Requirement 1

There are many tools and control methods which dominate in the recent
past are now under disturbance and becoming irrelevant due to changes
in the business environment,

current the tools and methods could be

more relevant in the stable environmental conditions but current business

environment is not static rather dynamic : complexity and rate of change
is more difficult to predict.
Strategy in practice predominantly is rational planning model, which is
based on the belief that the environmental stability will be in place for
certain period; rational planning model is a formal assessment of business
environment and current position of the organisation then developing
strategy to achieve the targets.
Strategy

is a pattern of exercises that looks to accomplish the

destinations of the association and adapt its resources, operations and

scope to environmental changes in the long haul
Budget is an essential monetary plan that consolidates interpretation and
systematic analysis of money related figures as far as markets, products
and the use of assets. It obliges supervisors to arrange. It needs
operational and money related assets data for choice making. All the more
vitally, it sets a benchmark that can be utilized for ensuing execution
estimation.
Budget which help to understand in advance what will be happing with the
chosen strategy, organisation will develops objectives which need
resources to achieve the objectives. Rational planning model assume
environmental stability will be in place and allocate resources accordingly.
Traditionally budgets will be having following role in the organisation
1. Resource allocation - Planning
2. Control and performance evaluation - control

1. Problem with Resource allocation -planning

Modern business environment is so complex and dynamic, rate of change
is in fast phase, according to recent report of PWC almost every
organisation has disrupted by the environment at a rate they never
experienced before", main factor behind is technological advancement.
Every traditional firms and industry disturb by digital and technological
advancement, firms are compelling to attain digital fitness to attain
competitive advantage, and firms must develop business strategy for the
digital age together with digital strategy.
The feature and assumption of traditional planning model in question due
to threat and competition in the changing environment. Flexibility and
capability to meet the challenges narrowed by traditional planning model
and traditional budgetary control system.
Traditional budgetary system is not the proper equipment to meet the
challenge of the change; it has it formal control system, because of the
nature it is under the system of inflexibility,
Rational planning model is very lengthy project by nature, changes on the
system required complete reprocess of strategy management which will
create competitive disadvantage for the organisation.
Traditional budgeting process leads to bureaucratic

organisation ,

resources could not be allocated according to meet the changing

environment , as it create long bureaucratic process to make changes.
Incremental budgeting is one of the very prominent methods of budgeting
in the traditional business environment, the assumptions on incremental
budgeting is so simplistic and not complicated on, the finance managers
just take the previous year finance figures and apply the percentage of
increment who think necessary .the reason behind this process is

environment is very clearly known to managers and risk of failure is very

low.
There are very few competitors, and all market players strategy is
different and clear of market share in nutshell every player know their
market well and turbulence is very low.

Problems
Traditional planning and budgeting are consuming too much corporate
resources, some companies establishing separate corporate department
for the planning but resulting very little value addition to the organisation.
Becoming irrelevant very quickly as it is represent the current reality,
good example in UK many NHS trust wasting millions on unsuccessful
project and resulting nothing.
Management just lock the objective what they wish rather think whether it
is realistic or practically viable. Once the monetary allowance is secured,
game overno more changes. The economy might change, industry or
economic situations might change, something particular inside of the
business might change. Regulations might bother the playing field. New
contestants or rivalry might develop. There might be new ideas, new
associations, new advancements, or other interior elements with money
related repercussions. There are such a variety of things that can (and
maybe ought to) change, but the budget just takes a gander at things as
they were back when it was made.
Modern complex business environment
Modern business environment is completely different from the old one ,
rapidly changing technology create more fierce competition, customer
taste and wants are keep changing , competitive advantage simply going
away , more substitution comparing with before

, more pressure from

global business this all leads to making difficulty for the firms survival .

Business is under pressure to keep co competency to gain competitive

advantage and innovation is one of the critical success factor for survival.
Technology make ease entry barrier for the new firm, technology create
new business model which wipe competing capability of existing players,
very recently UBER , the technology based transport model disturbed the
market.
Assumptions-irrelevant
Time frame: traditional thinking of strategy and budgeting take planning
period very longer, years ago this assumptions works fine but now this
option will not help as changes happening in the environment are very
frequently, so organisations must be prepared to response to the changes
traditional planning and budgeting not suitable for the current business
environment.
Risk and uncertainty
Stable environment more reliable forecast and better resource allocation,
but organisation cannot predict there business environment reliably

as

more expose to risk and uncertainty , traditional methods and tool will not
help organisations to tackle the issues.
Complex business model
Traditional firms operates with simple business model but technological
advancement change shapes of many industry and create new industries,
traditional budgeting techniques will not help business to work on the
current complex business models.

