Critically discuss the role of budgeting in the current economic climate, taking into consideration what is often referred to as

Critically discuss the role of budgeting in the current economic climate, taking into consideration what is often referred to as Essay example
Masters
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Finance & Accounting
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Critically discuss the role of budgeting in the current economic climate, taking into consideration what is often referred to as dysfunctional behavior emanating from this practice. Budgeting has become an important concept in the present day business scenario…

Introduction

It acts as a management tool by which the financial health of the company can be controlled (Banovic, 2005, p. 3). The benefits of budgeting include that of forecasting the future performance of an organization, addressing its developmental issues, promoting cohesion amongst the different departments and also predict any possibility of unforeseen expenses (The limitations of Budgeting, 2006). However, there are several limitations accrued to such a concept of traditional budgeting. This paper tries to address the role of budgeting in the current economic climate and the dysfunctional behavior that emanates from this practice. Budgets have been incorporated as financial plans in the corporate firms in the 1920’s. It has been accepted as an important part of their central planning and corporate system. Through the system of budget the managers of a company can co-ordinate the allocation of resources on one hand while tap and evaluate the expenditures on the other. This facility of this system has made the budgetary practices to remain unchanged throughout the decades. Yet, the managers and administrators have not failed to notice various dysfunctional behaviors associated with the system (Banovic, 2005, p. 1). In its course of action, a company might encounter several unpredictable events which require rapid responsive action. ...
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