Despite the numerous advantages of budgeting, there are negative aspects to budgeting. Discuss the potential problems associated with the use of budgets
Budgeting is the process of creating a plan for expenditures. It helps in better decision making and alloting money properly. Though there are many advantages of budgeting, there are some disadvantages also which are as follows:
1)Time Consuming: Budgeting process can take longer time if proper budgetary processes are not in place and managers don’t have experience in budgeting. It required several iterations which required time from management and managers.
2) Playing with numbers: Experienced managers can play with numbers to reduce the reduce the revenue and increase the expenditure so that they will be able to show better variances at the end of the period.
3) Spending all the budget: Managers expense all the allocated budget even if there is no requirement because of the thinking that if they don’t expend it they will loose it.
4) Strategic Rigidity: When a budget is created, the focus of the organization may become entirely to meet the budget and may lose focus on the market and cannot adjust to market shifts which may affect the company’s overall position in the market.