Benefits of Budgets
- provide direction and coordination: spending is geared towards the aims of the business
- Motivate Staff: Mayo and Herzberg ... motivated by the responsibility and recognition of meeting budget targets.
- They improve effciency: by monitoring budgets the business can evaluate the causes of any successes or failures and improve in the future.
- Assess forecasting ability: budgeting encourages careful evaluation of the future possibilities and realistic planning.
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Drawbacks of Budgets
- Allocations may be incorrect: budgets are predictions, there will always be unforeseen changes. insufficent budgets may demotivate staff.
- Savings may be sought that are not in the intrest of the firm: buying cheaper materials may lower the quality of the end product, causing cutomer discontent.
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Features of good budgeting
- Be consistent with the aims of the business
- Be based upon as many opinions as possible
- Set challening but realistic targets: SMART
- Be monitored regularly
- Be flexible: incase there are any unforseen changes in the business a budget needs to be flexible so if necessary it can be adjusted to a more realistic level.
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