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P. Popesko, P. Novak, S. Papadaki,
D. Hrabec ISSN 1648 - 4460
Structural Transformations in Business Development
TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
42
Popesko, B., Novak, P., Papadaki, S., Hrabec, D. (2015), “Are the
Traditional Budgets still Prevalent: the Survey of the Czech Firms
Budgeting Practices”, Transformations in Business & Economics, Vol.
14, No 3C (36C), pp.42-59.
ARE THE TRADITIONAL BUDGETS STILL PREVALENT:
THE SURVEY OF THE CZECH FIRMS BUDGETING
PRACTICES
1
1
Boris Popesko
Tomas Bata University in Zlín
Nám T. G. Masaryka 5555
760 01 Zlín
Czech Republic
Tel.: +420 576 032 504
Fax: +420 576 032 121
E-mail: Popesko@fame.utb.cz
2
Petr Novak
Tomas Bata University in Zlín
Nám T. G. Masaryka 5555
760 01 Zlín
Czech Republic
E-mail: pnovak@fame.utb.cz
3
Sarka Papadaki
Tomas Bata University in Zlín
Nám T. G. Masaryka 5555
760 01 Zlín
Czech Republic
E-mail: papadaki@fame.utb.cz
4
Dusan Hrabec
Tomas Bata University in Zlín
Nám T. G. Masaryka 5555
760 01 Zlín
Czech Republic
E-mail: hrabec@fame.utb.cz
1
Boris Popesko, PhD, is Associate Professor of management
and economics at the Department of Business Administration,
Faculty Management and Economics. His major field of study
is management accounting and costing system research. He has
recently focused on applying costing systems within the
healthcare organizations. Currently, he focuses primarily on
cost management and budgeting.
2
Petr Novak, PhD, is Assistant Professor of management and
economics at the Department of Business Administration,
Faculty Management and Economics. His major field of study
is management accounting, costing system research and
research on enterprise economics. He has recently been
investigating costing system application within the healthcare
organizations. Nowadays, his main field of research is the cost
behaviour in terms of their variability in the manufacturing
firms.
3
Sarka Papadaki, PhD, is Assistant Professor of the
Department of Enterprise Economics of the Faculty of
Management and Economics. In her research, she focuses on
management accounting research and is engaged in an issue of
health care and costs control in health organizations.
1
Acknowledgement. This paper is one of the research outputs of the project GA 14-21654P/P403 “Variability of Cost
Groups and its Projections in the Costing System in Manufacturing Enterprises” registered at Czech Science Foundation.
---------TRANSFORMATIONS IN --------
BUSINESS & ECONOMICS
© Vilnius University, 2002-2015
© Brno University of Technology, 2002-2015
© University of Latvia, 2002-2015
P. Popesko, P. Novak, S. Papadaki,
D. Hrabec ISSN 1648 - 4460
Structural Transformations in Business Development
TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
43
4
Dus
an Hrabec
is an assistant at the Department of Statistics
and Quantitative Methods, Faculty of Management and
Economics. His major field of research is mathematical
(especially stochastic) optimization and statistics as well as
related applications in economics, logistics and marketing.
Received: October, 2015
1
st
Revision: November, 2015
2
nd
Revision: November, 2015
Accepted: December, 2015
ABSTRACT
.
Traditional budgeting and planning methods have
been widely used as one of the fundamental management
techniques across different types of organizations. In last two
decades, managers and academics observed the growing
dissatisfaction with these traditional budgeting concepts, which are
based on annual bases and control functions. Traditional
budgeting methods are very often criticized for the inflexibility and
strong focus on resource allocation. Criticism was focused as well
on the problems related with the use of tradition budgets as a tool of
management control. Many research studies points at the necessity
of adopting more sophisticated budgeting methods, which could
contribute to better performance management and control of
business organizations. Current trends lie in adopting flexible,
decentralized budgeting systems that are focused on the use of key
performance indicators (KPI). The paper presents the results of the
survey of Czech enterprise budgeting practices. The objective of the
study was to analyse the current budgeting practices of the Czech
firms and analyse the importance of the budgeting systems for
company management. The first part of the paper presents the
analysis of the trends in budgeting practices worldwide, which are
based on the shift from traditional budgeting methods and an
increasing use of alternative methods based on the performance
measurement. The main part of the study presents the results of the
questionnaire survey of the Czech enterprises' budgeting practices
performed by the authors with the focus on the approach to the
used budgeting system and its quality perception. The main
objective of the survey is to find if the Czech budgeting practices
are featured with similar discontent, which can be observed in
literature and some foreign studies.
KEYWORDS
:
budgeting, planning, managerial accounting,
performance management, Czech Republic.
JEL classification
:
M41, M19.
Introduction
Budgeting and planning are the fundaments of elementary management accounting
techniques as used globally by all types of organizations. Budgets have historically played a
central role in most systems of management control instigated by the organizations (Otley,
1994). Budgeting and planning are considered the fundamental features of management
accounting by many authors (Drury, 2000; Garrison et al., 2012; Kemp, Dunbar, 2003).
