Alternative types of budgeting

There are a number of budgeting types to choose from. Kraft uses a mix of the following.

i. Zero based budgeting

In a dynamic business it often makes sense to 'start afresh' when developing a budget rather than basing ideas too much on past performance. This is appropriate to Kraft because the organisation is continually seeking to innovate. Each budget is therefore constructed without much reference to previous budgets. In this way, change is built into budget thinking.

ii. Strategic budgeting

This involves identifying new, emerging opportunities, and then building plans to take full advantage of them. This is closely related to zero based budgeting and helps Kraft to concentrate on gaining competitive advantage.

iii. Rolling budgets

Given the speed of change and general uncertainty in the external environment, shareholders seek quick results. US companies typically report to shareholders every three months, compared with six months in the UK. Rolling budgets involve evaluating the previous twelve months' performance on an ongoing basis, and forecasting the next three months' performance.

iv. Activity based budgeting

This examines individual activities and assesses the strength of their contribution to company success. They can then be ranked and prioritised, and be assigned appropriate budgets.

Conclusion

The world food market is dynamic and highly competitive. To succeed, Kraft recognises the need to build in flexibility that enables it to seize appropriate opportunities into its planning activities.

Kraft's budgeting process is based on consensus, and shared understandings. By using rigorous but flexible budgeting arrangements the various components of Kraft are best able to contribute in a coordinated way to delivering strategic objectives.

SOURCES:

http://businesscasestudies.co.uk/kraft-foods-uk/budgeting-and-strategy/conclusion.html#ixzz2sLBsFsTw

Discuss the questions:

1. Describe what is meant by ‘a budget’.

2. What are advantages and disadvantages of different budgeting types?

3. Analyse the process of constructing a budget. Which type of budgeting would be the most suitable to a business of your choice? Why?


Case 11.2. The benefits of budgeting

A Zurich case study


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