The Contingency of Budgeting

The contingency of budget in a framework encompassing the simultaneous use of business scorecard/dashboard

Iliya Komarev

Abstract

The growing use of business scorecards/dashboards (i.e. Balanced Scorecard, Tableau de Bord) as primary planning and control tools raises the question about the place of the traditional budget. Some business consultants argued that managers should go “beyond budgeting” and use only new tools. However, recent studies showed that companies that have implemented these new tools did not get rid of their budget. Hence simultaneous and contingent use of old and new tools should be considered.

The contingent use of budget and the subsequent importance of scorecard/dashboard was studied in extant research at “microscopic” level by focussing on individual performance indicators (financial of not) contained in each tool, rather than on the tool as a whole. The aim of this research is to model the contingency of budget as a tool, encompassing the corresponding use of the main alternative tool: the business scorecard. Thus, two aspects of the budgetary system are studied: 1) its internal characteristics (magnitude and frequency of use) and 2) its importance in relation to the scorecard. A configuration contingency model is proposed and tested according to Gerdin and Greve’s framework (2004, "Forms of contingency fit in management accounting research - a critical review", Accounting, Organizations and Society, 29 (3/4) pp. 303-326).

Results from a cluster analysis on 91 French companies partially support the model and two of the contingency factors: competitive strategy and chief executive leadership style. Best performing companies use a budget as primary (secondary) planning and control tool when following a low cost (differentiation or focus) competitive strategy, and when chief executive leadership style is task-oriented (relations- or change-oriented). Contrary to the hypotheses high environmental complexity enhances high...