Companies usually prepare annual division- and company-wide budgets that show projected monthly results, such as: sales cost of sales, inventory levels, cash on hand, and other key data. Such budgets are effective for planning and controlling operations if they are designed as “flexible” budgets. A flexible budget is restated as conditions change from month to month, so goals remain reasonable and useful for evaluating performance. If not kept up to date, budgets are not useful for planning and controlling operations.
If information systems are unintegrated, getting data from the company’s departments to create the initial budget is a chore, and keeping the data current is often so difficult that it is not done. Thus, while the flexible budget concept is a good idea, it is difficult to achieve with unintegrated systems. Because ERP makes flexible budgeting more achievable, ERP helps management discharge its planning and controlling roles better. Why do you think flexible budgeting would be more achievable with an ERP system? List your reasons, and explain.