Keywords

1 Introduction

During the last 30 years, the rules determining people responsible for budget planning in Poland changed significantly, and both planning process and construction of budgeting tools have evolved. Both the mentioned factors are closely related to each other. Simple budget structures do not require to involve in planning highly qualified budgeting specialists. However, the development of budgeting tools causes that they are very complicated (Siemionek 2010). It appears that it is necessary to use advanced economic knowledge in order to plan the budget properly. For this reason, in an analyzed period, tasks and involvement of various people planning the budget have changed significantly.

2 Data and Methodology

This article is based on interviews and direct surveys which were conducted with people involved in budgeting development in Poland within the last 30 years. These were budgeting consultants who conducted both training and practical implementation of this management system. While selecting respondents for this study, it was important to select people who were engaged in this activity continuously throughout the whole period of study. Their knowledge is both theoretical and practical. Therefore, these employees have a comprehensive view on the development of budgeting system that took place in Poland. This case study consists of analysis of the background documents from an early stage of practical usage of budgeting till present. This is period from the late 80s of the twentieth century. The usage of interview as research method results from the lack of publications in that field of study. There are many items describing history of budget development in Poland in literature. However, these publications present process in terms of methods used in budgeting methods and tools. There are no studies showing the categories of budgeting specialists. This prospect of studying budgetary history seems to be interesting. The reason for this is the ability to apply knowledge of history of budget development to assess the current position of the enterprise. This assessment will be carried out in accordance with current best practices. The critical analysis of the literature in the field of budgeting was also conducted.

3 Periods of Budget Development in Poland in Terms of People Planning the Budget

The following stages of the budgeting system development can be distinguished referring to people responsible for its planning:

  • planning of each budgetary items by financial controllers,

  • planning of budget items by cost center managers,

  • planning budgets by budgetary authorities,

  • supporting managers of liability centers actively by financial controllers during budget planning.

It was not possible to determine exact periods, which indicated the stages of budgeting process occurred due to the fact that in specific entities, these phases is related to different periods of time. Moreover, different stages of budget development have been presented in different units. Therefore, it is not possible to clearly specify the beginning and ending dates of these phases. At present, it is still possible to find practical cases of budget planning methods characteristic for the first of an analyzed period. It is also not easy to identify the origins of budgeting for internal management. The budgets created for internal and external management should be treated separately (Kotapski 2014). Due to requirements of the centrally planned economy in Poland, external budgets have been created for a long period of time. These were not budgets used in accordance with management accounting requirements. First, the budgets for internal use were projected in Poland in the late 80s of twentieth century. However, it cannot be confirmed that such tools were not used in previous periods. This statement is based on the neoclassical approach to the study of development in history of management accounting. According to this concept, there are no scientific studies confirming the existence of budgeting in accordance with the requirements of management accounting in earlier periods. This does not mean that the abovementioned instruments were not used in practice. These were not numerous cases and in result, there is not enough information about that issue in scientific papers.

4 Stages of Budget Development in Perspective of Budget Planning Specialists

The beginnings of budget planning in Polish companies for internal management dates back to the year 1980 due to the decreasing role of centrally planned economy and development of market economy (Dobroszek 2011; Nesterak 2013). At that times, majority of budget positions were planned by professionals from that field of interest. These were mainly financial regulators. The creation of such positions was not however a frequent practice in Polish companies. If such position was not established in that particular enterprise, then those employees were employed by economic sector.

These are following main reasons for this style of budget planning such as:

  1. (1)

    lack of appropriate decentralization of management,

  2. (2)

    insufficient knowledge of budgeting,

  3. (3)

    failures in adaptation of accounting systems to budgeting requirements.

In the initial period of budgeting in Poland, there was lack of appropriate decentralization of management. Decision processes were focused on highest levels of management structure (Bywalec 2012). There were many reasons for this situation. One of the most important ones was lack of professional knowledge in the field of economic management methods, which were observed among employees from lower organizational levels. This was the consequence of centrally planned economy. At that time, the companies dominated quantitative and not economic goals. It was more important to produce a sufficient amount of goods than to examine economic consequences. Management from lower levels of the management structure did not need this kind of economic qualifications. During the first period of budget development in Poland, the highest managerial staff also did not possess proper qualifications. Therefore, budget planning tasks were entrusted to employees from economic departments who had no freedom in tasks planning. Substantial decisions were taken by staff from the highest levels of management structure. However, this solution does not apply to currently recommended patterns. These are following disadvantages of options such as:

  1. (1)

    limited involvement in realization of company goals by employees from lower levels of management,

  2. (2)

    planning of individual budget items by nonqualified people in the areas concerned,

  3. (3)

    synthetic budget structure which does not allow to fulfill its functions.

