Advantages And Disadvantages Of Traditional Budgeting

The first issue of traditional budgeting is the preparation process of traditional budgeting is complicated. In order to prepare the budget by using traditional budget, the top management need to collect the data from each of the department, and the data collected should be at least few month times, in order to develop a appropriate budget for each of the department. For some of the company, the data collection process will take at least 4 to 5 month times, or even longer time. Before the budget was approved by top management, the typical budget are required to be alliterated for at least 4 to 5 times, this will increased the time taken for preparation process.

Beside this, the traditional budget has consumed too much of company’s resources. The level of details needed is too great, every department are required to record their monthly expenditure, and pass to the top

For traditional budget, the budget has focused on the performance of the company, which is profit goal, rather than the operation of the company. Since the company was just focused on the profit goal, but not the operation of the company, in order to achieved the goal of company, the employee will try their best to achieved the goals, no matter using what action. Due to this reason, sometimes accounting distortion might be occurred, which the management will try to modify the accounting reports, so that the figure of profit is look preferable. The company is always looking for a higher figure of profit, once the goal of budget is achieved in this year, the profit goal of next year will be set at a higher figure. To avoid higher profit goal for continuous years, the employee will try to minimize the profit of the company, because if the budgeted profit goal was not achieved in this year, the budgeted profit goal for next year will be set at a appropriate figure. So that the employees will not feels stress to achieve the