They provide direction and coordination - Budgets ensure that spending is geared towards the aims of the business rather than those of the individual, and they can ensure a united approach within an organisation.
They motivate staff - According to Mayo & Herzberg, teams and individuals are encouraged by the responsibility and recognition gained from meeting targets.
They improve efficiency - By monitoring and reviewing budgets, the business is able to establish standards and investigate the causes of any successes and failures.
They assess forecasting ability - Although changes cannot always be foreseen, businesses that can predict the future have significant advantages.
They are difficult to monitor fairly - Senior managers will be less aware of detailed expenditure and costs, so that they may rely on the honesty of the budget holder in explaining a department or section’s budgeting needs.
Allocations may be incorrect - Budgeting is based on predictions of future events; this means that it is hard to predict the future.
Savings may be sought that are not in the interests of the firm - Economies…