Another obstacle of the abovementioned situation was inadequate adaptation of accounting systems to needs for budgeting. Accounting systems of companies were subordinated mainly to obligatory reporting created for external purposes (Wnuk Pel 2011; Sobańska 2009; Szychta 2002). Therefore, accounting systems mainly carried out reporting and evidentiary tasks. Detailed records identifying accurate data according to management structure or today’s management accounting requirements were still insufficient. Information provided by the accounting department was refined to levels of entire departments. Such an analysis was sufficient for carrying out cost accounting in order to prepare financial statements according to current standards of cost accounting. However, these standards differ significantly from today’s ones for which principle of clear and faithful image are important. Moreover, as the data were not enough detailed, only synthetic budget structure was possible. The budgets were therefore created at the beginning for large organizational units such as entire departments. The budgeting systems were then mainly functioning in large companies. As a result, these departments consisted of many organizational units with numerous resources and significant costs. Compatibility between detailed management structure, decentralization of management, and analysis of data in accounting could be observed. However, this system is not accepted anymore according to the current budgeting requirements.

From the point of view of today’s standards, this budget planning style is considered to be inappropriate. However, one should take into account conditions in which it was functioning. These were the beginnings of management accounting development in practice in Polish companies. However, if the above-described planning method would be implemented today, it is difficult to identify it as good practice nowadays. Despite this critical assessment, this way of budget planning has some advantages such as:

  1. (1)

    budget planning speed,

  2. (2)

    no employee objections from lower levels of management,

  3. (3)

    budget compliance with objectives and strategies set by management board.

Due to the limitation of access to work on creating budgets for few people, there is a chance that this task will be realized in a relatively short time. Any arrangements of individual budget items are made by narrow group of high-level management stuff. The lack of responsibility for individual budget lines of employees from lower levels of management structure causes that they do not comment on the budget. The budget will, therefore, be prepared in accordance with the development concept introduced by the company’s management.

Despite negative assessment of how budget planning is, it is worth considering whether it can be recommended nowadays. The above-presented advantages may be a premise for such a statement. In emergency cases requiring quick decisions, such a budget planning style may be justified. The exceptional factors of significant importance are both positive and negative for companies functioning. Among the negative factors, there are:

  1. (1)

    breakdowns,

  2. (2)

    market collapse,

  3. (3)

    increase in costs,

  4. (4)

    legal changes.

However, there must be fulfilled that the condition that factor is significant and that its occurrence influences immediate decisions. The relevance of that factor should be evaluated by rules defined by statutory accounting principles. One of the ways to protect against such a budgeting method is to prepare in advance security scenarios. Th budget of the company may consist of two components. The first one is actions implemented within forecasted conditions. This would be the so-called primary budget. However, this budget may be supplemented by emergency scenarios. They are created for likely to happen and relevant factors that have an influence on basic budget implementation. If a defined factor occurs, the suitable emergency scenario will be triggered. This scenario will be developed according to good budgeting practices. Therefore, it will not only be created solely by the highest management of unit in a short period of time. The number of such scenarios must be limited. It is not possible to prepare emergency variants in the budget for all potentially possible situations. Therefore, such scenarios are prepared for the following factors:

  1. (1)

    high probability of occurrence,

  2. (2)

    significant impact on implementation of basic budget.

If unpredictable factors requiring immediate actions of significant importance occur, then such way of planning may be conditionally accepted.

The second phase of budgeting development in this area was the delegation of tasks related to budget planning fully to managers from lower levels of organizational structure. Therefore, the main reason for this budget planning is:

  1. (1)

    increasing degree of management decentralization,

  2. (2)

    delegation of full responsibility for budget positions to cost center managers.

The process of management decentralization has changed over time and wider group of people from lower levels of management structure got permissions to create budgets of their departments. Every manager of each significant organizational unit of the company had a fixed budget settled down for this unit. The reason for that situation was disadvantages of central management. In conclusion, increasing management decentralization should be considered as positive direction of budget development. It is also worth to mention that at those times, the budgets were created according to organizational structure. The smallest budget unit was, therefore, the organizational unit. This does not meet, however, current standards which suggest that budget should be implemented according to the level of individual resources or tasks of significant importance.

The second characteristic element for this phase of budgeting in Poland was the assumption that manager of an organizational unit for which budget was created is responsible for all its items. These are both revenues and cost factors. This rule was often not so consistently applied to all budget lines. This exception included among other ones such as investment planning, particularly central ones, depreciation, and salaries. These were the following reasons for limitations of management freedom:

  1. (1)

    central management of selected important budgetary items,

  2. (2)

    necessity to have specialized knowledge to plan selected budgetary items.

One advantage of this budget planning method is the coherence of two factors such as the degree of management decentralization and scope of budgetary responsibility. The manager of budgetary unit plans revenues and costs of his unit as he is responsible for them. However, this style of budgeting is currently not considered as proper one as it is characterized by the following disadvantages:

  1. (1)

    lack of knowledge in field of multi-item planning,

  2. (2)

    lack of comprehensive strategic policy implemented in the scale of whole enterprise,

  3. (3)

    planning budgetary items which are independent from the person who plan it.

