According to the economic uncertainty condition, many organisations are confronted with the dilemma of whether should attempt to grow their business or increase productivity, although running with tighter restraints and smaller budgets than years past. Hence, a good budget is covering most company activities that can lead the business to a new direction and it also assist most company with the strategy planned to achieve their goals and objectives. Nonetheless, economic turn to uncertainty condition is because of the changes in rapid rates of technological advancement environment, rapid competitive environment, increased market volatility, and so forth. In consequence, most of the firms are required for more complex and flexible organisation modes in response to the uncertainty condition. Therefore, a continuous budgeting is introduced.
First of all, this paper will identify why company need to prepare a budget and the benefits of prepare a budget. On the other hand, this paper will briefly discuss how continuous budgeting help in company during uncertainty rather than those traditional budget. However, this paper will also analyse whether economic uncertainty arise from various factors and the impact of economic uncertainty hence need more flexibility in budgeting. Further, we will look into the causes of economic uncertainty, such as, environment factor, customers, suppliers and competitors, as well as the impact brought to a company base on the causes of economic uncertainty condition. Beside, the main purpose of this paper is to investigate if continuous budgeting is a system that helps the company in planning and controlling in the context of the more complex and flexible organisation modes in response to economic uncertainty rather than the traditional budget. It is due to the contribution on the tensions among the "need to meet specified financial targets, as expressed in budgets, and the need for more flexible and innovative forms of managing prompted by heightened market volatility and rapid rates of technological change"(Natalie Frow, David Marginson, & Stuart Ogden, 2009).
Nonetheless, this paper will also determine how the flexible budgeting empower manager in decision making, controlling, and performance evaluation in the condition of uncertainty. In addition, this paper will use a case study evidence to introduce the concept of continuous budgeting to highlight the way they seek to reconcile these potentially conflicting objectives.
The Benefits of Prepare A Budget
"A budget represents an organisation's effort to quantify the acquisition and utilization of resources, which addresses two purposes of management, planning and control" (Garrison et al., 2008). In business view, a budget is a plan which prepared in advance of that time period, the first reason of having a budget is to provide the organisation with goals. If without a budget, they have no idea in what they hope to achieve during a period of time. Besides, the second reason for having budget is to assist managers to think well and make decision in advance rather more choices are commonly available than when decision are made in a crisis foundation. It is a plan to manage all financial resources and all expenses incurred over the business. Hence, Dennis Caplan claimed that budget is a planning tool for most company, and they are usually prepared before to the start of the period being budgeted.
Nevertheless, the actual result for comparison of the budget provides helpful information about performance. In addition, the benefit of planning in advance provides the necessary lead time for effective decisions. Once decisions are made, they must be acted upon by the organisation. Further, budgets are used in organisations which is for diverse purposes, for example, prising decisions, staff motivation, cost control, and performance evaluation (Nik Ahmad, Sulaiman, Modn. Alwi, 2003). Thus, a budget had been considered as an integrated element of the management control system.
Continuous Budgeting
Continuous budgeting also known as rolling budget, it is a system which a budget that focus on annual preparation of operating and cash budgets, whereby it can cured weaknesses if continuous budget is prepared more frequently. For example, when the actual result for this year January are known, ideally the budget for the next year January which can be prepared by the mid or late February of this year (Steven A. Finkler & Mary L. McHugh, 2008). However, a continuous budget operates within a system whereby the 12 month budget of targets and resources is divided into quarterly periods. Besides, the benefit of continuous budget is the level of flexibility, because of more flexible budget enable to helps management in decision making, controlling and performance evaluation when those traditional budget is incompatible of doing so under such uncertainty circumstances. On the other hand, the practice of continuous budget which will encouraged managers to fully use their ability or power to decide responsibly in operational matters when confronted by unforeseen events such as uncertainty circumstances. Other than empowering manager, continuous budget also help to enhance the accountability to assure that managers keep on committed to accomplish their business financial targets (Natalie Frow, David Marginson, & Stuart Ogden, 2009).
