Limitations of Budgetary Control

Limitations of Budgetary Control

Management must consider the following limitations in using the budgeting system as a device to solve managerial problems:

1. Budgeting is not an exact science, its success depends upon the precision of estimates. Estimates are based on facts and managerial judgement. Managerial judgement can suffer from subjectivity and personal biases. The efficacy of budgeting thus depends upon the quality of managerial judgement.
2. A perfect system of budging cannot be organized in a short period. Business conditions change rapidly. Therefore, the budging system should be continuously adapted to changing circumstance. Budgeting has to be a continuous exercise, it is a dynamic process. Management should not lose patience, it should go on trying various techniques and procedures in developing and using the budgeting system.
3. A skillfully prepared budget system will not by itself improve the management of an enterprise unless it is properly implemented. For the success of the budgetary system, it is essential that it is understood by all, and that the managers and subordinates put in concerted effort for accomplishing the budget goals. All persons in the enterprise must be fully involved in the preparation and execution of budgets, otherwise budgeting will not be effective.
4.  Budgeting is a management tool, a way of managing, not the management itself. The presence of a budgetary system should not make management complacent. To get the best results, management should use budgeting with intelligence and foresight, along with other managerial techniques. Budgeting assets management, it cannot replace management.
5. Budgeting will be ineffective and expensive if it is unnecessarily detailed and complicated. A budget should be precise in format and simple to understand, it should be flexible in application.
6. Budgeting will hide inefficiencies instead of revealing them if there is not evaluation system. There should be continuous evaluation of the actual performance. The standards should also be re-examined regularly.