Changing a Budgetary System

NotesPaper examCBE

It has been argued that traditional budgets are too rigid and prevent fast response to changing conditions.

However, an organisation which decides to change its type of budget used, or budgetary system, will face a number of difficulties. A change in the system must be carefully planned and implemented.

Changing a budgetary system

  • Resistance by employees. Employees will be familiar with the current system and may have built in slack so will not easily accept new targets. New control systems that threaten to alter existing power relationships may be thwarted by those affected.

  • Loss of control. Senior management may take time to adapt to the new system and understand the implications of results.

  • Training. In order for the new budget to operate effectively, everyone within the organisation will need to be fully trained. This is time-consuming and expensive.

  • Costs of implementation. Any new system or process requires careful implementation which will have cost implications.

  • Lack of accounting information. The organisation may not have the systems in place to obtain and analyse the necessary information.

NotesPaper examCBE