Limitations of Budgetary Control – Problem of Co-ordination

 Limitations of Budgetary Control

1. Uncertainty of Future

Budgets are prepared for the future periods. So, budgets are prepared, with certain assumptions. There is no certainty that all the assumptions prevail in future. With the change in assumptions, the situation, in future, changes. Due to this, the utility of budgetary control reduces.

2. Problem of Co-ordination

The success of budgetary control, largely, depends upon effective co-ordination. The performance of one department depends on the performance of the other department. To ensure necessary co-ordination, organisation appoints a budget officer. All organisations cannot afford the additional expenditure involved with the appointment of a budget officer, separately. In case, budget officer is not appointed, lack of co- ordination results in poor performance.

3. Not Substitute for Management

Budgetary control helps in decision-making, but is not a substitute for management. A budgetary programme can be successful, if there is proper administration and supervision.

4. Discourages Efficiency

Every person is given a target to achieve. So, every one is concerned only achieving the target of his own. This is the common tendency. Even capable and competent people too would concentrate just to achieve their individual targets. So, budgets may become managerial constraints, unless suitable award or incentive system is introduced. In the absence of award system to recognise efficiency and exceptional talents, budgets may dampen the people, with initiative and enthusiasm.

5. Timely Revision Required

Budgets are prepared on certain assumptions. When those conditions do not prevail, it becomes inevitable to revise the budget. Such frequent revision of budgets reduces reliability and value. Revision of budgets involves additional expenditure too.

6. Conflict among Different Departments

For the success of budgetary control, co-ordination of the different departments is essential. Every department is concerned with the achievement of the individual department’s goal, not concerned with the final goal of the enterprise. In this process, each department tries to secure maximum fund allocation and this creates conflict among the different departments.

 Limitations of Budgetary Control

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