Limitations of Budgetary Control
The advantages of using a budgetary technique are unquestionably impressive. However, the limitations and pitfalls of budgeting should also be mentioned.
1. Budgeting Control Based on Estimates
Budgeting is not an exact science; a certain amount of estimation is present in all budgetary plans. A revision or modification of estimates should be made when variations from the estimates warrant a change of plans.
2. Requires Cooperation and Participation of All
The success of budgetary control depends on the active cooperation of all relevant members of the department.
3. Lack of Flexibility
Budgets are prepared in advance and based on estimates. Later on, some changes may be desired but the budget estimate may remain the same. Thus, flexibility can sometimes be lacking.
4. Expensive Tool
The use of budgetary control techniques is expensive. Most small organizations cannot afford the cost.
5. Continuous Checking
The success of budgetary control depends upon constant checks. These checks need to be performed to control diverse activities.
6. Depends on Determination of Responsibilities
The success of budgetary control depends upon a well-defined organizational system. Here, the responsibilities that are needed for control are fixed.
7. Depends on Accounting Information
The success of budgetary control depends upon accounting data. For this reason, adequate accounting records should be maintained based on the needs of budget centers.
8. Budgetary Control is Time-Consuming
The installation of a budget takes substantial time.
Due to this, management sometimes becomes impatient and loses interest, expecting too much too soon.
The budgeted plan must be explained to the responsible persons, who must be guided, trained, and educated regarding the fundamental steps, methods, and purpose of budgetary control.
This all goes to show that in order to achieve good budgetary control, extensive knowledge, time, and expertise is required.