2. Control and performance evaluation - control

Traditionally budget and management accounting techniques foam a
simple formula to measure the performance of the organisation which is
irrelevant to the current condition, more than the performance internally
the organisations resources must be allocated to create competitive

advantage. Organisation must keep pump it resources in a way to keep

out competitors and internally to build co competency.
Variance analysis and divisional performance measurement techniques
are crafting political organisation rather creating competitive capability.
Modern working culture and calibrate of work force need more justice in
the performance management system rather just comparing figure
Strategic decisions must be carefully designed as it impact all aspect of
the organisations but traditional methods

only focus on financial

information for control purpose, but there are non financial information
which are so important for the long term growth of the organisation which
are not seriously accommodate into traditional budgeting system.

Requirement 2
In the current business environment organisations are focussing how
value can be created or how we can attain competitive advantage; the
traditional system will help very little to this.
Value chain analysis is one of the most useful tools to understand how
organisations create value and how to eliminate non value adding
activities; the model is very useful tool in design and analysing the
strategy.

The value chain explain of the organisation will explain how well the
company spending money, organisations must develop more value adding
activity to maintain competitive advantage.
The concept of value chain identifies and understand the companys
activities, this process create a concept of activity based costing,
Activity

based

costing

help

organisation

to

achieve

competitive

advantage, it is identifying every activity of the organisation and investing

on value creating activity and eliminate unwanted.
Activity based costing and strategy
Value chain will help organisations to design the strategy, according to
generic strategy, to achieve competitive advantage organisation must
operate as cost leader or differentiator. First organisation must choose
whether they want to be a cheapest cost producer or stand out from
crowde.then they have to design the strategy accordingly.
Cheapest cost and activity: if the organisation pursue cheapest cost
producer the activity, activity management and activity costing must

consider how the organisation should invest in activity to become

cheapest cost producer, activity management and costing play important
role on this.
Likewise if the organisation persuades differentiation strategy the
activities should be designed with value creation which differentiated with
others, and customers would prefer to pay extra for the created value.
Advantage of activity based costing is helping organisation pursued the
strategy, better control and help on better organising the activity.
Problem with activity based costing is design and operation is needed
heavy

investment

in

information

technology

and

human

capital

management.
Activity based Budgeting
The most fundamental type of ABB uses cost drivers (distinguished
through movement based costing, ABC) to determine budgets. As its
name recommends, ABB concentrates on exercises as opposed to works.
In simple terms, ABB follows three stages:
1. Identify activities and their cost drivers
2. Forecast the number of units of cost driver for the required activity level
3. Calculate the cost driver rate

Like action based costing, activity-based planning attracts regard for

overhead exercises and their related expenses. It underlines that
movement expenses might be controllable if action volume is controlled.
Where customary planning tends to concentrate on info costs, ABB takes a
yields based methodology, perceiving that exercises drive costs. ABB sees
the business as a gathering of exercises, a point of view that connections
well with organisational strategy.

The advantages of ABB

It attracts thoughtfulness regarding the expenses of overhead exercises
which can be an extensive extent of aggregate working expenses.
It perceives that it is exercises which drive costs. In the event that we can
control the drivers of costs, then expenses ought to be better overseen
and caught on.
ABB

can

give

helpful

data

in

total

quality

management

(TQM)

environment, by relating the expense of an action to the level of

administration gave.
Disadvantages of ABB
A impressive measure of time and exertion may be expected to build up
the key exercises and their cost drivers.
It might be hard to distinguish clear individual obligations regarding
exercises.
It could be contended that in the transient numerous overhead expenses
are not controllable and dont shift straightforwardly with changes in the
volume of action for the cost driver. The main cost fluctuations to report
would be altered overhead use changes for every action.
Zero-Based Budgeting - ZBB
A strategy for budgeting in which all costs must be defended for each new
period. Zero-based budgeting begins from a zero base and each process
inside of an association are broke down for its needs and costs. Budgets
plans are then assembled around what is required for the up and coming
period, paying little heed to whether the budget is higher or lower than
the past one.
ZBB permits top-level key objectives to be executed into the tying so as to
plan process them to particular utilitarian ranges of the association, where
expenses can be initially assembled, then measured against past results
and current expectations.