Budgeting is often connected with planning activities, which is defined as the design of a
desired future and effective ways of bringing it about (Ackoff, 1981). Alternatively, budgets
are considered detailed plans (Drury, 2000) or plans transformed into currency units (Král,
P. Popesko, P. Novak, S. Papadaki,
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TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
44
2010). Traditional budgets are usually based on annual periods presenting the metamorphosis
of a plan into currency units (Drury, 2000).
Organizations implement budgets for various reasons, and they play several important
roles. They help to allocate resources, coordinate operations and provide means for
performance measurement (Blocher et al., 2002). Hilton and Platt (2013) concur and claim
that a budget is the most widely used technique to facilitate planning and control. Another
important task that they perform is to contribute towards ensuring effectiveness and efficiency
in resource allocation (Barrett, Fraser, 1977). Pierce and O'Dea (1998) argue that budgets are
still relevant in today’s business environment. Finally, budgeting motivates and enables
managers to achieve both short-term and long-term operational and strategic goals (Jones,
1998) and can support managers to achieve more realistic and beneficial results (Blumentritt,
2006). Consequently, budgeting has been viewed in the past as an integral element of a
management control system (Nazli Nik Ahmad et al., 2003).Subsequently, traditional
budgeting acts in a controlling capacity, as it is aimed at setting annual budgetary targets, a
step which is followed by comparing real data with defined objectives.
Since the 1990s, it has been possible to observe the growing discontent with traditional
budgeting systems, which have become the object of frequent criticism. For instance, Hansen
et al. (2003) state that the act of budgeting leaves a lot to be desired. According to Lidia
(2014), budgets represent the most controversial managerial tool at present. Drury (2000), for
instance, explains the conflicting role of budgets, caused by utilizing the self-same budgeting
system for different purposes such as motivation and planning. Jensen (2001) considers
traditional budgeting to be “broken”. Gurton (1999) describes budgeting as “a thing of the
past”. Budgets are criticized for being time-consuming (Libby, Lindsay, 2010; Schmidt,
1992). A lot of guesswork is required in the budgeting process (Prendergast, 2000), which
takes up a lot of managerial time (Libby, Lindsay, 2010). Indeed, Neely et al. (2003) state that
the budgeting process actually consumes up to 20% of all the managerial time. Nazli Nik
Ahmad et al. (2003) argue that budgets do not take into account the aspects of customers and
quality and prove ineffective in a changing environment. Neely et al. (2003) report on 12
weaknesses of traditional budgets, as identified in the analysed studies. Similar limitations of
the traditional budgets and its linkage to the strategy in Easter European context had been
voiced by Boiko (2013).
Hansen et al. (2003) observe that the dissatisfaction expressed over budgeting is
leading to two different approaches to the issue: some firms wish to abandon budgeting
altogether, while others wish to improve it. Hope and Fraser (2003) present several studies of
European companies that had successfully abandoned traditional budgeting systems in favour
of performance measurement system based on performance indicators. Becker (2014)
presented a deep multiple case study of companies’ abandonment of budgeting in four
companies, which is conditioned by the skilful agency, by dominant insider. Nevertheless,
Eckholm and Wallin (2000) report that only 15% of the Finnish companies that they surveyed
indicated the intention to abandon traditional forms of budgeting, whereas 61% aimed to
improve the current budgeting system, and 24% reported they were not planning any changes
in the system that they use. Libby and Lindsay (2010) surveyed 346 Canadian and 212 U.S.
companies about their budgeting practices. They indicated that in total 79% of the surveyed
companies used budgets for controlling purposes. Of that number, 94% reported they were not
intending to abandon utilizing budgets for control in the near future, while 5% indicated they
P. Popesko, P. Novak, S. Papadaki,
D. Hrabec ISSN 1648 - 4460
Structural Transformations in Business Development
TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
45
were considering doing that, and only 1% stated it was a definite plan within the next two
years. The results were similar in both the Canadian and U.S. samples.
Henttu-Aho and Järvinen (2013) analysed few companies which abandoned the
traditional approaches to budgeting or dramatically simplified it. Despite the introduction of
new budgeting tools, the planning, control, and evaluation functions remained. Most of the
investigated firms differentiate between the target setting and forecasting.
Such criticism of traditional budgeting systems (Eckholm, Wallin, 2000; Hope, Fraser,
2003; Jensen, 2001; Schmidt, 1992; Luigi et al., 2014) had the effect of ushering in alternative
budgeting methods, such as Activity-Based Budgeting (ABB) (Drury, 2000) and Beyond
Budgeting (Hope, Fraser, 2003). ABB is an approach requiring that the given company would
use comprehension of its activities and driver relationships to estimate the workload and
resource requirements quantitatively (Dierks, Cokins, 2000). The Beyond Budgeting approach
proposes replacing rigid, annual, budget-based performance evaluations with those founded
on relative performance contracts with hindsight (Wangari, 2008).
Bunce et al. (1995) noted that the alternative to traditional budgets is not budgetary
improvement but an advanced management procedure. In summary, Stewart (1990) and
Arterian (1998) claimed that budgeting is “inefficient, ineffective and incomprehensive”.
