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Budgeting for Guidance, not for Control
Jagdish B Acharya, Premium Member
Budgeting by itself is not bad. It is the importance that some organisations give to budgeting that may drive some to despise it.
Without budgets we would be playing hockey and reacting to stimulus with no idea of impact of step. With budgets, management knows if it is in control.
Using budgets for centralized control has lot of disadvantages. The business environment is changing so fast that a decision about the future has all likelihood of going wrong unless it has flexibility. Budgeting figures are calculated much in advance and cannot and should not be used for absolute control. In an organisation culture where budgets are considered sacrosanct, people try to project beyond practical limits and justify end by spending accordingly. This can lead to situations where innovative ideas are not pursued because they could not be envisioned earlier.
Decisions should be based on current, not budgeted Evaluation of the need and should only be guided by overall budget....
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