The Rise of Flexible Budget

       

                Global financial crisis that happened during 2009 is not showing the sign of slowing down. According to the research done by Roland Berger and the International Controllers Association (ICV), uncertainties about the economic situation have increased over the course of the year. This means that it will be very difficult to predict the state of the economy in the future. Economic uncertainties caused difficulties for any company to set clear goals that sustain their financial plan. As a result of this, it has become the duty and responsibility of any company to wisely choose the most effective budgeting system that would solve problems brought about by economic uncertainties. It is clear that companies need a more flexible budgeting form that would respond to the increasing rates of not only market volatility, but also other factors such as technological advancement, and competition. In this case, the traditional ‘command and control' arrangements in the process of planning and budgeting have been considered to be less useful since there is an increase in level of uncertainty occurred in economic field.

According to Oliver Knapp, a partner at Roland Berger Strategy Consultants, the trend of 2013 would be focusing on the company’s growth. Companies are planning with considerable caution to anticipate the uncertainties that they are facing. One of their main focus is to optimize cost efficiency. Budgeting in this sense has become an even more essential  part for them. Unfortunately in such volatile situation, companies are having difficulties in meeting the target expressed in the budget that they have prepared. Therefore in this unpredictable situation a continuous budgeting is more significant. 

Although other type of budgeting can be applied under economic uncertainties, there is a study that proved flexible budgeting is more useful. As we know, it was designed to change in accordance to the actual level of activities that happened during a particular period of time. Flexible budget is useful to ensure that managers are committed to the achievement of organizational financial goals and objectives and also at the same time allows manager to evaluate cost efficiency. Another advantage of implementing flexible budget is it allows manager to compare the actual cost incurred to what the cost should have been for the actual level of activity during the period rather than to a static budget plan. This will project a more accurate and realistic comparison.

Source :

Garrison R.H, Brewer P.C., Noreen E.W., Cheng N.S., Yuen K.C.K. (2012). Managerial Accounting: An Asian Perspective. New York: McGrawHill

Ken (2011), “ Economic uncertainty requires more flexible budgeting systems”. Retrieved from : http://www.articlesbase.com/currency-trading-articles/economic-uncertainty-requires-more-flexible-budgeting-systems-4983828.html

Roland Berger ( 2012). Uncertainty in Economy. Retrieved from : http://www.rolandberger.com/media/press_releases/512-press_archive2012_sc_content/Economic_uncertainty_makes_planning_difficult.html