Recently, academic research on budgeting has concentrated on participative budgeting
and reliance on budgetary targets for evaluating performance (Hartmann, 2000). Libby and
Lindsay (2010) stated in their research that such academic initiatives are disconnected from
any concerns raised by the practitioners. Libby and Lindsay (2010) as well wonder why many
organizations use traditional budgets for controlling purposes (i.e. managerial motivation and
performance evaluation) in situations, even though Hope and Fraser (2003) argue strongly
against such usage.
Despite the fact that the limitations of traditional and alternative budgeting systems
have been known for over a decade, many studies show that the majority of firms keep the
traditional methods. For instance, Nazli Nik Ahmad et al. (2003) confirmed that Malaysian
companies still use budgets for planning and controlling purposes. According to the study by
Wangari (2008), budgeting is a practice widely used in the manufacturing industry in Kenya
(93% of companies). Van and Järvinen (2015) claims that 94% of firms in Vietnam carry out
budgeting practices and compare their results with other developing nations.
Finally, literature provides great evidence on the restrictions of traditional budgeting
and presents various reasons why traditional practices are actually obsolete in the
contemporary business environment. Several alternatives have been proposed by the
academics and practitioners during the past two decades, e.g., Beyond Budgeting and
Activity-Based Budgeting, which are devised to replace traditional budgeting methodologies
and shift the control process over to a performance measurement system. However, robust
knowledge of the real situation in a business is scant. In other words, it is not possible to
explain the mechanisms or processes by giving rise to either satisfactory or unsatisfactory
consequences of the mentioned budgeting systems. Hence, the authors of this article saw an
opportunity to contribute to the discussion by studying commercial budgeting practices
through conducting an exploratory survey about the approaches favoured by the Czech firms.
This study presents the findings of the questionnaire-based survey that is undertaken
by the selected Czech manufacturers during the autumn and winter of 2014. The objective of
the authors was to analyse current trends in the budgeting practices of the companies and
verify if dissatisfaction was expressed with traditional budgeting techniques, as is excessively
discussed in the literature, and verify if this dissatisfaction pertains to contemporary budgeting
P. Popesko, P. Novak, S. Papadaki,
D. Hrabec ISSN 1648 - 4460
Structural Transformations in Business Development
TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
46
practices in the Czech Republic. The main aim of the study was to verify the perception of the
main limitations of traditional budgets discussed in the literature by the Czech companies. The
study involved a field survey of 177 medium and large Czech industrial companies excluding
trade and service organizations. The overall aim is to provide more knowledge on
organizational budgeting practices within the nation. The architecture of the research, inspired
by the study performed in North America by Libby and Lindsay (2010), allows the authors to
compare the findings of the Czech Republic and North America as well.
1. Methods
The data was gathered via a web-based questionnaire. Firstly, the information from the
ALBERTINA database was accessed in order to fix the sample of organizations to be
investigated as well as to obtain the contacts for representatives at said organizations. The
authors settled on a selection of medium and large sized companies from the industrial sector
excluding service and trade businesses in order to focus on those of sufficient size and with an
ample structure of activities, where budgeting and planning activities would definitely play an
important role. For inclusion in the sample, individuals had to be employed at a senior level of
financial management with job titles, such as Chief Financial Officer, Financial Director,
Economic Director, Head of Control Department, Director of Budgeting and Division
Manager. Such criteria were set to ensure that the contacted executives would possess
considerable experience in establishing and utilizing budgets.
Next, it was necessary to contact the selected persons from the database by telephone.
These were asked about their willingness or unwillingness to participate in the survey. If they
agreed, they were sent an email containing a link to the survey, which took approximately 30
minutes to complete.
1.1 Sample Statistics
The authors addressed 1,375 companies, out of which 618 agreed to be surveyed.
Finally, 177 completed questionnaires were received. Therefore, the total return rate for
questionnaires from all the participating companies was 12.9%.
Table1.Detailed statistics for respondents of the survey
Frequencies %
Number of respondents 177
Number of employees
100-500 142 80%
More than 500 30 17%
Sector
Manufacturing 81 45.7%
Automotive 12 6.8%
Construction 16 9%
Engineering 15 8.5%
Agriculture 15 8.5%
Other 38 21.5%
Annual Revenue
Less than 2m EUR 12 6.8%
2-10m EUR 46 26%
10-50m EUR 93 52.5%
Greater than 50m EUR 26 14.7%
Mean Annual Business Unit Revenue 1 098 927 724 CZK
Source: created by the authors.
P. Popesko, P. Novak, S. Papadaki,
D. Hrabec ISSN 1648 - 4460
Structural Transformations in Business Development
TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
47
The companies were divided in two groups according to the number of employees.
The first comprised of 142 companies between 100 and 500 employees. The other30 firms
possessed over 500 employees.
