L2

• ADVANTAGES OF BUDGETING

  • Compels & motivates mgmt to make an early & timely study of its probs.

  • Provides a valuable means of controlling income & expenditure of a bus as it is a plan for spending.

  • Provides a tool through which managerial policies & goals are periodically evaluated, tested, & est as guidelines for the org.
• ADVANTAGES OF BUDGETING

  • Helps in directing capital & other resources into the most profitable channels.

  • Enables mgmt to decentralize responsibility w/o losing control of the busi.
• ADVANTAGES OF BUDGETING

  • Budgeting in an org develops:
  • An attitude of cost consciousness
  • Stimulates the effective use of resources
  • Creates an envi of profit mindedness throughout the org.
• ADVANTAGES OF BUDGETING

  • Provides a basis for measuring perf of depts & individs working in orgs.
  • Encourages productive competition
  • Provides incentive to perform efficiently
  • Gives a sense of purpose to each individ in the org.
• ADVANTAGES OF BUDGETING

  • Provs a systematic & disciplined approach to the sol of probs in the org.
• ADVANTAGES OF BUDGETING

  • If executed in nearly every enterprise, helps the total national economy by
  • Providing stability of employment
  • Economic use of resources
  • Effective prevention of waste
• LIMITATIONS OF BUDGETING

  • Planning, budgeting, or forecasting isn’t an exact science;
  • It uses approxs & judgment which may not be accurate.
• LIMITATIONS OF BUDGETING

  • There may be a temptation to spend excessive amts of money to use up the budget allowance.

  • The success & utility of budgeting depends on the cooperation & participation of all mgmt members.

  • Only a tool & neither eliminates/takes over the place of mgmt.

  • The est of a budgeting process takes time.
• LIMITATIONS OF BUDGETING

  • Excessive emphasis on budgeting may result in attempts by LL mgmt & EMs to buck the system by providing inaccurate estimates of future costs & revenues-
  • -& by failing to take adv of changes in the envi bec to do so would result in a deviation from plan, they would be considered as operating contrary to the budget.