Disadvantages or Limitations of Budgetary Control

Budgetary control is used as a tool of management control and derives some benefits. Even though, there are some disadvantages or limitations also. They are listed below.

Disadvantages or Limitations of Budgetary Control

1. The budgets are prepared on the basis of estimates. If the estimates are wrong, the budgets will be misleading. Hence, the success of budgetary control is fully depending upon the degree of accuracy of estimates.

2. Future is uncertainty and cannot be predictable accurately. A budget is prepared for future period. Hence, the budget does not show reality.

3. A budgetary programme is a rigid one. The deviations are find out by comparing actual performance with budgeted figures. The deviations are accruing due to changed conditions. If so, the management cannot fix responsibility on any employees.

4. The budgets may be revised from time to time because of changed conditions. If so, it leads to more administration expenses.

5. If the budgets are revised frequently, the employees can lose their faith in budgeting.

6. Budgets may serve as constraints on managerial initiative because every employee tries to achieve the budgeted figures.

7. The budgetary control requires active participation and cooperation in preparation and implementation among the employees at all levels. But, in practice, such type of participation and cooperation are not easily available to the organization.

8. The budgetary control develops conflicts among the line managers. The reason is that every manager wants to get more resource allocation through budgets, shirk responsibility and blames others for pit falls.

9. A budget cannot be used as a substitute for management. According to Welsch,

“A budget is not designed to reduce the managerial function to a formula. It is a managerial tool”.

10. A small business organization cannot afford the employment of budgetary control as a cost control technique since it involves more expenses.

11. The preparation of budgets requires specialized staff. Such specialized staff is not available adequately to the organization.

12. The cost of installing and operating a budgetary control system should be commensurate with the benefits derived there from. But, in practice, it is not like so.

13. If the budgetary control system is badly implemented, the employees are frustrated and cause antagonism. These things lead to low morale among the employees.

Despite the above limitations of budgetary control system, the budget is an essential one to an organization for exercising effective control on employees.

Share the Knowledge: