Budgeting is a cornerstone of financial management and control within organisations. It involves creating a detailed financial plan to guide operations, allocate resources, and monitor performance over a defined period. While traditional budgeting focuses on estimating revenues, costs, and cash flows annually, modern approaches such as rolling forecasts and beyond budgeting have emerged to address the limitations of rigid frameworks in dynamic business environments (Golyagina & Valuckas, 2012).
This article explores traditional and modern budgeting techniques, their advantages and drawbacks, and the evolving role of budgeting in organisational strategy.
1.0 Traditional Budgeting
Traditional budgeting has been the dominant approach in organisations for decades. It typically involves preparing annual budgets that serve as a benchmark for financial control and performance evaluation. According to Drury (2018), traditional budgeting provides stability by setting targets for revenue, expenditure, and cash flow.
However, traditional budgeting has also been criticised for being time-consuming, inflexible, and prone to gaming. Hansen, Otley, and Van der Stede (2003) argue that static budgets may encourage short-termism, as managers focus on meeting annual targets rather than pursuing long-term strategic goals.
For example, in the public sector, incremental budgeting—where last year’s figures form the basis of the current year’s budget—often leads to inefficiencies as departments seek to “use up” budgets to secure future allocations (Rickards, 2006).
2.0 Flexible Budgeting
Flexible budgeting adjusts financial plans according to changes in activity levels or external conditions. Unlike static budgets, flexible budgets provide organisations with a tool for variance analysis and more accurate performance evaluation.
Retailers such as Tesco have embraced flexible budgeting to adapt operations to volatile demand. During the COVID-19 pandemic, Tesco shifted resources to support online sales and supply chain disruptions, demonstrating how flexible budgets enable agility in uncertain environments (Celestin, 2017).
3.0 Rolling Forecasts
Rolling forecasts are a dynamic alternative to annual budgeting. They involve continuously updating financial forecasts (e.g., quarterly) to extend planning horizons. According to Henttu-Aho (2018), rolling forecasts help organisations become proactive rather than reactive, enabling decision-makers to anticipate market shifts.
Research by Lorain (2010) shows that rolling forecasts are especially valuable in uncertain environments, such as the technology and airline industries, where demand and costs fluctuate significantly. For example, Ryanair employs rolling forecasts to adjust ticket pricing and fuel cost projections in response to fluctuating oil prices.
4.0 Beyond Budgeting
The beyond budgeting movement, pioneered by Hope and Fraser (2003), challenges the relevance of traditional budgets altogether. Beyond budgeting advocates argue that organisations should replace budgets with decentralised decision-making, adaptive planning, and performance management systems.
Bogsnes (2016) illustrates the successful adoption of beyond budgeting at Statoil (now Equinor), where the company abandoned fixed budgets in favour of rolling forecasts and relative performance benchmarks. This shift allowed managers to respond more effectively to changes in oil markets, fostering a culture of accountability and adaptability.
Nonetheless, critics such as Rickards (2006) question whether beyond budgeting is feasible for all organisations, particularly smaller firms lacking advanced systems and data analytics capabilities.
5.0 Hybrid Approaches
Recognising that no single method is perfect, many organisations adopt hybrid approaches that combine elements of traditional, flexible, and rolling budgets. For instance, Msiza, Obokoh, and Benedict (2022) highlight the use of rolling forecasts within beyond budgeting frameworks in public schools to improve resource allocation and accountability.
Similarly, Liyanage and Gooneratne (2021) describe the concept of better budgeting, which seeks to improve existing systems through zero-based budgeting (ZBB), activity-based budgeting (ABB), and benchmarking.
6.0 Advantages and Limitations of Budgeting Approaches
| Approach | Advantages | Limitations |
| Traditional Budgeting | Stability, accountability, clear financial targets | Inflexibility, time-consuming, encourages short-term focus |
| Flexible Budgeting | Adaptability to changes, better variance analysis | Requires frequent monitoring and data availability |
| Rolling Forecasts | Continuous planning, long-term focus, agility | Resource-intensive, may overwhelm smaller organisations |
| Beyond Budgeting | Decentralisation, adaptability, promotes innovation | Difficult to implement, cultural resistance, high system cost |
| Hybrid Approaches | Balances stability and flexibility, tailored to organisation | Complexity in integration, requires advanced systems |
7.0 Budgeting in Practice: Industry Examples
- Retail Industry: Tesco’s flexible budgeting demonstrates how retailers manage fluctuating demand patterns.
