Budgeting for Halpenny

To introduce a new budgeting system for Halfpenny, it's essential to align the chosen approach with the company’s operational complexity, its growth ambitions (especially D2C), cost pressures, and existing budgeting practices—which currently follow an incremental approach with limited managerial involvement.

Below is a detailed analysis of four budgeting methods: Incremental, Rolling, Zero-Based, and Beyond Budgeting—along with their pros and cons in the context of Halfpenny.

1. Incremental Budgeting

Definition:

The current budget is based on the previous year’s figures, with incremental adjustments (e.g., inflation, volume changes).

Relevance to Halfpenny:

• Already in use at Halfpenny.

• Offers continuity in a historically stable business.

Advantages:

• Simple and easy to implement.

• Stable year-to-year comparisons.

• Less time-consuming for managers.

Disadvantages:

• Reinforces inefficiencies—costs from outdated processes persist.

• Limits innovation and adaptation to change (e.g., new product lines or D2C expansion).

• Low managerial ownership, as managers are not heavily involved.

Suitability Going Forward:

Low. Halfpenny’s current challenges—rising input costs, product diversification, digital transformation, and demand shifts—demand more adaptive budgeting methods.

2. Rolling Budgets

Definition:

A continuous budget that is updated regularly (monthly or quarterly), typically maintaining a 12-month horizon.

Relevance to Halfpenny:

• Halfpenny operates in a volatile environment: food inflation, supply chain risk, and shifting consumer preferences.

• A rolling budget would better reflect real-time changes in demand, especially if they expand to B2C and launch new product variants.

Advantages:

• Improved responsiveness to external changes (e.g., input cost surges or D2C uptake).

• Promotes continuous planning.

• Encourages cross-departmental coordination, especially between finance, production, and sales.

Disadvantages:

• Resource-intensive—requires frequent updates and more finance capacity.

• Can cause budget fatigue among managers if not well-managed.

Suitability for Halfpenny:

Medium to High. Particularly valuable during periods of transformation or in areas like D2C or product development, where uncertainty is higher.

3. Zero-Based Budgeting (ZBB)

Definition:

Each budgeting cycle starts from a "zero base," and all expenditures must be justified afresh, regardless of past spending.

Relevance to Halfpenny:

• Ideal for evaluating areas with unclear ROI (e.g., marketing campaigns, R&D for new products, or digital projects).

• Could be applied selectively (e.g., to overheads or discretionary spending) rather than across the board.

Advantages:

• Eliminates waste and forces cost consciousness.

• Improves resource allocation—spending is tied to business priorities (e.g., investment in automation or rustic product marketing).

• Promotes innovation and avoids legacy cost bias.

Disadvantages:

• Time-consuming and complex.

• Requires strong managerial skill and data systems.

• May cause friction with managers unfamiliar with justifying all costs.

Suitability for Halfpenny:

Medium. Not practical company-wide, but selectively useful for areas undergoing change (e.g., IT investment, new product development, D2C setup).

4. Beyond Budgeting

Definition:

A radical shift from traditional budgeting—focusing on relative performance, decentralised decision-making, and dynamic targets instead of fixed annual budgets.

Relevance to Halfpenny:

• Encourages agile decision-making—ideal for responding to changing consumer behaviour, sustainability drivers, and technological disruption.

• Suits a forward-looking firm investing in smart manufacturing and digital transformation.

Advantages:

• Fosters innovation and autonomy at department levels.

• Increases motivation via continuous performance management rather than fixed targets.

• Avoids the political nature of traditional budgeting.

Disadvantages:

• Challenging culture shift—requires training, systems, and a mindset change.

• May be risky for family-owned, conservative firms like Halfpenny.

• Not ideal where financial predictability is essential (e.g., investor reporting).

Suitability for Halfpenny:

Low to Medium. Best considered as a long-term evolution, possibly introduced alongside rolling budgets and performance dashboards.

Recommendation for Halfpenny:

Budgeting Method	Usefulness for Halfpenny	Suggested Application
Incremental Budgeting	🔴 Limited	Phase out as core method. Maintain for minor/steady cost areas.
Rolling Budgets	🟡 High	Adopt in sales forecasting, input cost planning, and D2C.
Zero-Based Budgeting	🟡 Medium	Use selectively for discretionary spend (marketing, R&D).
Beyond Budgeting	🟡 Low (short term)	Explore gradually as a cultural shift aligned with IT maturity.

Next Steps:

1. Pilot a rolling budget in the D2C business unit or marketing department.

2. Introduce ZBB annually for marketing, admin, and R&D departments.

3. Build systems and reporting tools (e.g. dashboards) to support more dynamic planning.

4. Train department heads on new budgeting techniques for greater engagement.