Table 1 shows that 45% of the companies were from the manufacturing sector and 9%
from construction. In addition, engineering and agricultural businesses accounted for 8.5%in
each. The average respondent possessed revenue in 2014 equals approximately to1 billion
CZK (37 million EUR). Four groups were created for the categorization purposes, according
to European Union income. They were as follows: (i) less than 2m EUR, (ii) 2-10m EUR, (iii)
10-50m EUR and (iv) greater than 50m EUR (Table 1). Most companies (52%) were
categorized as having revenue of 10-50m EUR, 26% with revenue of 2-10m EUR, 6.8% less
than 2m EUR, while 14.7% companies boasted revenue exceeding 50m EUR.
1.2 Research design
Research focused on the statements present in the literature criticizing traditional
budgets. Firstly, Tables 2 to 4 provide details on general approach of using budgeting for
controlling purposes. Based on the review of the literature, the authors expected a similar
approach by firms to those in other countries (Hansen et al., 2003; Hope, Fraser, 2003;
Eckeholm, Wallin, 2000), what regards the willingness or otherwise to abandon or modify the
traditional methods of budgeting.
Next, the research investigated the perceptions as to the value deemed for budgeting in
order to test if companies consider budgeting activities as adding any value, hence, if such
worth outweighs the necessary costs (Table 5). Afterwards, the study examined another often
mentioned limitation of traditional budgets, i.e., consumption of time (Hansen et al., 2003).
Then, the authors investigated how much time was actually consumed by preparing the annual
budget (Table 6).
The next section of questions (Table 6, section A) was based on the opinions of Hope
and Fraser (2003) on the unpredictability of a business environment. Herein, the investigation
was made as to how Czech firms undertake predicting the behaviour of their given business
environment and the manner of transference to the budgeting system. For this section, the
following null hypothesis was defined and tested:
H0: The budgets are not flexible in accordance with the changes in business
environment.
Subsequently, the links between budgets and corporate strategies (Table 6, section B)
were looked upon. This part reflects the criticism focused on the weak links of budgets to
such strategies (Kaplan, Norton, 2001; Hope, Fraser, 2003). Herein, the authors examined the
manner that Czech companies employ to reflect budgets in the mentioned strategies. For this
section, the following null hypothesis was defined and tested:
H0: Budgeting is not linked to the strategy.
Finally, an examination was conducted on links between the budgets and performance
targets (Table 6, section C). This section was based on the analysis by Hope and Fraser (2003)
on the negative practice of using budgets as a “fixed performance contract”. Herein, the
authors examined how Czech companies use their budgets for performance measurement. For
this section, the following null hypothesis was defined and tested:
P. Popesko, P. Novak, S. Papadaki,
D. Hrabec ISSN 1648 - 4460
Structural Transformations in Business Development
TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
48
H0: Budgets are used as the performance targets.
All the defined hypotheses were tested using one proportion test (Pan, 2002).
2. Result
Initially, the focus was placed on the general approach applied by the firms to their
budgeting systems. Based on review of the literature, an investigation was made on the
general approach of firms to current budgeting systems and their utilization for controlling
purposes. Table 2 presents the results for a question related to the usage of budgets for
control. As it can be seen, 88.7% of the firms used budgets traditionally for the controlling
purposes. This indicates the low level at which alternative approaches to budgeting were
applied, suggesting that relatively little dissatisfaction with traditional budgeting actually
existed.
Table 2. The usage of budgets for control (1
st
part)
Are the budgets used for control? Frequencies %
Yes 157 88.7%
No 20 11.3%
Total 177 100%
Source: created by the authors.
Table 3 shows the results relating to whether organizations planned to abandon using
budgets for control.
Table 3. The usage of budgets for control (2
nd
part)
Do you plan to abandon the usage of
budgets for control? Frequencies %
Yes 4 2.55%
No 149 94.90%
Possibly 4 2.55%
Total 157 100%
Source: created by the authors.
It has been noticed that 95% of respondents did not plan to cease using budgets for
controlling purposes, which again indicates either minimal dissatisfaction or a limited
perception of alternative methods.
The third question was asked about the intention to modify the budgeting system in the
following two years.
Table 4. The usage of budgets for control (3
rd
part)
Do you plan any changes in the
budgeting system? Frequencies %
Yes 53 29.9%
No 124 70.1%
Total 177 100%
Source: created by the authors.
P. Popesko, P. Novak, S. Papadaki,
D. Hrabec ISSN 1648 - 4460
Structural Transformations in Business Development
TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
49
It is visible that the number of organizations in the Czech Republic, which indicate the
intention to make any changes to the traditional way of budgeting, is comparatively high
compared to the previous two instances. Thirty percent of the organizations that said to
modify the budgeting system, which is a significant proportion, suggest some dissatisfaction
with the contemporary budgeting practices.
The most important reasons given for making such changes are similar to those
reported in other surveys of practices (e.g. Eckholm, Wallin, 2000; Neely et al., 2003; Libby,
Lindsay, 2010), as follows:
• the preparing of budgets is time consuming, and the benefit may not justify the cost;
• the lack of flexibility inherent in budgeting does not fit well with a constantly
changing environment;
• budgets can be manipulated and provide incentives for improper (i.e. self-interested)
behaviour on the part of managers;
• budgetary reporting is not meaningful to frontline employees;
• budgeting eliminates drive for constant improvement;
• budget is not aligned with the strategy.
