Budget and Short-term Financial Plan Essay

Submitted By dx8200a
Words: 362
Pages: 2

A budget is a short-term financial plan of income and expenses expected over a certain period of time (usually one year) used to achieve a business objective. Budgets regarded as a control method have the potential to help organizations and their members reach their goals. Budget control offers several advantages to managers.

Advantages
The main benefit is that it coordinates activities across departments and aligns them towards shared objectives. Budget enhances resources allocation since all requests are clarified and justified. It also provides an excellent record of organizational activities to help monitor and control operation, and offers a tool for corrective action through reallocations. Furthermore, budgets translate strategic plans into action, which specify the resources, revenues, and activities required to carry out the strategic plan for the coming year. It also improves communication with employees, as well as shows employees an overall picture of the direction of the organizationwhich can motivate staff. It also evaluate the performance of managers(99).

Disadvantages
However, bugets suffers from numerial shortcomings. It can be very time-consuming to create a budget, especially in a poorly-organized environment where many iterations of the budget may be required. Problems also occur when budgets are applied mechanically and rigidly because a rigid budget structure reduces initiative and innovation at lower levels, making it impossible to obtain money for new ideas. Budgets can demotivate employees because of lack of participation. If the budgets are arbitrarily imposed top…