Advantages and Disadvantages of Budgeting

The following are the advantages of budgeting:

  1. Budgeting leads to maximum utilisation of resources with a view to ensuring maximum returns.
  2. Budgeting increases the awareness about business enterprise at all level of management in the process of fulfilment of targets.
  3. Budgeting is helpful in better co-ordination between different functions/activities of business/organisation and hence better understanding between different functions.
  4. Budgeting is a process of self-examination and self-criticism which is essential for the success of any organisation.
  5. Budgeting makes a path for active participation and support of top management.
  6. Budgeting enables the organisation to prefix its goals and push up the forces towards their achievements.
  7. Budgeting stimulates the effective use of resources and creates an attitude of cost consciousness throughout the organisation.
  8. It creates the base for measuring performance of different department as well as different functions of production activities.

Despite of the above advantages, followings are disadvantages of budgeting:

  1. Forecasting, planning or budgeting is not an exact science and a certain amount of judgement is present in any budgeting plan.
  2. The basic requirement for the success of budgeting is the absolute support provided by the top management.
  3. Budgeting should be followed up by effective control action, this is often lacking in many organisation which defeat the very purpose of budgeting.
  4. It is only a source and not a target and hence can not take the place of management while it is only a tool of management. Thus, the budget should be regarded not as a master but as a servant.
  5. It requires the experienced man-power, technical staff, analysis, control etc; hence, it is costly affair.

Related Articles:

Meaning and Objectives of Budgeting

Classification of Budgets

Functional Budgets & their Details

Budgetary Control & Objectives of Budgetary Control

Government Budget & Its Importance

Stages Involved in Preparation of Indian Budget