- Energy Sector: Equinor’s adoption of beyond budgeting showcases adaptability in volatile oil markets (Bogsnes, 2016).
- Airlines: Ryanair uses rolling forecasts for dynamic pricing and fuel cost management.
- Public Sector: Incremental budgeting remains widespread, though rolling forecasts are increasingly used to improve efficiency (Msiza et al., 2022).
- Technology Firms: Companies like Google adopt rolling forecasts integrated with advanced analytics for long-term planning.
These examples underscore how context matters when selecting budgeting methods, with factors such as industry volatility, organisational size, and digital capabilities shaping adoption.
8.0 Future of Budgeting
The future of budgeting is likely to be shaped by digital transformation and sustainability goals. Advances in artificial intelligence, big data, and predictive analytics are already being integrated into budgeting processes (Ayvaz, Kaplan & Kuncan, 2020).
Furthermore, sustainability reporting is influencing budgeting practices. Organisations are increasingly incorporating Environmental, Social, and Governance (ESG) metrics into budgets to align financial planning with broader corporate responsibility goals (Daniel et al., 2014).
Budgeting remains an indispensable tool for organisational planning and control, but its forms are evolving. Traditional budgeting provides stability and accountability but lacks flexibility in turbulent environments. Flexible budgets and rolling forecasts offer adaptability and continuous planning, while the beyond budgeting movement challenges conventional approaches by promoting decentralisation and real-time adaptability.
Companies such as Tesco and Equinor illustrate how flexible and beyond budgeting models enable resilience during crises, while public and private organisations alike are exploring hybrid approaches tailored to their contexts. As businesses confront greater uncertainty, digitalisation, and sustainability challenges, budgeting will continue to evolve, balancing stability with adaptability to ensure long-term success.
References
Ayvaz, E., Kaplan, K. & Kuncan, M. (2020). An integrated LSTM neural networks approach to sustainable balanced scorecard-based early warning system. IEEE Access, 8, pp.122–138.
Bogsnes, B. (2016). Implementing Beyond Budgeting: Unlocking the Performance Potential. New Jersey: Wiley.
Celestin, M. (2017). The effectiveness of beyond budgeting models: Can businesses abandon traditional budgeting? Brainae Journal of Business, Sciences and Technology. [Available at: https://www.researchgate.net/publication/389920083]
Daniel, C.V., Réka, C.I. & Ştefan, P. (2014). Traditional budgeting versus beyond budgeting: A literature review. Annals of the University of Oradea.
Drury, C. (2018). Management and Cost Accounting. 10th ed. Andover: Cengage Learning.
Golyagina, A. & Valuckas, D. (2012). Reviewing literature on rolling forecasts, benchmarking and customer profitability. NHH Working Papers.
Hansen, S.C., Otley, D. & Van der Stede, W. (2003). Practice developments in budgeting: An overview and research perspective. Journal of Management Accounting Research, 15(1), pp.95–116.
Henttu-Aho, T. (2018). The role of rolling forecasting in budgetary control systems. Journal of Management Control, 29(3), pp.187–214.
Lorain, M.A. (2010). Should rolling forecasts replace budgets in uncertain environments? Performance Measurement and Management Control, 20(10), pp.89–104.
Liyanage, T. & Gooneratne, T. (2021). From traditional budgeting to better budgeting. Management Accounting Frontiers, 4(1), pp.45–62.
Msiza, N., Obokoh, O. & Benedict, O. (2022). Role of beyond budgeting and rolling forecast to improve management in public schools. Journal of Finance and Accounting Research.
Rickards, R.C. (2006). Beyond budgeting: boon or boondoggle? Investment Management and Financial Innovations, 3(2), pp.78–89.
