- Tim Spafford
Limitations and Potential Problems of Budgeting
Budgeting, as well as any kind of planning, is usually good for a business, but it has certain limitations and can lead to potential problems. I’m still pro-budget, but for those of you who want to know more, here’s a short guide to the slightly negative side.
A plan is by itself a limit, and concerning business budgeting, the frameworks are the following:
- The analysis can only be as good as the data provided for it. So, if you don’t track the data, don’t expect to get a proper picture of your company’s affairs.
- It takes a lot of time to create a budget, and it might need to be changed completely if the financial, economic, etc. situation changes.
- Making a fit budget may lead to short-term decisions in its favor, instead of long-term ones that would exceed the current limit.
- Managers can lose focus on the main goals of the company while creating and controlling the financial plan.
In large businesses there are whole departments that have setting and maintaining budgets on a weekly, monthly, or yearly basis. While this eliminates the last limitation, all the others are still in place. That’s why budgeting must be wise and potentially resilient in order not to block good long-term decision-making and help your business affairs.
Potential Problems Caused by Budgeting
Most of the issues are connected to the changing in motivation of the employees:
- If the budget is imposed on them instead of being negotiated with them, it may bring serious demotivation in certain employee teams.
- Unrealistic goals set with a certain plan may change their attitude to work, which can lead to drop in productivity.
- Budget allocation may bring unnecessary competitiveness between departments. While healthy competition is often a catalyzer for success, it may grow into rivalry, which is very unwanted.
All these potential problems can be easily avoided by talented managers, friendly team of professional employees, and wisdom when setting a budget. Before creating a plan seeking new heights, managers should deeply analyze the current state of affairs. In order to do that, the data provided should be detailed and full enough to create a picture where your sales, profit, spending, etc. show perfectly.
So, I’d say it’s all a complex consisting of everyone’s contributing to the well-being of the business. If all the parts of this complex are in balance, a good budget will work perfectly for any kind of company, no matter how far reaching your decisions will be.