ADVANTAGES & DISADVANTAGES OF BUDGETING
ADVANTAGES
- coordinates activities across departments.
- Budgets translate strategic plans into action.
- Budgets provide an excellent record of organizational activities.
- Budgets improve communicationwith employees.
- Budgets improve resources allocation, because all requests are clarified and justified.
- Budgets provide a tool for corrective action through reallocations.
DISADVANTAGES
- The major problem occurs when budgets are applied mechanicallyand rigidly.
- Budgets can demotivate employees because of lack of participation. If the budgets are arbitrarily imposed top down, employees will not understand the reason for budgeted expenditures, and will not be committed to them.
- Budgets can cause perceptions of unfairness.
- Budgets can create competition for resources and politics.
- A rigid budget structure reduces initiative and innovation at lower levels, making it impossible to obtain money for new ideas.