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Sir can explain to me this phrase from tecnical articles? Thank you.
‘The annual budget also tends to fix the capacity for the forthcoming budget period, thereby undermining the potential of activity-based management (ABM) analysis to determine required capacity from a customer-demand perspective. Those experienced in the use of ABM techniques will be familiar with such problems. However, their tasks would be much easier to perform, and their results more reliable, if such problems were removed.’
I think it simple means that if you set a budget in a conventional way, people focus on achieving that – often by following details in the budget such as number of each product made and sold.
It might be better to allow managers more freedon to make and sell different quantities of product ie be flexible and match production to demand rather than match production to budget.
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