Using budgets

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  • Created by: korke
  • Created on: 30-03-12 08:50

Budgets

Benefits

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.

Drawbacks

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

Comments

korke

hope it helps! ;)

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