The Causes and Impacts of Economic Uncertainty
According to my research, there are certain factors which would affect economic if any changes in environmental, competitors, customers, suppliers and performance evaluation, in consequence uncertainty is created. In recent years, "an increasing number of firms have adopted more complex and more flexible organizational forms in response to rapid rates of technological advancement, hypercompetition, and increased market volatility" (Darf & Lewin,1993; Illinitch, D'Aveni, & Lewin,1996). In business point of view, environment play an important role to organisation. Because of the firm operate in a highly competitive environment at the same time characterised by a rapid technological change, in result to an increase the level of uncertainty. Further, most of the firms have faced with greater economic uncertainty and even shorter product lifecycles, firms have seek to achieve a greater emphasis on flexibility, innovation, learning, and adaptation through the advantage of competitive (Bartlett & Ghoshal,1993; Otley, 1994). Brown & Esienstadt (1997) had said that, "'mechanistic' control systems which emphasise efficiency and 'organic' control systems which prioritise flexibility". For example, most of the fast food restaurant keep practice to adopt the latest advance machine or equipment over their business operation in order to improve the overall efficiency and profitability of the business, and maintain the quality and taste of each food. Because of in such unstable environment and high competitive factors, many firms have adopted more complex and more flexible organisation forms in order to respond to high competitive environment and the rapid technological change also required for more creativity and innovation otherwise the firm will drop behind and unsuccessful to achieve their target.
Furthermore, the behaviour of customer and supplier are the major player of the organisation, if without one of them, the business is failed. However, Andres Kuusik (2007) observe that, to enhance the customer responsiveness sometime not totally relied on achieved through optimizes the quality and price of product, but development of information technology and globalization of competition are involved. Nevertheless, the firm need to build their long-term customer relationship in order to maintain their revenue. Moreover, the most popular subject of studies is the impact of satisfaction on loyalty. According to Andres Kuusik (2007) had revealed that is a direct connection exist between satisfaction and loyalty, if the organisation satisfied customer then become loyal whereas if firm dissatisfied the customer then will shift to another vendor. Different people come with different needs and wants to satisfy themselves, it is uncertain and flexibility. In consequences, it is important to an organisation to practise and plan a more complex and more flexible budgeting to in these circumstances which are appropriate to accomplish the organisation's stated goals.
Another factor is supplier that will also influence the economic to uncertainty. It is due to supplier control the pricing in the market as a whole, it is highly influence the cost and revenue in the business of an organisation. For example, if the supplier offer to sell their at very cheap price, then the firm will make more profit due to they buy the material in low cost. In contrast, if the supplier sell the material to the firm at high price, then the firm are going to lose in revenue. However, the managers should have communicate with supplier and remain the critical ingredient to build better relationship between organisation and supplier (Drew Tonsmeire). Therefore, the managers are force to seek distinctive strategies for improving profitability.
In short, because of these circumstanced change continually, it is highly influence the profit, sales, and cost of company to unstable level, as a response to such environment of rapid technological developments, increasing levels of competition, customer buying behaviour, supplier and etc, which have forced the firm to develop internal processes and structures which promote flexibility, adaptation, learning and innovation (Natalie Frow, David Marginson, & Stuart Ogden, 2009). In addition, the impact cause by uncertain also involved in the purchasing power, cost of labour and overhead.
Empowerment in Decision making
A company should practice a more flexible budgeting in uncertainty to overcome any unexpected events and difficulty in future or practice when emergency. Beside that, flexibility give the empowerment to allow mangers to make decision over business operation not only in case of emergency. It is aim is to assure that managers are not only coordinating and leading their performance and decision assort with the company's overall strategic objectives and goals, but they can interpret them into particular action and initiatives. For example, when any contingency arise in the business, managers are allow to make the finals decision which is the best way to solve their current problem and continue the business without approved by director or CEO.
However, there have been increase levels of economic uncertainties which consequently demand managers to make changes rapidly in ensuring that the current year objectives and targets will not be affected.
