provide direction and coordination: spending is geared towards the aims of the business
Motivate Staff: Mayo and Herzberg ... motivated by the responsibility and recognition of meeting budget targets.
They improve effciency: by monitoring budgets the business can evaluate the causes of any successes or failures and improve in the future.
Assess forecasting ability: budgeting encourages careful evaluation of the future possibilities and realistic planning.
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Drawbacks of Budgets
Allocations may be incorrect: budgets are predictions, there will always be unforeseen changes. insufficent budgets may demotivate staff.
Savings may be sought that are not in the intrest of the firm: buying cheaper materials may lower the quality of the end product, causing cutomer discontent.
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Features of good budgeting
Be consistent with the aims of the business
Be based upon as many opinions as possible
Set challening but realistic targets: SMART
Be monitored regularly
Be flexible: incase there are any unforseen changes in the business a budget needs to be flexible so if necessary it can be adjusted to a more realistic level.
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