Question

Discuss the limitations in the budgeting practice and make recommendations for improvements in regard to banks

Answer 1

Limitations in the budgeting practice-

1. inaccuracy since a lot of assumptions are made while making budgets its not always very accurate and this may cause wrong projections and calculations in the company.
2. time consuming and costly- it takes huge amount of resources including both human and physical to create budgets. a lot of time is also required to be deposited to this process
3. rigidity- once a budget has been made with all the analysis there is very little scope for flexibility and all the banks strategies are then made according to that budget only
4. may lead to conflicts- as the budget making process is very subjective it may lead to conflicts among the managers with regards to funds allocated to various departments.

5. scope for manipulations- since budgeting involves a lot of assumptions being made there is a scope of manipulation figures for one's own interest.

Recommendations for improvements in banks

• keep your budgeting process flexible so as to increase accuracy
• rather than making budgets on assumptions try to use present facts in the process
• budget your budget- Don't spend too much!
• involve the entire team to remove subjectivity and to know different opinions
• try to plan for various outcomes
• keep tracking the changes till the budget is finalized
• try to incorporate cash flow goals as well and keep it as realistic as possible