The objective of this paper is to synthesise available research and empirical studies on the association between uncertainty and the usefulness of the traditional budget as well as its different functionalities. Furthermore, the aim is to critically examine conclusions that support or contradict the criticism about traditional budgeting in times of uncertainty. This review should create the foundation for further research to discuss the need for alternative budgeting systems and techniques, considering the findings of the use, preferences and concerns in different organisations.
Table of Contents
1. Rationale for research
2. Specific Objectives
3. Discussing the contextual variable of Uncertainty
4. Discussing the Role of the Budgeting Control System
5. Research Problems
Research Objectives and Themes
This critical literature review aims to synthesize existing research regarding the relationship between environmental/task uncertainty and the effectiveness of traditional budgeting as a planning and performance management tool. It seeks to critically evaluate current academic findings to determine if traditional budgeting systems remain relevant or require replacement in dynamic business environments.
- The impact of environmental vs. task uncertainty on budgeting.
- Limitations of current research methodologies and subjective measurements.
- Internal organizational factors influencing the perceived usefulness of budgets.
- The role of management style and individual cognitive characteristics in budget perception.
- Gaps in literature concerning budgeting during economic crises.
Excerpt from the Book
Discussing the contextual variable of Uncertainty
The examined studies (Ezzamel, 1990; Hartmann, 2005, Hoque, 2005; Ekholm and Wallin, 2011) are analysing the impact of uncertainty on the role, the design or characteristics of Budgets in organisations by conducting surveys where respondents are asked to give an indication for both factors, Uncertainty and the use of Budgets.
The researchers agree on the wider definition of uncertainty as a lack of clarity and information originating internally from the organisation's processes (Task Uncertainty), or through the external environment, the organisation is surrounded by (Environmental Uncertainty) (Hartmann, 2005).
A commonly used way for researchers to measure environmental uncertainty is the Perceived Environmental Uncertainty (PEU), which focuses on the perception of uncertainty at a business unit level of a firm (Duncan, 1972; Ezzamel, 1990; Hartmann, 2005; Hoque, 2005; Ekholm and Wallin, 2011). To measure PEU, researchers use a range of items to be assessed in their predictability by the surveyed organisations or Business Units. Hartmann (2005) developed a model with four major sectors concerning customer demands and preferences, suppliers' actions, competitors' actions and regulatory groups like labour unions, which are enhanced by items related to interest or exchange rate changes in Financial Markets in Ezzamels study (1990).
Summary of Chapters
1. Rationale for research: Provides context for the study by highlighting how global events like the COVID-19 pandemic have challenged the flexibility and purpose of traditional budgeting.
2. Specific Objectives: Outlines the goal of synthesizing research on the link between uncertainty and budget usefulness to provide a foundation for future improvements in budgeting systems.
3. Discussing the contextual variable of Uncertainty: Examines how existing literature defines and measures environmental and task uncertainty, highlighting methodological inconsistencies.
4. Discussing the Role of the Budgeting Control System: Analyzes the dependent variable of budget design, noting that inconsistencies in findings often stem from ignored internal factors like management style.
5. Research Problems: Identifies gaps in current literature, such as the lack of research on extreme economic crises and the need for more objective, non-subjective data.
Keywords
Traditional Budgeting, Uncertainty, Perceived Environmental Uncertainty (PEU), Perceived Task Uncertainty (PTU), Budgeting Control System, Performance Measurement, Management Style, Organizational Environment, Budgeting Limitations, Corporate Finance, Planning, Strategy, Economic Crisis, Decision Making, Empirical Research
Frequently Asked Questions
What is the primary focus of this literature review?
The review investigates the correlation between organizational uncertainty and the perceived effectiveness of traditional budgets as planning and performance management tools.
What are the central themes covered in this paper?
Key themes include the distinction between environmental and task uncertainty, the influence of internal management factors, and the critique of current research methods regarding budget utility.
What is the research goal?
The goal is to synthesize empirical research to determine if traditional budgeting remains a viable tool in dynamic, uncertain business environments.
What research methodology does the author adopt?
The author performs a critical literature review, evaluating and synthesizing findings from peer-reviewed academic sources and empirical studies.
What does the main body analyze?
The main body examines the definitions of uncertainty, the limitations of current survey-based research, and how internal factors like organizational culture affect budget perception.
Which keywords define this study?
Essential keywords include Traditional Budgeting, Uncertainty, PEU, PTU, Budgeting Control System, and Performance Measurement.
How do organizational factors impact budget usage?
The paper argues that factors like management style (budget-constrained vs. profit-conscious) and an individual's tolerance for ambiguity significantly influence how useful a budget is perceived to be.
Why is the distinction between Task and Environmental uncertainty important?
The author highlights that researchers often conflate these, even though they have opposing effects on the perceived appropriateness of budgeting systems.
What is the author's critique regarding "crisis" scenarios?
The author notes that most existing literature focuses on "normal" uncertainty, leaving a significant research gap concerning how budgeting systems function during sudden, large-scale economic crises.
- Arbeit zitieren
- Annika Specht (Autor:in), 2020, The correlation between uncertainty and the use of Traditional Budgets as a Planning and Performance Measurement tool, München, GRIN Verlag, https://www.grin.com/document/1223196
