Contingency Criticism Of Budgetary Control

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BUDGETING – A NECESSARY EVIL: AN ANALYSIS OF BUDGETARY CONTROL USING DIFFERENT THEORETICAL PERSPECTIVES Despite being ubiquitous, the traditional budgetary control process and its end product (budgets) have been widely criticised in extant management control literature. Prior to the 1990’s concerns about budgeting were raised by academics and the concerns were mostly about ways of improving budgetary systems- Better budgeting (Argyris 1952). Now the criticisms are led by management consultants with an interest to persuade companies to change their management models by moving beyond the budgets (Hope & Fraser 1999, Wallender 1999). The criticisms of budgetary control system, which include: wasting of managements’ time, encouraging dysfunctional…show more content…
This perspective is based contingency theory which emphasises that there is no one best way to undertake an activity. The optimal course of action in any given situation is instead contingent (dependent) on existing factors. This perspective therefore contends that management control should match the circumstances in which it operates. Budgeting and budgets have been criticised to have failed in this regard. The contingency criticism against budgeting started in 1970’s when Agyris argued that new developments in organisations required a new form of budget variance analysis. Hope and Fraser (1991, 2003) have taken the argument to further. They claim that budgeting should be abolished on the premise that it incapable of meeting the demand of the current competitive environment in which organisations operate. Their claim is based on the assertion that the traditional budgetary system is based on a top-down command structure of controllability which was only appropriate for business in the 1970s where volume, scale and cost were stressed. Firms now operate in a competitive environment where innovation, quality and customer service are the defining factors. Front managers are therefore expected to be constantly creating and responding to new opportunities for business. However, they are restricted to react to changing circumstances because they normally have to wait for a fiscal year before plans are reconciled to the…show more content…
Budgetary control system is criticised to encourage dysfunctional behaviour under management control perspective. Under contingency perspective, it is criticised to be inappropriate to meet the demands of the current competitive environment. It is also criticised to cost too much of managements’ time and incapable of identifying the root of problems under cybernetic perspective. Similarly, managers are criticised to have been indoctrinated with the principles of budgeting under the organisational behaviour perspective. Most of these criticisms are constructed under the assumption that budgetary control system is strictly still based the principles of controllability and functionality. Budgetary control system has evolved from being at the centre of management control system to being part of a wider control system. Organisations now do not reward and penalise people only based on their ability to meet budgetary targets but also consider other external events. Most organisations now encourage team working with members being selected for several departments. Regardless of the perspective used, it can be seen that the traditional budgetary control process is problematic, however the current system when budgetary control systems are used in a wider management control system caters for most of the criticisms. The call for budgets to be totally abandoned is

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