Question

Budgeting can be an important management tool if implemented properly. Identify several positive results when budgets are used properly and correctly. Since budgets affect people, identify several negative aspects if budgets are not implemented properly and correctly.

Answer 1

Budgets are directly linked to Control activities. In budgeting we not only make projections but also apply control procedures if projected data is unfavourable. Also we tried our best to get the favourable result shown by budget.

If budgeting is done and used properly it can help management in following-

1. When mgmt. prepare the budget it gets to know the resources it have , so the allocation of resources is easy.

2. The reasons of past failures also analysed.

3. Management can plan for further activities quickly as they came to know about resources and their allocation. So It SAVES TIME.

4. Management also get clearity about their time allocation to activities. As budget reveals the areas require more supervision (by analysing variance).

5. The day to day activities will run without any barriers.

6. Decision making will be easy and less time consuming.7. The overall efficiency increases .

7. Performance evaluation can be done.

8. Full capacity will be used if not previously.

9. The wastage can be ignored by applying control procedures and thus cost is saved.

10. The overall efficiency of business increases.

Negative aspects

1. Time consuming.

2. Assumptions based -so may be the applied assumptions will not fit in actual circumstances.

3. decision making is also become tough when financial data in favour and other data ie efficiency variance is unfavourable.

4. Mostly give importance to financial outcomes.

5. Rigid decision making.

6. Activities are less flexible when budget oriented.