By Allal Alain Difadi
Associate Professor, Higher Institute of Engineering and Business (ISGA), Campus Rabat
To organize a trip, for example, you have to plan the dates, plan the stages and identify the necessary resources. Thus, to make this trip a success, it will be necessary to ensure good management of these different elements: calendar, route, transport, accommodation, financing, etc. Likewise, in order to ensure its development, profitability and sustainability, any company must implement establish a management system.
In Morocco, according to the General Code of Accounting Standardization (CGNC) developed in 1986, management is the “implementation of the company’s means with a view to achieving the objectives previously set within the framework of a determined policy” . Any management act first requires the establishment of forecasts in order to be able to identify the means necessary to achieve them. We then speak of forecast management.
According to the CGNC, forward-looking management is a “mode of management which is based on a model representative of the future activities of the company. This model expresses the choice of means chosen to achieve the set objectives.
Thus, the main purpose of forecast management is to implement action programs, then translate them into monetary forecasts in the form of budgets. We then talk about budgetary management. According to the CGNC, budgetary management is a “mode of management consisting of translating decisions taken by management with the participation of managers into quantified action programs, called budgets”. Budgetary management is therefore a forecasting approach which consists of detailing, for each area of activity of the company, the uses and resources over a short-term period which is often the year. These monetary forecasts, detailed month by month, are called budgets.
Different schools of budgetary control
According to the CGNC, the budget is “a quantified forecast of all the elements corresponding to a specific program”. For Robert Anthony, the budget is “a plan for the coming year, usually expressed in monetary terms.” For Henri Bouquin, the budget is “the accounting and financial expression of the action plans chosen so that the objectives sought and the means available in the short term converge towards the realization of the operational plans”.
Budget management then consists of two stages:
– The budgetary procedure: each manager designs, figures and proposes their annual budget to management; after discussion and acceptance by the latter, the manager ensures the execution of his budget.
– Budgetary control: for each budget, we compare the forecasts and the achievements in order to identify and explain the discrepancies observed with the aim of improving the next forecasts with a view to better performance management. According to the CGNC, budgetary control is a “management method characterized, in particular, by the establishment of forecasts quantified in value (budgets) and the systematic comparison of achievements and forecasts, so as to quickly trigger any necessary corrective measures”. For Michel Gervais, budgetary control is “the permanent comparison of actual results and the numerical forecasts appearing in the budgets in order to:
– investigate the cause(s) of deviations,
– to inform the different hierarchical levels,
– to take any corrective measures that may be necessary,
– to assess the activity of those responsible for the budget.”
A pillar of management control
Budgetary control is a tool that occupies a central place in the “management control department” of companies. Management control is not defined by the CGNC. On the other hand, the French Accounting Plan of 1982, from which the CGNC is largely inspired, defines management control as a “set of measures taken to provide managers and various managers with periodic figures characterizing the operation of the company. Their comparison with past or forecast data can, if necessary, encourage managers to quickly initiate appropriate corrective measures. This definition remains very close to that used by the CGNC for budgetary control, cited a few lines above.
For Robert Anthony, management control is “the process by which managers obtain assurance that resources are obtained and used effectively and efficiently for the achievement of the organization’s objectives.” To be effective is to achieve the set objectives. Being efficient means obtaining the best return on the resources used. More than 20 years later, he redefined management control as “the process by which managers influence other members of the organization to implement strategies.” This new definition emphasizes the fact that managers must influence their employees in order to ensure the implementation of the strategies defined by the company. Management control then appears as a real function of regulating the behavior of operational agents within the company.
For Henri Bouquin, management control is a set of “devices and processes which guarantee coherence between strategy and concrete, daily actions”. Management control then appears to be an essential function in the company which makes it possible to connect long-term strategic decisions and daily operational actions. Strategy can be seen as the answer to the following question: what company do we want to become, taking into account the foreseeable changes in our environment in the long and medium term?
For Alfred Chandler, strategy is “the determination of the long-term goals and objectives of an enterprise and the adoption of the actions and allocations of resources necessary to achieve these goals.” Thus, budgetary control is a short-term management method which translates the strategy into monetary terms. This management method is based on cybernetic or thermostatic management which operates through comparison and feedback loops between, on the one hand, standards, objectives and forecasts and, on the other hand, results and achievements, as shown in the diagram (page 20).
Guiding principles
The emergence and development of budgetary control can be explained by two main factors:
– an organizational factor: the increase in the size of companies and the need to control decentralized divisions;
– an economic factor: the increase in demand in continuously growing markets in a relatively stable environment. In this context at the time, the forecasts were quite reliable, the budget was a credible tool. As for budgetary control, it made it possible to plan, control, coordinate and make decisions with a view to better management of the company’s performance. However, in recent decades, the business environment has become unstable and uncertain, and the budget has been the subject of several criticisms: it appears to be an outdated tool for the following reasons:
– It is a tool for controlling individuals:
the budget and budgetary control are considered as disciplinary instruments which make individuals in an organization governable, through a system of rewards and sanctions.
– It is an unreliable tool in a turbulent environment: it is difficult to set achievable objectives in a variable and uncertain environment, and extrapolation of past trends is no longer sufficient to establish reliable forecasts.
– It is an imperfect tool: being purely accounting and financial, it does not take into account other performance factors such as customer loyalty, staff motivation, process control. In addition, the budget is a tool that is based on short-term data while managerial performance is measured over the long term.
– It is a demotivating tool: operational managers can experience feelings of frustration or helplessness in the face of the budget and budgetary control due to bureaucratic cumbersomeness, non-participation in the budgetary procedure, unreliability of forecasts, the contestation of the relevance of performance evaluation… In fact, for a long time, the budget has been criticized but companies have never been able to remove it.
However, we have seen adaptations of this tool. For example, the rolling forecast or “permanently revised forecast”, which appeared in the 1990s, is a complementary budgetary management tool which makes it possible to overcome the burdens of traditional budgetary management.
Indeed, it makes it possible to make the budget flexible by producing rolling forecasts in relation to the evolution of the company’s immediate needs in the face of environmental requirements. It therefore appears that the budget is only a tool and that what is open to criticism is its use by a management style based, in particular, on the bureaucratization of management control tools. What is called into question is therefore not the tool itself but the way it is used. The budget still seems to have a great future ahead of it and “management without a budget” would then be nothing more than a simple utopia.