Consequently, this section of the survey highlights that the traditional methods of
budgeting were to stay in place in the future with just a few firms planning to replace them
with alternative methods. Most of the firms declared that they would carry on by using
budgets as per tradition for controlling purposes. A high proportion as well veered towards
making modifications to the budgeting system but not completely abandoning it. Therefore,
the inference is that the businesses were not ready to discard the traditional annual budgeting
practices in general, but it does hint at the limitations.
Then, the research shifted the focus towards the perceived value of budgets. The
reported opinions of the surveyed companies concurred with the most literature sources, in
that the value added by budgets does not outweigh the cost and time consumed by preparing
and evaluating them. The authors asked respondents to evaluate the degree to which the
overall budgeting system was perceived in order to add value by assigning a grade between 0
and 100 to their budgeting system with the consideration being made as to the amount of time
spent on the budgeting process. Table 5 displays how the Czech companies compare time
spent on the budgeting system with the efficiency of the system. The results indicate the value
added by the budgeting system.
Table 5. Value added by budgeting system
On a scale from 0 to 100, evaluate what added
value is generated by the budgeting system in
your company Frequencies %
10 2 1.13%
40 2 1.13%
50 1 0.56%
60 4 2.26%
70 22 12.43%
80 61 34.46%
90 61 34.46%
100 15 8.47%
Total 177 100%
Source: created by the authors.
P. Popesko, P. Novak, S. Papadaki,
D. Hrabec ISSN 1648 - 4460
Structural Transformations in Business Development
TRANSFORMATIONS IN BUSINESS & ECONOMICS, Vol. 14, No 3C (36C), 2015
50
The results show that the budgeting is viewed as a respected tool for managerial
accounting, which in part does not supportany criticism of added value by the literature. Only
four enterprises reported a figure for added value that is less than 50, thereby, viewing
budgeting as a tool without any added value. About 77% of companies noted that budgeting
was beneficial and brought about significant added value.
Part 5 refers to the time that a Czech manager spends on preparing the annual budget.
This includes the time needed to create the initial budget, make changes, analyse budgetary
deviations and the duration of meetings and consultation sessions. The literature shows that
severe criticism of traditional budgeting exists due to the time spent on it by management.
Hansen et al. (2003) summarized several criticisms of the time required for the managers
and/or assumptions underlying the use of budgets as identified by the literature sources of
academics and practitioners. The key criticisms were:
• budgeting consumes a lot of managerial time, which makes it a costly process, and the
benefits may not justify the cost;
• budgets inhibit firms from adapting to changes in a timely manner due to their fixed
nature.
Table 6. Average time which manager spends in budgeting process (5
th
part)
What is the average time that the
budgeting process takes in your company?
Frequencies %
Less than 1 week 28 15.82%
1 – 2 weeks 60 33.90%
3 – 4 weeks 31 17.51%
5 – 8 weeks 29 16.38%
9 – 12 weeks 9 5.08%
13 – 16 weeks 2 1.13%
More than 16 weeks 5 2.82%
Not known 13 7.34%
Total 177 100%
Source: created by the authors
Budgeting is often referred to as a very long, exhausting process, which frequently
tires employees. Nevertheless, the results of this survey indicate that the situation is not that
misfortunate. Most responses stated that the process of budgeting did not take more than two
weeks, although it is necessary to bear in mind the spectrum of companies participating in the
survey, the majority are of medium size. Furthermore, the survey shows that the situation had
improved in recent years, probably due to advanced IT tools applied in the budgeting process.
The subsequent part of the survey analysed the opinions on budgets as frequently
found in the literature. Hope and Fraser (2003), for instance, assume that a new business
environment is characterized by unpredictability: prices and margins are constantly under
pressure, product life cycles are shorter, and customer tastes are fickle. They argue that
budgeting acts to the detriment of such an environment because, once set, budgets are not
typically changed, thereby, resulting in plans and targets which quickly become out of date.
The authors explored this matter by asking respondents to indicate their degree of
agreement with the statement “It is difficult to set the accurate budgets because of the
unpredictability of factors influencing the business.” Forty eight percent of respondents at
least ‘somewhat agreed’ with this statement, and 16% “agreed” or “strongly agreed” with it.
This result assumes that a firm does not consider it extremely hard to predict the behaviour of
P. Popesko, P. Novak, S. Papadaki,
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the business environment, which is somewhat at odds with the opinions presented in the
literature.
Table 7. Observed limitations of budgeting
Strongly
disagree
(1)
Disagree
(2) Somewhat
disagree (3) Somewhat
agree (4) Agree (5) Strongly
agree (6) Median Modus Std.dev.
