Having dealt with budgets over the years, I have observed the advantages and disadvantages. d
A business must start somewhere and plan how to allocate its money. d Without knowledge of
company finances and some expertise in preparing a budget, it can become a worthless piece
of paper.
Some of the advantages of having a budget are:
Long-term thinking –get managers looking ahead and setting goals
Shows where the money goes
“Who spends it and who makes it”
Review of assumptions
Why are we doing this?
Should we change the way we, do it?
Cash allocation
What areas/departments need a cash infusion
What areas/departments need to cut spending
Some of the disadvantages of having a budget are:
Time investment
Someone has to take the time to prepare a budget and do the proper research for it to be a
valid budget
“Gaming the system”
Deliberately misallocating funds to either make one department look better or set another one
up for failure
Looking after “pet projects”
“Robbing Peter to pay Paul”
Blame game
Pointing the finger at other departments
“Spend or Lose”
Fear that if the budgeted amount is not consumed that allocations will be lower in the future
which can cost the company money
Budgets don’t measure quality.
Products and services may be below par because corners are being cut in an effort to come in
under budget
It may be prudent to create a master budget that incorporates strategic planning. The next
step would be to create a “mini” budget for a shorter time period, for example, one quarter.
Once the quarterly budget is evaluated, the master budget can be reviewed and tweaked. d The
article suggests a shorter time. d A budget is necessary for success but needs to be looked at in
a different way that brings in not only financial aspects but other important considerations for
the success of the business in the future.
Budgeting is an “integral part of management control systems” (Datar, S., & Rajan, M.,
2018). Some of the advantages of budgeting are:
Promote coordination and communication among subunits within the company
Provide a framework for judging performance and facilitating learning
Motivate managers and other employees.
Budgeting is time-consuming, and “for most organizations, the annual budget process is a
month-long exercise that consumes a tremendous number of resources” (Datar, S., & Rajan,
M., 2018). As many companies are expanding their business and as technology is enlarging
daily, a traditional approach to budgeting may not always be the best solution for accuracy.
Companies are spending too much time on budgeting annually. "It’s much more accurate to
make predictions two months out. Base those forecasts on items similar to an annual budget,
such as contractual obligations, projected expenses, and sales estimates, but move them closer
to the activity." (Rygelski, 2018) This statement makes a valid assessment. Better forecasts
could be made if budgets were completed; changing the budget more frequently would also
help with overages and shortages and make fewer mistakes, especially when you think about
how many companies hold digital assets like Ethereum and Bitcoin on their balance sheets.
Because cryptocurrency is so volatile, it is better to report the value while the purchase is
being held than just writing a loss or the sale price annually.
Datar, S. M., & Rajan, M. V. (2018). Chapter 6: Master Budget and Responsibility
Accounting. In Horngren’s Cost Accounting: A Managerial Emphasis (pp. 197–249). essay,
Pearson Learning Solutions.
Rygelski, M. (2018). Budgets Don't Work: Here's How Businesses Can Do It Differently—
retrieved 2022, from https://www.forbes.com.
Budgeting is an “integral part of management control systems” (Datar, S., & Rajan, M.,
2018). Some of the advantages of budgeting are:
Promote coordination and communication among subunits within the company
Provide a framework for judging performance and facilitating learning
Motivate managers and other employees.
Budgeting is time-consuming, and “for most organizations, the annual budget process is a
month-long exercise that consumes a tremendous number of resources” (Datar, S., & Rajan,
M., 2018). As many companies are expanding their business and as technology is enlarging
daily, a traditional approach to budgeting may not always be the best solution for accuracy.
Companies are spending too much time on budgeting annually. "It’s much more accurate to
make predictions two months out. Base those forecasts on items similar to an annual budget,
such as contractual obligations, projected expenses, and sales estimates, but move them closer
to the activity." (Rygelski, 2018) This statement makes a valid assessment. Better forecasts
could be made if budgets were completed; changing the budget more frequently would also
help with overages and shortages and make fewer mistakes, especially when you think about
how many companies hold digital assets like Ethereum and Bitcoin on their balance sheets.
Because cryptocurrency is so volatile, it's better to report the value while the purchase is
being held than just writing a loss or the sale price annually.
Datar, S. M., & Rajan, M. V. (2018). Chapter 6: Master Budget and Responsibility
Accounting. In Horngren’s Cost Accounting: A Managerial Emphasis (pp. 197–249). essay,
Pearson Learning Solutions.
Rygelski, M. (2018). Budgets Don't Work: Here's How Businesses Can Do It Differently—
retrieved 2022, from https://www.forbes.com.
The advantages and disadvantages of budgeting. MJO bookkeeping services. (2020, January
20). Retrieved May 27, 2022, from https://www.mjobookkeeper.com/business-
management/article/the-advantages-and-disadvantages-of-budgeting/
Rajan, M. V., & Datar, S. M. (2017). Horngrens Cost Accounting: A managerial emphasis,
global edition. Retrieved May 27, 2022.
Rygelski, M. (2018, January 5). Council post: Budgets don't work: Here's how businesses can
do it differently. Forbes. Retrieved May 27, 2022, from
https://www.forbes.com/sites/forbesfinancecouncil/2018/01/05/budgets-dont-work-heres-
how-businesses-can-do-it-differently/?sh=6066a24a46b8
