Question

Budgets are an integral part of management control systems. Implementing a budget system faces many challenges but it can provide advantages to the organization.

(a)Describe the advantages of implementing a budget

(b)Describe the challenges of implementing budgets.

Answer 1

2.Advantages of implementing budget :

• A properly structured budget shows out what aspects of the business make money and for which purpose money is using, it will consider management whether it should drop some parts of the business or expand.
• The budgeting will take into consideration its key assumptions about its business environment. A periodic re-evaluation of these issues will result in improved alternative assumptions.
• Can consider employees goals for a budgeting period, and possibly tie bonuses or other incentives to how they perform. It will help to compare budget figures with actuals to give employees feedback.
• Budget helps in planning fund .Budget should derive the amount of cash that will be needed to support operations.

2. Challenges of Implementing budget :

• One of the most challenging parts of the budgeting process is getting employee support of the budget
• The financial goals used in the budgeting process often struggle to determine the appropriate level of aggressiveness. Most of the managers argue that targets should be extremely challenging, and that employees should have to stretch to make their goals even though employees are not ready to take challenges.
• Sometimes managers put condition that only if budgets meet compensation will be paid , for which employees don’t show interest.