Benefits: Controlling Finances; budgets allow a business to control expenditure, which would decrease the chance of over spending. It allows money to be specifically allocated to areas of the business which are in need of it.
Improving staff performance; people like being given reasonable and agreed objectives to work towards, they gain satisfaction from being trusted with responsibility, this motivational impact may encourage workers to keep within budgets.
Drawbacks; Depts. may compete for bigger budgets, but those who need the money may not get it.
Making cuts in the short-term to fit budgets may lead to long-term problems.
If targets are too ambitious and staff cannot achieve them, it may have a negative effect on motiviation.
For staff to gain motivation from using budgets, they must be involved in setting them up.
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