Change in Budgetary System

Traditional budget has facing so many problems such as inefficiency, time-consuming, and less accuracy, so the companies are trying to change to a new system that expects to provide more flexible and efficiency annual business plans.

What are the Limitations of Current Budgetary System?

Limitations of Traditional Budget System
Inefficiency	It requires a lot of time from top management and the head of department, and most of time spend on useless work. Most of them use Excel spreadsheets to prepare the budget. It has many downsides, which can cause the error due to data overload, less flexible, and difficult to revise the formula.
Not responsive	The company usually prepares the annual budget base on the prior year, it does not reflect the current change in the market. It will be outdated after the completion and the company only compare the actual result with the budget without any change to the plan. However, it almost impossible if the company wants to revise the budget due to time-consuming.
Different from company long term strategy	The annual budget only focuses on short-time goals, which can be a conflict with company long term goals. The managers will work their best to hit target sales, cost deduction, and target profit in order to meet budget goals. However, they will less consider the company’s long term goal as it has no tool to evaluate their performance.
Human error	The traditional budget is not using any modern system, it only relies on the excel spreadsheet. The chance of error is very high due to spreadsheet limitations.
Time-consuming	The company usually obtain information from various source that also use the spreadsheet. It will spend much time to combine the file. Moreover, the process requires many involvements from head of departments.
Inaccurate assumption	Using last year’s data to adjust and predict next year usually contains many assumptions and most of them have no clear proof. The world is moving, and we cannot predict the future by using past data.

What are the Challenges in Budgetary Change?

Change Budgetary System
Employee resistance	The employees are familiar with the old working system, and they will find every excuse not to use the new one. The old budget may have slack, which is easy for them to hit the target with less effort.
Loss of control	The management needs to spend time on the new budget and understand how it works. We need to spend time before we can fully utilize the whole system.
Training	For sure, the employees and management are required to train in order to work correctly on the new budget.
Increase cost	Every time there is a change, the company will increase the cost for preparation and review.
Lack of accounting	The company may need to invest in a new accounting system as the old one can not provide sufficient data and require many manual works.