The following are the advantages of budgeting:
- Budgeting leads to maximum utilisation of resources with a view to ensuring maximum returns.
- Budgeting increases the awareness about business enterprise at all level of management in the process of fulfilment of targets.
- Budgeting is helpful in better co-ordination between different functions/activities of business/organisation and hence better understanding between different functions.
- Budgeting is a process of self-examination and self-criticism which is essential for the success of any organisation.
- Budgeting makes a path for active participation and support of top management.
- Budgeting enables the organisation to prefix its goals and push up the forces towards their achievements.
- Budgeting stimulates the effective use of resources and creates an attitude of cost consciousness throughout the organisation.
- 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:
- Forecasting, planning or budgeting is not an exact science and a certain amount of judgement is present in any budgeting plan.
- The basic requirement for the success of budgeting is the absolute support provided by the top management.
- Budgeting should be followed up by effective control action, this is often lacking in many organisation which defeat the very purpose of budgeting.
- 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.
- It requires the experienced man-power, technical staff, analysis, control etc; hence, it is costly affair.