Section A - flexibility of budgeting
It is difficult to establish the precise budgets due to the unpredictability of factors affecting business
2.82% 23.16% 25.42% 32.77% 11.30% 4.52% 3 4 1.171
The budget becomes outdated during the year
1.69% 20.34% 25.99% 29.38% 18.64% 3.95% 4 4 1.169
Outside the process of establishing the budget. it is difficult to get new resources to support the unpredictable
opportunities to achieve the strategic initiatives
3.39% 27.12% 37.85% 20.34% 7.91% 3.39% 3 3 1.103
There exists no quick approval processes to ensure the availability of funds for activities that were not
included in the approved budget and require a significant amount of financial resources
5.65% 32.77% 35.03% 16.95% 7.91% 1.69% 3 3 1.090
Section B - budgeting linked to the strategy
Budgeting process is linked to the strategic objectives of the company
2.26% 3.95% 4.52% 25.42% 48.59% 15.25% 5 5 1.070
Budgeting raises discussion about the strategy of our company
2.26% 6.78% 14.69% 29.38% 36.16% 10.73% 4 5 1.167
Our company sometimes change the strategy and tactics based on the feedback received during the budgeting
3.39% 16.38% 24.29% 40.11% 12.43% 3.39% 4 4 1.110
Managers expect to identify tactical suggestions from the budgeting process to help change from the current performance
to the desired level of performance
1.13% 10.73% 22.03% 44.07% 19.77% 2.26% 4 4 0.994
Section C - budgeting and performance of the managers
Manager's performance is evaluated by his superiors mostly on base of the achievement of the budgetary targets
2.82% 15.25% 14.69% 35.59% 24.29% 7.34% 4 4 1.235
Managers consider the achieving of budget as a reflection of business success
1.69% 9.04% 13.56% 40.11% 28.81% 6.78% 4 4 1.098
Support of the manager's job depends heavily on its ability to meet the budget
4.52% 13.56% 28.81% 32.77% 18.64% 1.69% 4 4 1.125
Top management considers that non-fulfilment of the budget reflects poor performance of the manager
3.95% 19.21% 34.46% 26.55% 12.99% 2.82% 3 3 1.129
Source: created by authors.
In following question, the authors asked the firms whether “Budgets quickly become
obsolete or outdated during the year”, 52% of respondents at least “somewhat agreed” with
this statement, and 23% “agreed” or “strongly agreed” with it. This result partly confirms
Hope and Fraser’s assumption about the unpredictability of business environment, which
cannot be generalized for the situation in Czech Republic.
P. Popesko, P. Novak, S. Papadaki,
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In the next question, the authors have examined whether the companies found it easy
to obtain new resources outside of the budgeting process to deal with the unforeseen
opportunities designed to accomplish the strategic initiatives. Just 31% of respondents at least
‘somewhat agreed’ with this statement, while just 11% “agreed” or “strongly agreed” with it.
It has yet to be confirmed if, indeed, such resources are readily available. As it can be seen,
companies in the Czech Republic did not report any dramatic problems with adjusting
budgetary demands during the fiscal year. This assumption was confirmed by the subsequent
question, which asked if they use “Fast-track” approval processes to ensure the availability of
resources on a timely basis for important initiatives not incorporated in the approved budget.
Twenty-six percent of the firms at least ‘somewhat agreed’ with this statement, and just 10%
“agreed” or “strongly agreed” with it.
In consequent part of the survey, the authors have investigated another frequently
mentioned limitation of the traditional budget, which is its weak link to the corporate strategy.
Kaplan and Norton (2001) observe that the majority of firms they have worked with fail to
link their budgeting systems to achieving strategic objectives. Hope and Fraser (2003) as well
share the view that budgets are typically prepared in isolation from and not aligned with the
strategy.
In order to investigate this issue in Czech conditions, the authors have asked the firms
whether “The budgeting system is linked to achieving the strategic goals.” Eighty-nine
percent of respondents in the sample indicated that they at least ‘somewhat agreed’ with this
statement, and 64% “agreed” or “strongly agreed” with it. This result conclusively disproves
the above mentioned opinions in the Czech conditions.
In the following part of the survey, the authors asked respondents to indicate their
degree of agreement with three statements defined by Kaplan and Norton (2001) related to the
level in which budgets are related to the firm’s strategy implementation. These statements
consisted of1. “Setting the budget causes us to talk about and reflect upon our strategy”; 2.
“We sometimes change our strategy/tactics based on the feedback derived from going through
the budgeting process”, and3. “Within the budget process, managers are expected to identify
tactical initiatives to close the gap between current performance and the desired level of
performance.” A positive answer (at least “somewhat agree”) was given to all three questions
by 76%, 56%, 66% with a median score of 4, i.e., “somewhat agree” in all three cases.
Another criticism of traditional budgeting concepts is related to the use of budgets as
fixed performance targets. Hope and Fraser (2003) wrote about the negative practice of using
budgets as a “fixed performance contract.” The problem with this practice is that if actual
performance meets or exceeds a pre-defined budgetary target, the performance is deemed
satisfactory (or better), and this will result in rewards. Hope and Fraser (2003) state that a
fixed target represents animproperstandard for evaluating performance when factors
influencing a budget may change during the period.