Modern business environment are changing very rapidly, zero based

budgets will help to eliminate building unwanted or hidden cost within
organisation as it is start from zero for every period.
The flexibility and adopt to change are the benefit in zero based
budgeting. But again there are some problem associated with this is cost
of administration of the budget is too high, heavily equipped staff with
high calibre needed to administrate the budgeting.
In most cases expense on administrating the budgeting process higher
than the benefit the organisation gain.
The fundamental procedure stream under zero-base planning is:

Identify business objectives

Create and assess alternative techniques for accomplishing each

objective
Evaluate

performance levels
Set priorities

alternative

funding

levels,

depending

on

planned

The idea of paring back costs in layers can likewise be utilized as a part of
converse, where you outline the particular expenses and capital venture
that will be brought about on the off chance that you add an extra
function or additional service. In this way, administration can make
discrete determinations of the careful blend of incremental cost and
benefit for their business. This procedure will ordinarily bring about no less
than a base administration level, which builds up a cost gauge underneath
which it is unthinkable for a business to go, alongside different degrees of
administration over the base.
Advantages of Zero-Base Budgeting
There are various preferences to zero-base budgeting, which include:
Alternatives

analysis.

Zero-base

planning

requires

that

managers

distinguish elective approaches to perform every movement options; the

procedure makes administrators consider different approaches to maintain
the business.

Budget inflation. Since managers must attach uses to exercises, it turns

out to be more outlandish that they can falsely blow up their financial
plans the change is too simple to spot.
Communication.

The

zero-base

spending

plan

ought

to

start

noteworthy level headed discussion among the administration group

about the corporate mission and how it is to be accomplished.
Eliminate non-key exercises. A zero-base budget survey powers chiefs
to choose which exercises are most basic to the organization. Thusly, they
can target non-key exercises for disposal or outsourcing.
Mission focus. Following the zero-base budgeting idea obliges managers
to

connection

consumptions

to

exercises,

they

are

compelled

to

characterize the different missions of their specializations which may

somehow or another be inadequately characterized.
To put it plainly, huge numbers of the upsides of zero-base planning
concentrate on a solid, contemplative take a gander at the mission of a
business and precisely how the business is apportioning its assets with a
specific end goal to accomplish that mission.
Disadvantages of Zero-Base Budgeting
The main drawback of zero-base budgeting is the especially high level of
exertion required to examine and record office exercises; this is a
troublesome errand even once per year, which causes a few substances to
just utilize the system once at regular intervals, or when there are
important changes inside of the company. Another option is to require the
utilization of zero-base budgeting on a moving premise through various
parts of an organization more than quite a long while, so administration
can manage less such surveys every year. Other disadvantages are:
Bureaucracy. Making a zero-base budget plan from the beginning on a
proceeding with premise requires a colossal measure of examination,
reports, and meetings, all of which requires extra staff to deal with the
procedure.

Gamesmanship. A few directors might endeavor to skew their financial

plan reports to focus consumptions under the most fundamental
exercises, along these lines guaranteeing that their financial plans wont
be diminished.
Intangible justifications. It can be hard to decide or legitimize
consumption levels for zones of a business that dont create concrete,
unmistakable results. For instance, what is the right measure of promoting
cost, and what amount ought to be put resources into innovative work
exercises?
Managerial time. The operational survey commanded by zero-base
budget planning requires a lot of Managerial time.
Training. Managers require noteworthy preparing in the zero-base
planning process, which promote builds the time required every year.
Update speed. The additional exertion required to make a zero-base
spending plan makes it even more improbable that the administration
group will modify the financial backing on a consistent premise to make it
more important to the focused circumstance.
Alternative budgeting reflect the current reality and flexibility to change
create learning organisation which are managing the change effectively ,
change is inevitable as new strategy needs new resources and new way of
doing things. Alternative budgeting process initiates pro active techniques
rather

reactive

in

traditional

budgeting

methods.