A Theoretical Analysis of the Impact of Adopting Rolling Budgets, Activity-Based Budgeting and Beyond Budgeting

Abstract

Budgeting accomplishes many goals in an organization and evaluating the potential impact of a change is difficult. I investigate the organization-wide effects of three distinct budgeting alternatives (rolling budgets, activity-based budgeting and beyond budgeting) using a model that incorporates three important budgeting functions: forecasting, operational planning and performance evaluation. From the perspective of the whole organization, each budgeting alternative improves profits. I then examine the department preferences for each alternative when each function is under the control of a different department and each department has its own, department-specific performance metric. Forecasting is judged on the variance of the base demand forecast, operational planning on the expected unit capacity costs and performance evaluation on the salesperson's expected action. In my model all departments always favor rolling forecasts, while only one department always favors beyond budgeting (or activity-based budgeting). For beyond budgeting and activity-based budgeting, the preferences of the two other departments vary depending upon the model parameters.

When Organisations Deinstitutionalise Control Practices: A Multiple-Case Study of Budget Abandonment

“…With its emphasis on the change process and the role of culture, this study not only informs practitioners interested in better understanding the abandonment of budgets, but also contributes to the literature on BB (even though only one organisation has implemented the concept), which so far has focused mainly on accounting controls (Ekholm & Wallin, 2000;Libby & Lindsay, 2010;Hansen, 2011). Recent studies have focused on the implementation of changes to budgeting such as rolling forecasts (Henttu-Aho & Järvinen, 2013), or the rules of action that emerge when budgets are replaced by new control systems at the corporate level (Østergren & Stensaker, 2011).…”

“…During the following years, a large number of reports on BB were published, but this apparent interest from practitioner journals has not been echoed by much academic interest (Hansen et al, 2003). Most exceptions include studies concerned with the extent of the concept's diffusion (Ekholm & Wallin, 2000;DeWith & Dijkman, 2008;Libby & Lindsay, 2010), or the analysis of different budgeting techniques and their comparison to selected accounting control practices suggested within BB (Hansen et al, 2003;Hansen, 2011). Finally, a case study of an organisation that implements BB identifies the rules of action developed in the absence of budgets and examines how this influences interaction patterns inside the organisation (Østergren & Stensaker, 2011).…”

In Search of a Theory of Budgeting: A Literature Review

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Integration of Ethical Values into Activity-Based Budgeting

“…It enhances the sophistication of the operational planning system (Hansen, 2011) that is needed in budgeting for managers who aim to establish "how" to achieve "qualitative" objectives.…”