Question

Budgets play a critical role in management activities such as planning, controlling and motivating employees. Used effectively, budgets can help a company achieve its goals and create a productive work environment. In contrast, budgets can also create a hostile work environment. Consider the relationship between budgets and employee morale and then reflect upon your own work experiences. Explain how budgeting was incorporated to achieve the company's overall goals and objectives. Reflect on whether or not the budgets were effectively applied and whether your experience was positive or negative. Why do employees have so much emotion when it comes to budgets and budgeting decisions?

Answer 1

Consider the following explanation

Step-by-step explanation:

Mentioned below benefits we can obtain from a effectively managed budget:

1. Budget compels and motivates management to make an early and timely study of its problems. It generates a sense of caution and care, and adequate study among managers before decisions are made by them.
2. Budget provides a valuable means of controlling income and expenditure of a business as it is a “plan for spending.”
3. Budget provides a tool through which managerial policies and goals are periodically evaluated, tested and established as guidelines for the entire organization.
4. Budget helps in directing capital and other resources into the most profitable channels.
5. Budget enables management to decentralize responsibility without losing control of the business. It reveals weaknesses, inefficiencies, deviations in the organization very promptly which can be checked immediately to achieve a desired goal.

In Contrast there are below demerits an organization will suffer for budget if the budget is not accomplished effectively:

1. Planning, Budget or forecasting is not an exact science; it uses approximations and judgment which may not be fully accurate. At best, a budget is an estimate; no one knows precisely what will happen in the future.
2. The success and utility of Budget depends on the cooperation and participation of all members of management. All persons should direct their efforts according to the plan. The top management also should adhere to the budget and provide cooperation. Many a time Budget has failed because executive management has paid only lip service to its execution.
3. A budget is only a tool and neither eliminates nor takes over the place of management. A budget cannot be substituted for management but should only be used by management for accomplishing managerial functions. Executives generally feel “circled in” by a budget and its related figures. They fail to understand that budget is meant to provide detailed information, goals and targets which may help them in achieving the company objectives
4. The establishment of a Budget process took time. Also, sometimes too much is expected from a budget and in case expectations are not fulfilled, the blame is put on the budget. An efficient Budget programme requires that responsible persons should understand the philosophy, objectives and essentials of Budget.
5. Excessive emphasis on Budget may result in attempts by lower level management and employees to buck the system by providing inaccurate estimates of future costs and revenues, and by failing to take advantage of changes in the environment because to do so would result in a deviation from plan, they would be considered as operating contrary to the budget. Under an unbalanced budget programme, employees will tend to overestimate costs and underestimate revenues, thus creating budget slack.