Justification for not budgeting

Budgeting Negatives

Contending with the Drawbacks of Budgeting

Budgetary oversight is an inherency of organized business management. Even informal associations and temporary planning committees will use budgetary strategies to project expected costs, anticipated revenue and the balance likely to be yielded by these factors. To a very real extent, it is foolhardy if not impossible to proceed according to a plan which requires expenses, debts, income and vendor interaction without mapping out these factors according to a budget of available and needed resources.

That stated, the budgetary process is certainly not without its flaws. Caution is demanded in using approaches that are heavily reliant upon the figures constituting a budget. This is because "past research on the budgeting process has shown that budget estimates are rarely achieved for two principal reasons: (1) imperfect forecasting models and (2) divergence between individual and organizational goals. These problems lead to distorted, or biased, information input to the accounting system. it's imperative that managers understand budgetary biasing behavior because reliance on biased information may contribute to poor decision-making." (Walker, 1)

This means that leadership may be misguided by too heavy a dependence the limitations suggested by a budget or that leadership may act in ways that are not economical due to the budget's overestimation of required resource. In either event, the indication is that the budgetary expectations which are to be viewed simply as such may be conflated with a true representation of performance. This presents a danger of acting without the flexibility truly available in the practical implementation of a plan, suggesting the budget to be a hard and fest representation of the project outlook.

Additionally, the association of this budget with such issues as employee or personnel performance can have the danger of instigating unwanted associated between individual fulfillment of responsibility and budgetary outcomes. Where budgetary failures appear, such an association may represent a threat to the personnel who view their security as a function of this budget. Indeed, research denotes that measuring "performance against budget become a kind of league table the winners are promoted and the losers are relegated." (Hope, 150) the establishment of a clear correlation between budgetary outcomes and individual outcomes can have a danger of increasing the sense of insecurity and lowered morale that can be devastating when already in the face of financial crisis, operational disruption or leadership transition. Therefore, an organization must be conscientious of the ways in which it constructs, presents and implements the various features of its budget.

The demonstration of any intention to use budgetary means as a penalty indicator is likely to be problematic. But by contrast, there are opportunities in budgeting according to the provision of incentive. Available literature on the subject indicates that "contingent-reward leadership behavior has a direct and positive effect on attitudes toward the budgetary process, and an indirect effect through economic games. On the other hand, we find evidence that contingent-punishment leadership behavior has only an indirect and negative effect on attitudes toward the budgetary process through devious games." (Huang & Chen, 1) This characterization of using the budgetary process to play 'games' carries with it a negative connotation, which is driven by the inherently threatening implications of tying personal income to performance evaluation.

That said, budgetary clarity is among the most important features to creating and implementing an effective plan of operation in any context. This is to argue that there is never an excuse for a failure to properly budget. This is a primary purpose of accounting, which allows an organization to identify those resources and conditions at its disposal and to determine how these can be used to yield functional operation, sustainability and profitability. Though the numbers which are yielded from a projected budget cannot be used as restraints with respect to operational creativity or mutability, these should at least help to establish a plan of action; anticipate certain milestones in the execution of the plan; to project a time line based on projected expenses and revenue; and to use these figures to approximate how close an organization is to its goals and ambitions. The budget will be a key instrument in identifying long-term goals while simultaneously tracking short-term goals.

There are still likely to be negative outcomes, especially were budgetary processes are inevitably tied to the income of individual team members. In such instances, negative periods in the budgetary life of an organization will have a distinct impact on the attitude and moral of workers. Therefore, the correlation between budget and income should be an aggressively positive one in which financial incentives are written into the budget with a great enough latitude to excite the emotional and professional investment of team members.