Ans. Budgeting is a process, which includes two important functions: Budget and Budgetary control. Budget is a planning function and budgetary control is a controlling system or technique. A manager looks to the future, searches for alternative courses of action and predetermines a course of action to be taken in relation to known events and the possibilities of future problems. Thus, the budget will do this work for the activities of a business enterprise. I.C.M.A., London defines the budget as “Budget is financial and/or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given object”.
ADVANTAGES
OF BUDGETING
The
following are the advantages of budgeting:
a)
Budgeting leads to maximum utilisation of resources with a view to ensuring
maximum return.
b)
Budgeting increases the awareness about business enterprise at all levels of
management in the process of fulfillment of targets. c) Budgeting is helpful in
better co-ordination between different functions/activities of
business/organisation and hence, better understanding between different
functions.
d)
Budgeting is a process of self-examination and self-criticism which is
essential for the success of any organisation. e) Budgeting makes a path for
active participation and support of top management
f)
Budgeting enables the organisation to prefix its goals and push up the forces
towards their achievements.
g)
Budgeting stimulates the effective use of resources and creates an attitude of
cost consciousness throughout the organisation.
h)
It creates the bases for measuring performances of different departments as
well as different functions of the production activities.
LIMITATIONS
OF BUDGETING
Inspite
of the above advantages, budgeting has the following limitations:
a)
Forecasting, planning or budgeting is not an exact science and a certain amount
of judgement is present in any budgeting plan.
b)
The basic requirement for the success of budgeting is the absolute support and
enthusian provided by the top management. If it is lacking at any time, the
whole system will collapse.
c)
Budgeting should be followed up by effective control action, this is often
lacking in many organisations, which defeats the very purpose of budgeting.
d)
The installation of budgeting system is an elaborate process and it takes time.
e)
It is only a source and not a target and hence, can not take the place of
management, while it is only a tool of management. Thus, the budget should be
regarded not as a master, but as a servant.
f)
It requires the experienced man-power, technical staff, analysis, control etc,
hence, it is costly affair.
thanks sir,,
ReplyDeletesome unit's questions are not opening?