Benefits Of Effective Budgeting

Benefits of Effective Budgeting Source; Author’s work based on Horngren, et al. (2008)
Organization budgeting may fall into between extremities. Either the organization assumes the previous year activities would be the same as the budgeted activities, or the organization could assume ZBB, that will not adopts the current activities to continue. Either way, this encourages managers to evaluate the current activities and may modify, add or remove activities (Horngren, et al., 2008). Thus, optimizing the resources.
Horngren, et al. (2012) emphasizes that the budgeting promoted effective communication and coordination. For instance, a production manager could communicate with the marketing manager to manage and understand the optimum demand and

Clowes & Scriven (2011), Dutta (2009) and (Lal, 2002) have stated that budgeting is based on estimates and assumptions. Therefore, the quality of these estimates are crucial for an effective budget and thereby, budget has an inherent risk if the estimates are inaccurate. Another limitation is that budgeting process is costly and time-consuming. For instance, the cost of data collection for budgeting and time of the staff spent for planning. Therefore Clowes & Scriven (2011) suggest the management must confirm the benefits before implementing a budgeting system.
Since budgeting has some human intervention, there are possibilities of budget slack. This is where managers would propose their own budget and may “overstate their resource needs” (Abraham, et al., 2008, p. 185). This may due to the pressure of the top management or isolation of departments.
Budget may hinder the “creativity or improvements to processes” of a business (Clowes & Scriven, 2011, p. 7). If the budget are rigidly adhered to, the organization would not be able to innovate. Therefore, there are times where budgeting may be ignored. Management could also justify the variances rather than, provide alternative ways to improve the situation (Clowes & Scriven,

Therefore, their claims are justified with PwC departmental managers, Associate Directors and Finance Administrators.
Clowes & Scriven’s (2011) reason for budgeting Response from the Management
Forcing the firm to make detailed plan for a short-term period According to Peris (2017), once the master budget is created, the budgets are distributed to departments. This forces the department heads to be focused on budgets. If any deviated/variances occur, they are justified by the department head in a meeting with the partner.
Encourage communication and coordination between all departments. Suleiman (2017) states that ERP department had minimal interaction between other departments. The budgeting only allowed them to communicate within the department.
Able to allocate resources between departments Again, Suleiman (2017) had minimal interaction with other departments when budgeting. The reason is that it is due to functional organizational structure of the PwC.
Benchmarking The finance department is keen to ensure that all departments follow the budget. Also, with the aid of Senior Managers of each department, the cost