Question

Is it important for a company to follow a strict budget even though they may be experiencing phenomenal profits? Do you think that there will be a bias towards greed when creating the budget for this company? Explain.

How does management greed influence budget decisions?

Please consider each of the questions separately in this post. It is important for you to understand the value of the budget as a blueprint for the business – even in times of exceptional “good news”.

It is also important to consider the role of greed within the budgeting process of the firm. Perhaps you might want to think about the budget as a communication to employees about what ownership and management believes is its focus.

You might even want to see if any other of the exceptional “bad boys” in the business world were reflecting their greed even within their budgeting documents.

Answer 1

Yes it is important for companies to follow a strict budget even at times when they are experiencing phenomenal profits. Companies should not forget that they are making profits only because they have been able to save on expenses by sticking to the budget. Having extra money is always good for a business as it helps the business become stronger and grow. It is a well-known fact that economy is cyclical and downturns are inevitable. Sooner or later the economy will go down if today it is up. Therefore: creating and following a strict budget even at good times when the business is making huge profits should not be seen as bias towards greed. Keeping a lid on expenses by creating a strict budget even at times when companies are experiencing phenomenal profits helps them remain prepared for the Downturns.