The first question in this part of the survey was whether “The performance of
managers is evaluated based on achieving budgetary targets”. To this, 67% of respondents at
least “somewhat agreed” with this statement, while just 31% “agreed” or “strongly agreed”
with it. This finding confirms what the related studies have already highlighted: frequent
utilization of budgets as performance targets. The next question investigated whether
“managers consider achieving budgetary targets as business success”. Seventy-six percent of
respondents at least “somewhat agreed” with this statement, while just 36 % “agreed” or
“strongly agreed” with it. This substantiates the connection between the budgets and business
objectives. The subsequent two questions sought to find out if “Support of the job of a
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manager is strongly dependent on their ability to meet budgetary targets”, and “Senior
management considers that non-fulfilment of the budget reflects the poor performance by a
manager”. In these two cases, 53%and 42%, respectively, of respondents at least “somewhat
agreed” with this statement, while 20%and 12%, respectively, of respondents “agreed” or
“strongly agreed”.
3. Testing the Hypotheses
In order to compare the obtained results with the results by Hope and Fraser (2003),
the following Table 8 presents an illustrative two-categorical (disagree-agree) evaluating of
average values from Section A (Table 7).
Table 8. Evaluation of the answers for hypothesis testing (Section A)
Frequencies
Anyhow disagree Anyhow agree
A1 91 86
A2 85 92
A3 121 56
A4 130 47
Average frequencies
A 106.75 70.25
%/100 0.603 0.397
Source: created by the authors.
Table 9.Testing hypotheses for single categorical variables (proportions p)
Null hypothesis Correspond-
ing result Alternative
hypothesis Result and its
proportion P-
value Conclusion
Section A:
The budgets are not
flexible in accordance
with the changes in
business environment Agree
Disagree
0.003
The null hypothesis is
rejected, and the
alternative hypothesis is
accepted
H0: p < 0.5 H1: p >= 0.5 p = 0.603
Section B:
Budgeting is not linked
to the strategy
Disagree
Agree
3E-09
The null hypothesis is
rejected, and the
alternative hypothesis is
accepted
H0: p < 0.5 H1: p >= 0.5 p = 0.719
Section C:
Budgets are used as the
performance targets
Agree
Agree
0.995 The null hypothesis is
not rejected
H0: p > 0.5 H1: p <= 0.5 p = 0.596
Source: created by the authors.
In other words, about 60% of the respondents claim that the budget is flexible, while
Hope and Fraser (2003) assume that the budget is not flexible. The authors of this article use
the p-value to see how significant is the result (for n=177). Usually, before the test is
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performed, a threshold value is chosen, which is called the significance level of the test, it is
traditionally 0.05 or 0.01. If the p-value is equal to or smaller than the significance level, it
suggests that the observed data are inconsistent with the assumption, that the null hypothesis
is true, and the hypothesis must be rejected (see, e.g., Pan, 2002). The authors further provide
a one-proportion statistical test for sections A,B and C, where, for Section A, the null
hypothesis corresponds to the claim that budget is not flexible, i.e., H0: p < 0.5 (most people
agree with the claim), while the alternative hypothesis is H1: p >= 0.5, where p denotes a
proportion of the given result.
As it can be seen, this research has failed to prove Hope and Fraserss (2003)
statements related to the inflexibility of the budgeting weak linkage of the budgets to the
strategy. However, the research has proved another Hope and Frasers’s (2003) statement
related to the low level of budget use as the performance targets. These results point at the fact
that some of the tendencies in budgeting practices that are observed worldwide are not that
strong in the Czech conditions.
Discussion and Conclusions
At present, the traditional budgeting and planning procedures are frequently criticised
over their limitations and inability to reflect contemporary business environments. These
trends are mostly caused by the lack of flexibility of traditional budgets and their incapacity to
serve as a relevant performance measurement system. Potentially, traditional annual budgets
could be, according to the evidence from the literature and actual practice, replaced by more
flexible systems that focus on gauging the performance of individual segments of the
business. Hope and Fraser (2003) stated that the budgets often impede firms from being
flexible and adaptive in an increasingly unpredictable commercial environment. They argued
that the utilization of traditional budgets for controlling purposes could give rise to a
“performance trap”, where greater pressure on achieving budgetary targets would not cause an
increase in performance.
The performed questionnaire-based survey indicates some contemporary trends in
budgeting practices in the Czech Republic. In summary, the results show that only a few firms
either do not use traditional budgets for control or plan to abandon it. Most firms in the
sample planned to improve their budgeting systems and not to move away from them. These
results could be compared with a similar study performed in the USA and Canada in 2009
(Libby, Lindsay, 2010). This research showed a lower level of use of budgets for controlling
purposes (78.9% vs. 89% in the Czech sample), which might be due to the lower application
of alternative performance management methods in the Czech environment.
However, while the rate of intention to abandon the use of budgets for control in the
North American and Czech surveys was comparable(5.9% for North America and 5% for the
Czech Republic), the intention to modify the current budgeting system was more prevalent in
North America (46.1%) than the Czech Republic (29.9%). Therefore, the assumption might be
that the satisfaction with traditional budgeting under Czech commercial conditions is higher
due to a lesser perception of the limitations of traditional budgets. This is as well borne out by
identifying the levels of satisfaction with current budgeting systems with Czech firms
showing a slightly higher grade of satisfaction than their North American counterparts. The
authors observed mildly more satisfaction with budgeting in the Czech sample (median 75)
than the US and Canadian sample (median 70).
