Rolling budget: roles, complementing MCS, challenge areas and style of use
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School of Business |
Master's thesis
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Authors
Date
2016
Department
Major/Subject
Mcode
Degree programme
Accounting
Language
en
Pages
98
Series
Abstract
The main objective of the thesis was to shed light on the use of rolling budget. More specifically, the study had the following research questions. First, the study examined in what roles rolling budget is usually used in. Second, the study considered what complementing MCS can be used with rolling budget. Third, what challenge areas there might be encountered with rolling budget. Fourth, the rolling budget style of use influence was analysed. For the theoretical framework the current relevant knowledge of annual budget and rolling budget is integrated. As the main characteristics of annual budget and rolling budget are comparable, apart from the rolling forecast horizon, the prior annual budget research is also used as a frame of reference to complement the lack of prior research on rolling budgets. The research method is a single-case study. The empirical data was gathered by interviews in May-June 2014. Interviews were carried out in focused interviews, where certain structure was followed, but interviews were open-ended and conversational. Based on the empirical evidence, rolling budget was found to be used in the same primary roles as postulated in the literature review for the annual budget, i.e. planning and performance evaluation, as opposed to only the planning role. Nonetheless, the planning was emphasised over performance evaluation role and the main objective of rolling budget was to produce accurate estimates. The use of rolling budget was complemented by performance measurement system and reward system. Similar shortcomings as seen in prior annual budget literature, such as obsolete numbers toward year-end or reliance on uncertain forecasts were absent in the case company. However, rolling budget process was found heavy. The main contributors to the intensity of budget process seemed to be the amount of details gathered and the interactive style used. On the other hand, interactive use of rolling budget lead to improved reasoning and firmer forecasts. In addition, the role conflict challenge seemed to arose when rolling budget was used for both planning and performance evaluation, which created confusion and abated internal consistency of the control package. Also, rolling budget was used in diagnostic style at the group level and in interactive style at the business area level. Consequently, the discrepancy between roles and different styles of use was solved by prioritising short-term result over long-term targets. In sum, it seems crucial for an organisation using rolling budget to put emphasis also on how to solve goal congruence challenge without creating a role conflict. Also, reciprocal links between complementing MCS and different styles of use need attention.Description
Thesis advisor
Kolehmainen, KatjaKeywords
rolling budget, annual budget, the levers of control, diagnostic style, interactive style