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Pros And Cons Of Budgeting

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A budget is a quantitative plan used as a tool for deciding which activities will be chosen for a future time period. Budgeting is the most important technique for the success of any company even if it is a small or a large company. Moreover, without a planned budget, it is impossible to handle the activities of any company to keep the company on track for a longer period. For a successful company, it is important to use performance management techniques to regularly review and measure the performance of the company where performance management includes activities which ensure that the goals are consistently being met in an effective and efficient manner. (Accounting coach, n.d.)
A budget can be used as a performance management technique as it reviews the efficiency and effectiveness of the company. It can be seen that using a budget fulfils many roles …show more content…

There might be unnecessary use of certain expenditures and overlooking of needed items. (Presearve Articles) Hiding ineffectiveness would be bad for the company as it will result to poor performance of the company. One of the important limitations of budget is its inflexibility. The figures mentioned are not final. As prices change very often, estimates mentioned in the budget may become absolute. Hence it may not provide any flexibility. (Presearve Articles) If the prices of materials or labor costs drop or increase world widely, there would be huge impact on the other activities as well and though budgets are inflexible, these figures cannot be changed immediately and finally the budget prepared would become useless at some point.
Furthermore, budgets only consider financial outcomes. Budgets are primarily concerned with the allocation of cash to specific activities, and the expected outcome of business transactions. They do not deal with more subjective issues, such as the quality of products or services provided to customers. (Accounting Tools,

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