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While investigating the time needed for preparing budgets, an observation was made
of the lesser time reported in the Czech sample (median value 3-4 weeks) than the North
American (median 6 weeks for Canada and 10 weeks for the U.S.A). There might be two
explanations for this: firstly, there is an indication of shorter periods necessary for preparing
budgets through utilizing more sophisticated automated IT systems; secondly, the Czech
companies are generally integrated into multinational supplier systems and operate in a
slightly more stable commercial environment.
While examining the most common limitations of traditional budgeting, respondents
did not indicate any significant issues with the flexibility of budgeting. This again accentuates
a higher level of stability in the Czech business environment, which is potentially caused by
the different structure of clients served by the Czech firms, which are much more incorporated
in the chain of suppliers of foreign manufacturers, hence, not interfacing with the retail
market.
Similar to the study by Libby and Lindsay (2010), the authors observed the existence
of a strong connection between the budget and corporate strategy, which is not confirmed by
the findings in the literature. Moreover, there were reports of the frequent use of budgets as
performance targets, a practice often criticized in the literature. This suggests that there is
little awareness of the limitations linked with the traditional budgeting practices as well as
limited knowledge about alternative methods for performance measurement.
In conclusion, this study shows that the global trends in budgeting practices, which are
present in the literature and have been confirmed by research projects conducted worldwide
(Libby, Lindsay, 2010), are not generally followed by the Czech firms. Although some of the
trends were actually indicated, e.g., the intention to modify current budgeting systems, and
strong connections between budgeting, strategy and performance; some trends were
completely overlooked, e.g., issues regarding the flexibility of budgeting and the time spent
on the activity of preparing budgets.
The study results are naturally limited by the quality of the data gathered through the
questionnaire. Answers in the questionnaire are mostly based on the personal opinions of the
surveyed persons, which in addition did not have to be sufficiently experienced and educated
to consider objectively the actual situation inside the organization. However, the similarity of
research tasks with similar foreign studies allows accepting these results as appropriate and
relevant.
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AR TRADICINIAI BIUDŽETAI VIS DAR DOMINUOJA: ČEKIJOS FIRMŲ BIUDŽETO SUDARYMO
PRAKTIKOS TYRIMAS
BorisPopesko, PetrNovák, ŠárkaPapadaki, Dušan Hrabec
SANTRAUKA
Tradiciniai biudžeto sudarymo ir planavimo metodai yra dažnai naudojami kaip vienas iš pagrindinių
valdymo metodų įvairios srities organizacijose. Per pastaruosius du dešimtmečius vadovai ir akademikai
pastebėjo augantį nepasitenkinimą šiomis tradicinėmis biudžeto sudarymo koncepcijomis, kurios yra pagrįstos
metinėmis bazėmis ir ribojančiomis funkcijomis. Tradiciniai biudžeto sudarymo metodai dažniausiai yra
kritikuojami dėl nelankstumo ir susitelkimo ties išteklių paskirstymu. Kritika taip pat buvo nukreipta į
problemas, susijusias su tradiciniu biudžetu, kuris yra naudojamas kaip valdymo kontrolės įrankis. Daugelis
tyrimų pabrėžia būtinybę priimti sudėtingesnius biudžeto sudarymo metodus, kurie galėtų pagerinti verslo
organizacijos valdymą ir kontrolę.Pagal dabartinestendencijas siūloma priimti lanksčią, decentralizuotą biudžeto
sudarymo sistemą, sutelktą ties pagrindinių veiklos rodiklių naudojimu.
Straipsnyje pristatomi rezultatai yra gauti, atlikus Čekijos įmonių biudžetosudarymo praktikos tyrimą.
Tyrimo tikslas – išanalizuoti dabartinę biudžeto sudarymo praktiką Čekijos įmonėse ir ištirti biudžeto sudarymo
sistemų svarbą įmonės valdymui. Pirmojoje straipsnio dalyje pateikiamos pasaulinės biudžeto sudarymo
praktikos tendencijos, kurios pasižymi atitolimu nuo tradicinių biudžeto sudarymo metodų irdidėjančiu
alternatyvių metodų naudojimu, kuris yra pagrįstas veiklos vertinimu. Pagrindinėje tyrimo dalyje pristatomi
Čekijos įmonių biudžeto sudarymo praktikos anketinės apklausosrezultatai, kurią atliko straipsnio
autoriai,atkreipiant dėmesį į požiūrį apie naudotą biudžeto sudarymo praktiką ir jos kokybės suvokimą.
Pagrindinis tyrimo siekinys – sužinoti ar egzistuoja panašus nepasitenkinimas Čekijos biudžeto sudarymo
praktika, kuris buvo paminėtas literatūroje ir užsienio tyrimuose.
REIKŠMINIAI ŽODŽIAI: biudžeto sudarymas, planavimas, valdymo apskaita,veiklos valdymas, Čekija.
