Question

what are some behavioral problems associated with setting budgets and how can we reduce such problems

Answer 1

Budget is used in forecasting the expenditures and income. It is useful in many ways but there are some problems associated with it, these problems are as following:

1. Budgets are used to set the targets, sometimes setting unrealistic targets de-motivate the employees.
2. If there is variance in budgets then managers have to be answerable that create tension in the organization.
3. There are conflicts among the managers of different department as they want to set their own budgets.
4. If wrong and unrealistic information or amount is used in the budget, it can create problem.

Problem solving- We can reduce the following problems in the following ways:

1. Company should either increase its revenue or should decrease the expenditures for balancing the budget.
2. Company's key people should not impose higher and unrealistic targets on the managers because doing so will increase the burden of managers and their subordinates and it will create tension among them.
3. Managers should review the budget every month so that there may not be any variance and unnecessary item in the budget.