Advantages and Disadvantages of Budgeting

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A realistic budget will motivate action. This may be true, but what is important is that the budgetary control system keeps the organisation fit, monitors its progress and provides an important database in the decision-making-process. The benefits and drawbacks of budgeting.

There are many advantages to using budgets. The advantages of budgeting includes:
  • forces managers to plan.
  • provides performance benchmarks.
  • promotes communication and coordination.
There are the number of disadvantages of budgeting. The disadvantages of budgeting includes:

  • consumes a good deal of time.
  • may lead to a short-term focus and “gaming” behavior.
  • managers may simply extrapolate current trends.
  • may lead to the impression that functional areas are independent.
  • may promote a “slash and burn” mentality in tough times.

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