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Traditional planning and budgeting

The following BPM tool guide is one of a series produced for ICAEW by Professor Mike Bourne of Cranfield University.

I am not planning to describe in detail traditional approaches to planning and budgeting here. Most faculty members are accountants and so well versed in traditional approaches. The intention of this section is to briefly define what a traditional approach is and some of the criticisms made of this approach, so that it can be contrasted with alternative approaches in other sections (driver based budgeting and beyond budgeting).

Traditional planning and budgeting builds a budget from the bottom up. It starts with the projected sales, the direct costs associated with these sales and then the overheads. In smaller companies this works well as those involved are close to what is happening in reality. In larger companies, especially when there are multiple business units, there is often a process whereby the budget is done bottom up and presented to senior management, who then come back looking for improvements. As both sides know this process, the initial budget usually has some slack in it and the inevitable demand for better performance has some stretch in it.