Limitations of Budgetary Control – Limitations of Budgetary Control question

Limitations of Budgetary Control

A properly prepared budget plays an important role in establishing control over various types of expenses in any business undertaking. Budgetary control makes it easy for the manager to determine the rights and duties of each employee. Through budgetary control, the efficiency of all the departments of management is known. The importance of budgetary control has increased due to increasing complexity day by day due to large volume of production. Through budgetary control, the managers have to operate at full capacity, and as a result, the enterprise develops at full speed.

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.

7. Depends upon Support of Top management

The success of budgetary control depends upon the support of top management. If the top management is not enthusiastic for its success, the budgetary control collapses. So, the whole-hearted interest of top management is highly essential for its implementation, in its true spirit, to make it workable and succeed.

budget is only a means of management

Management budget is only a tool and not a substitute. Many things are necessary for the success of any business. People who only consider the budget as the key to managerial success, they actually lead the business towards danger by forgetting other facts which are essential parts of managerial success, such as personal decision, efficiency of the executive.

elasticity of budget

The budget estimates have to be changed from time to time according to the circumstances. In the present times, the circumstances keep on changing rapidly and the budget also depends on the future estimates of the expenses.

Limitations of Budgetary Control

Limitations of Budgetary Control question and answer 

  question State the limitations of budgetary control.

Answer – The following are the limits of budgetary control

(i) A barrier to motivation The budget becomes a barrier to managerial motivation as the executives achieve the budgetary targets.

(ii) Achievement of goals – Budget makes it impossible to achieve goals, because budgets are based on forecasts and those forecasts may not be completely correct.

 question  State the advantages of budgetary control.

Answer – Following are the advantages of budgetary control

(i) Corrective Action – One of the benefits of budgetary control is to conduct a comparative study, under which the budget figures are compared with the actual work progress.

(ii) Based on forecast – In the budgetary control process, the budget is prepared on the basis of forecast.

Limitations of Budgetary Control 

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