A Theoretical Analysis of the Impact of Adopting Rolling Budgets, Activity-Based Budgeting, and Beyond Budgeting

Posted: 2 May 2010

See all articles by Stephen C. Hansen

Stephen C. Hansen

University of Southern Maine - School of Business

Date Written: April 28, 2010

Abstract

Budgeting accomplishes many goals in an organization and evaluating the potential impact of a change is difficult. I investigate the organization-wide effects of three distinct budgeting alternatives (rolling budgets, activity-based budgeting, and beyond budgeting) using a model that incorporates three important budgeting functions: forecasting, operational planning, and performance evaluation. From the perspective of the whole organization, each budgeting alternative improves profits. I then examine the department preferences for each alternative when each function is under the control of a different department and each department has its own, department-specific performance metric. Forecasting is judged on the variance of the base demand forecast, operational planning on the expected unit capacity costs, and performance evaluation on the salesperson’s expected action. In my model all departments always favor rolling forecasts, while only one department always favors beyond budgeting (or activity-based budgeting). For beyond budgeting and activity-based budgeting, the preferences of the two other departments vary depending upon the model parameters.

Keywords: Budgeting, Activity-based Budgeting, Rolling Budgets, Beyond Budgeting

JEL Classification: M41, M1, O3

Suggested Citation

Hansen, Stephen C., A Theoretical Analysis of the Impact of Adopting Rolling Budgets, Activity-Based Budgeting, and Beyond Budgeting (April 28, 2010). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1597250

Stephen C. Hansen (Contact Author)

University of Southern Maine - School of Business ( email )

P.O. Box 9300
Portland, ME 04104
United States

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