What follows are Sale & OperationsIncomeStatement’s (S&OIS) advantages compared with the traditional budget’s widely acknowledged limitations.  NOTE: S&OIS’s budget is simply S&OIS + firm’s strictly fixed costs.

Twelve of those limitations are listed below as enumerated in three Accountingtools sources: The problems with Budgeting podcast and two articles: i) Budgeting Problems  and ii) Budgeting Disadvantages. Note: S&OIS’s advantages are in bold.

1.  “It’s wrong. The first issue is that the blasted things are always wrong. You create a budget around the end of the year, and it’s based on fairly good predictions of what will happen in the next couple of months, and then things get pretty dicey after a few more months.”” S&OIS is always right because it is a model and can be updated in real time when any of it’s  assumptions change (i.e., “things get diecy”). The change(s) are made to the current S&OIS and a new income statement and budget is created.
   
2. “Requires revisions: A budget is based on a set of assumptions that are generally not too far distant from the operating conditions under which it was formulated. If the business environment changes to any significant degree, the actual results will rapidly depart from the expectations delineated in the budget.” Impossible with S&OIS.  As described above, ANY changes in its assumptions are incorporated in the current S&OIS model and a new S&OIS is developed.
3. “Time required: You can put a bunch of people on it for months, and managers have to provide their input, too. And then you go through God only knows how many iterations to fine tune it.” That time is required only once; when S&OIS is installed during the time next’s budget is being developed. After that, there is no more “Time required.” As soon any changes occur to the “their input,” S&OIS is updated with them and a new S&OIS is created. The budget has become an continual event not a yearly event. And, a great deal of time and resource are saved every year.
   
4. Allows gaming: Managers attempt to introduce budgetary slack, which involves deliberately reducing revenue estimates and increasing expense estimates.” Managers have no chance to game because managers have no input to S&OIS.  S&OIS builds the departments’ budgets by simply multiplying their forecast-ed volumes by their departments’ activity costs required to process those volumes.
5. Use or lose it problem: Everybody knows that if you don’t spend every last cent in your expense budget, you’ll be assigned a smaller budget the next year. So that means managers spend money like crazy in the last month of the year. As described above the manager’s budget is set by S&OIS and has nothing to do with previous spend.
6. Problems with capacity planning: The trouble here is that you plan for all of the fixed asset purchases for the next year during a few weeks at the end of the preceding year…pre-approved fixed asset will be bought…usually bought earlier in the budget year. Therefore, expect to need more cash than you expected for fixed asset purchases.  There is no such thing as “pre-approved’ asset purchases in S&OIS. Every department’s activities have a capacity and capacity relief purchase(s) identified including a lead time and price. All of which are in the S&OIS model.  So, when a lead time is hit, the money is spent and the asset acquired.
   
7. Command and Control problems: When you have a command and control system, the “control” part of the equation is the budget…people defend their budgets ferociously…can’t react quickly to new opportunities…system becomes rigid…Finally, command and control systems are both expensive and self-perpetuating. “Command and Control” is impossible with S&OIS. i) People can not defend their budgets, ii) As soon as a “new opportunity” is identified, it is added to S&OIS and, “finally” iii) the costs are negligible.
   
8.  Blame for outcome: If a department does not achieve its budgeted results, the department manager  may blame any other departments that provide services to it for not having adequately supported his department. There is no such concept as “budgeted results” for a department with S&OIS.  Its results are simply its’ activity’s costs multiplied by its volumes.
9. Expense allocations: The budget may prescribe that certain amounts of overhead costs be allocated to various departments, and the managers of those departments may take issue with the allocation method used. S&OIS has solved the allocation problem with a concept called landed product cost.
10. Bureaucratic support: Once the budget and bonus plan system takes root within a company, a bureaucracy develops around it that has a natural tendency to support the status quo.”  S&OIS is a model; it has no “status quo.” Further, a “status quo” is irrelevant to S&OIS as it is always being updated. Bonuses are, actually, a very interesting opportunity. Now that the department managers has an activity models, make their bonuses a function of how much they made their departments’ activities more efficient.
    
11. Only considers financial outcomes: The nature of the budget is numeric, so it tends to focus management attention on the quantitative aspects of a business; this usually means an intent focus on improving or maintaining profitability…the budgeting concept does not necessarily support the needs of customers. S&OIS allows the firm to evaluate other  business models than profit. One is  Economic Value Added: It is used to evaluate firm’s economic performance. It is based on the concept of shareholder value. It is computed by subtracting the company’s cost of capital from its net operating profits.
12. Strategic rigidity: The senior management team may decide that the focus of the organization for the next year will be entirely on meeting the targets outlined in the budget…This can be a problem if the market shifts in a different direction sometime during the budget year. This is not possible with S&OIS because the market’s shifts are continually being incorporated in S&OIS. See (2) above.