Is the annual budget really dead?

Abstract

In recent years the traditional, annual budget has been accused of being incapable of meeting the demands of the competitive environment in the information age. Seeing that some of the most ardent critics are management consultants, with a vested interest in trying to persuade companies to change their management models, part of the criticism may perhaps be classified as hyperbole. Be this as it may, the criticism has resulted in more than just talk. Some real action can also be observed –; especially in Sweden, where several large companies have abandoned the traditional budget altogether. To date, academic researchers have shown very little interest in this phenomenon. The present study aims to investigate the validity of the criticism as perceived by chief financial officers and other high-ranking officers in large Finnish companies. The results of a postal survey indicate that relatively few companies are planning to abandon the annual budget completely. Even so, a considerable number of respondents who represent companies that intend to hold on to the annual budget indicate strong agreement with the main elements of the criticism. Comments made by several respondents also indicate that alternative, or rather, complementary, systems, such as rolling forecasts and monitoring systems similar to the Balanced Scorecard already exist, running parallel with the annual budget. Apparently, the latter still has a role to play as a means of maintaining internal effectiveness and communicating information to shareholders and other interested parties.