Question

What behavioral problems are associated with setting a budget too loosely?

Answer 1

Budgeting:

Budgeting is the basis for all business success. If done correctly, a budget will help a business both plan and control its finances so that the owner can focus on cash flow, revenue, reducing costs, improving margins and profits.

Answer and Explanation:

The behavioural problems associated with setting a budget too loosely are;

1) inaccurate picture of revenue and expense forecasts,to look

2) reduced accountability for budgetary constraints, and

3) overzealous spending and potential for wastage.

The behavioural problems associated with establishing conflicting goals within the budget are;

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1) establishment of competing priorities,

2) resentment and confusion within teams,

3) lack of clarity reduces focus on the end goal, and

4) potential for missed opportunities for leveraging resources.

An example of conflicting goals in a budgeting process could be to increase sales revenue with a decrease in marketing spend.

The benefits of top-down budgeting are;

1) a narrow scope of control, and

2) a clear understanding of budgeting constraints and goals.

The drawbacks of top-down budgeting are,

1) lack of input from functional teams, and

2) reduced flexibility.

The benefits of participatory budgeting are;

1) collective insight and real input in forming a budget, and

2) an increased sense of ownership.

The drawbacks of participatory budgeting are,

1) competing priorities and resentment across teams, and

2) potential for too much slack in budget categories.