9

Advocates see them as having some advantages over traditional methods but some critics say they need to go further because they may rely on annual processes and still have many of reported drawbacks of traditional budgeting including being more costly and time-consuming

Question 10

What is beyond budgeting

Answer 10

Idea that companies need to move beyond budgeting because of inherent flaws in budgeting

Question 11

What range of techniques are argued that could take place of traditional budgeting

Answer 11

Rolling forecasts and market related targets

Question 12

What is rolling budgeting (rolling forecasts)

Answer 12

Annual budget is broken down by quarters, first quarter is broken down by months

During each quarter, previous quarter is reviewed, re-forecasts are produced for next 4 quarters, monthly budgets are prepared for quarter to come

Question 13

What are the advantages of rolling budgeting

Answer 13

At any moment, 12 month forecast are available, planning becomes continuous

Question 14

What are the disadvantages of rolling budgeting

Answer 14

How to measure performance, more time consuming and can create uncertainty

Question 15

What range of tools and techniques does beyond budgeting use as a replacement for traditional budgeting process

Answer 15

Balance scorecard

Shareholder value models

Question 16

What do the targets which replace budgets must be aligned with

Answer 16

Rewards and incentives

Question 17

What is beyond budgeting reawards team success based on

Answer 17

Relative performance, not fixed annual targets

Question 18

What are reported benefits

Answer 18

The best performers are recognised and rewarded, not just skilled budget negotiators

Question 19

What are the advantages of beyond budgeting

Answer 19

It’s a more adaptive process than traditional budgeting

It’s a decentralised process, unlike traditional budgeting where leaders plan and control organisations centrally

Claimed more suitable to fast moving modern environment

Question 20

What do advocates of beyond budgeting mean when using the term budget

Answer 20

Entire performance management process

Question 21

What are the disadvantages of beyond budgeting

Answer 21

Without a budget, there’s no overall framework of control which allows companies to plan, coordinate and control their activities

There’s a lack of roadmap which details where a business is and where it wants to go

Budgets may be very deeply ingrained in an organisations fabric and operating culture

Question 22

What are the advantages of computerised budgeting

Answer 22

Spreadsheets can be used to automate some budgeting calculations

Businesses can also use them to find out what happens if parameters change (scenario analysis)

Question 23

What are the disadvantages of computerised budgeting

Answer 23

Spreadsheets take time and effort and are error prone

Data isn’t transferred automatically to or from accounting systems

They may use convoluted or opaque so users don’t trust output

Categories used by budget holder don’t always correspond exactly with chart of accounts

Question 24

What do many large and some small businesses use computerised systems for

Answer 24

To do same thing as spreadsheets and systems are integrated with accounting system used by business. These systems produce control reports