The first obstacle of this planning style is lack of knowledge of person entering data to the budget. The manager of an organizational unit must plan, among other things the following: costs, taxes and charges, energy, repairs, transportation, and even more. Planning this kind of costs requires narrow and specialized knowledge from different areas. However, such comprehensive knowledge is not required from managers of each budget unit. There was an attempt to solve that problem by creating appropriate budget instructions. This method involves the development of detailed planning instructions by competent specialists. These instructions are then forwarded to budget planning managers. The disadvantage of this way of budgeting is, however, an increase in bureaucracy. Therefore, the managers planning budgets can get complex and complicated and incomprehensible instructions (Chalastra 2018).

Another drawback of this type of planning is lack of comprehensive strategic policy implemented in the enterprise. Each manager has freedom in creating the structure of individual cost items in budget of his department. At this point, it is worth to emphasize that he has usually never had complete freedom in that task. Costs such as wages and depreciation and amortization were mostly centralized. A significant part of remaining costs is however not a limitation. Depending on actual needs, the manager of an organizational unit would, therefore, decide which goals could be financed from the budget. Such freedom was possible because budgets of organizational units were created mainly by classification. This was due to the fact that budgeting was subordinated to the financial accounting system. The structure of accounting accounts used to record costs was submitted financial accounting requirements. Such budget structure gives a great freedom for managers to spend their money. The managers of individual budgetary units can freely perform various tasks. It is important to comply with limits set by generic classification of costs. Budget structure of costs according to the classification does not accurately inform about costs of important strategic processes such as employees, machines maintenance, as well as repairs. It is therefore not recommended to create strategic budgets.

Another shortcoming of described budgeting method was cost planning independent from managers of budget unit by its manager. As it was already mentioned, this planning concept is based on assumption that manager is responsible for all costs of his unit. However, in practice, this situation is quite rare. Many tasks might be carried out by decisions of other departments such as following costs: cost of repairs, business trips, or IT. This option does not allow to link precisely specific types of costs with tasks and responsible people. For example, the costs of transport services can arise from decisions of many different people. Repair department carried out repair tasks where following costs occurred: transport, Health and safety unit ordered transportation related to supply safety health materials as well as training department ordered transport of training materials. Many people may therefore decide about the same cost although this cost should not be divided and relates to one budgetary item in one department. In many cases, it is still a consequence of accounting system subordination to financial reporting requirements. According to these rules, cost analysts of particular places should only be made according to the generic classification. However, this classification is not sufficient for today’s budgeting. To sum up, this variant is currently not recommended. It is also difficult to give the examples of specific cases where this planning method could be used. The solution when cost center manager plans the entire unit budget in cost structure should not be considered as an effective one.

The third stage of budget development in examined areas is individual budget planning of items by budgetary disposers. It does not have to be unit for which expenditures took place. In this case, centers of costs are clearly separated from centers of responsibility for costs. This condition causes that budget of one cost center is planned by many people. One of them is manager of cost center. However, he plans only positions for which he is responsible. This responsibility enables him to make decisions regarding expenditures of specific budget items. However, management of the budgeted cost center does not have enough power to dispose of all budgetary resources related to his unit. Due to centralization of specific tasks across the company, many items are planned outside cost centers. This situation concerns management positions, which require specialized knowledge. These are usually costs such as: depreciation, insurance, taxes and fees, repairs, IT, trainings, or salaries. These positions are planned by employees from specific departments for all cost centers. This centralization enables to cover a wide range of costs in a comprehensive manner. It is therefore the preparation of a budget for strategic management. The complexity of managing particular domain allows to realize such tasks as:

  1. (1)

    excluding responsible person,

  2. (2)

    setting goals,

  3. (3)

    developing strategic plan,

  4. (4)

    operational budget preparation,

  5. (5)

    activities of optimization.

5 Conclusion

The analysis of budgeting development history in Poland in perspective of people planning budget seems to be an interesting topic. This perspective of budgeting system development presents influence of many different factors on that management system. The rules in this area have changed significantly over the last 30 years. Those changes were influenced by the following factors (Szarska 2010):

  1. (1)

    development of free market economy rules,

  2. (2)

    development of management methods,

  3. (3)

    development of budgeting knowledge,

  4. (4)

    development of accounting system,

  5. (5)

    development of IT techniques.

At the beginning, the budgeting systems were characterized by the usage of very simple tools. This should be however justified by the development of both management system and market economy. At present in Poland, there are solutions compatible with best world models. Such solutions function in large multinational corporations. They are also widely presented in local Polish companies. This is due to the fact that knowledge about modern budgeting has developed a lot during the past years. The knowledge of budget development history in this perspective is very important for assessing the current state of system in a particular enterprise. They can be identified in a particular stage in enterprise. As a result, they can be evaluated budget according to this analysis criterion. To sum up, knowledge about the solution, which is currently considered as a benchmark may be helpful in improving the budgeting system.