Responsibility accounting is a fundamental piece of good budgeting. Budgets must be prepared by the people who will be responsible for achieving them.
When budgets are prepared by the individuals who are held responsible for achieving them, this ensures that full use is made of the knowledge of the people who have access to the greatest level of detail.
It also means that managers and their subordinates are committed to the budget and will be realistic yet ambitious when setting targets.
When the budgeting process starts from a “grassroots” level, there is a better chance of getting realistic results. With the greater involvement of staff, cost control will also improve.
Budgeting and responsibility accounting together imply providing management control information. This feedback system compares the performance and effectiveness of operating with the plan.
It also provides an opportunity for the reappraisal and adjustment of plans.
Budgeting helps to determine priorities. Management information produced by the budgeting process makes the complex matter of running a business a lot easier.
Budgeting is concerned with management effectiveness. It is better to do the right job moderately well than to do the wrong job superlatively well. Of course, it is better yet to do the right job superlatively well!