Question

To what extent are budgets useful to organizations? Discuss why managers often complain about the budgeting process. Provide practical and relevant examples to support your answers.

Answer 1

A budget is a plan or an estimate of the income and expenditure to achieve a particular objective for a specific period of time. It helps managers to effectively plan and control the resources to ensure the project is delivered on-time within the budget. Budgeting helps managers to have control over their financial resources and make optimum use of resources. In other words, it gives the managers control over their finance. It helps managers to have focus on their financial aspect which is the lifeblood of the organization. Most companies operate for maximizing profitability however non-profit companies also use budget to ensure that the sourced funds are used effectively for their projects. Budgeting will help organizations to monitor their financial goals and alerts managers of any deviations. Thus, it is pertinent to say that budgets are useful to a great extent for organization without which organizations cannot function successfully.

Managers often complain about the budgeting process because budgeting is a highly time consuming process and they are too busy to spend too much of their time only for budgeting. Traditional budgeting process requires managers to spend more time on budget when the managers feel that they could use them more productively for managing other things.

Additionally, budgeting is a rigid process which does not allow for any flexibility. Hence, managers find it challenging to comply with the rigid process/plan. It is also required for managers to manage the resources and its allocation one year in advance which makes it difficult for them to adapt to the changing needs of the business. Thus, managers feel that budgeting is a great hindrance for their strategic thinking.

A classic example is Tallwood Ventures Investments which focuses on investments in different sectors such as technology, products failed to be successful in its operations and it also ceased its operations. The reason is because the company management failed to raise the adequate capital to continue its operations. The financial needs were more than the budgeted and the company was unable to raise sufficient funds for its operations. This lack of budgeting by the management team led to the failure of the whole company.

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