"A budget is an estimation of revenue and expenses over a specified
future period of time and is usually compiled and re-evaluated on a
periodic basis." (Ganti, 2022) By having a budget, there are
advantages and disadvantages. Budgeting can "promote coordination
and communication within the company, provide a framework for
judging performance and facilitating learning, and motivate managers
and other employees." (Dater & Rajan, 2018). The disadvantage of
budgeting is that by "using the budget to manage a business result in
both leadership and employees not thinking critically about spending
or revenue opportunities." (Rygelski, 2018).
I personally do not support a company's use of a traditional budget.
Budgets are "usually based, like last year's performance, on stale
information and assumptions about things that are going to happen
12 months or more in the future. " (Rygelski, 2018). I feel that
assumptions are never good. You cannot foresee what will happen in
the future. For example, when I was still working as Assistant
Manager at Panda Express, the weather affects our revenue for the
day/week. If it rains, there is less guess who wants to drag their family
out for lunch or dinner. We also can't predict any constructions or
mishaps that may happen around the area.
Reference:
Datar, S. M., & Rajan, M. V. (2018). Horngren's cost accounting: A
managerial emphasis, global edition, 16/E 12. PEARSON EDUCATION
LIMITED.
Ganti, A. (2022, February 8). Budget. Investopedia. Retrieved May 26,
2022, from https://www.investopedia.com/terms/b/budget.asp
Rygelski, M. (2018, January 5). Council Post: Budgets Don’t Work:
Here’s How Businesses Can Do It Differently. Forbes. Retrieved from:
https://www.forbes.com/sites/forbesfinancecouncil/2018/01/05/b
udgets-dont-work-heres-how-businesses-can-do-it-
differently/?sh=2cb42dd846b8
