After ascertaining this, the limits of the budget follows.
A budget, to be useful to a manager at any level, must reflect the organization pattern. When plans are complete and coordinated very well to fit into the departmental operations, the department budget becomes useful as an instrument of control.
Budgeting, Hope and Fraser (1997:22) argue, should be dispensed with because it: "strengthens the vertical chain of command and control rather than empowering managers. It constrains rather than increases flexibility and responsiveness. It reinforces departmental barriers rather than encouraging knowledge-sharing across the organization. It makes people feel undervalued as 'costs to be minimized' rather than assets to be developed. And it is bureaucratic, internally focused and time-consuming." That is quite a diatribe. Yet, it seems from anecdotal and other evidence that budgeting remains 'alive and well' in most organizations.
First, there is a risk of overdoing the budget by way of spelling out minor expenses in detail that deprive managers of the needed freedom in managing their units. For instance, a department head in a poorly budgeted company was hampered in a very important sales promotion because expenditures for office equipment exceeded budgetary estimates.
Such being the same, the new expenditures had to ...
Such being the same, the new expenditures had to be limited, even though his total expenses in his unit where within the budget and he had funds to pay personnel for writing sales promotional letters. In another case, a department's expenses were budgeted in such less important details that the actual budgeting cost of many items exceeded far the controlled expenses.
Another risk may lie in allowing budgetary goals to become more important than the organizational goals. As mentioned by Fraser, budgeting strengthens the vertical chain of command and control rather than empowering managers. Managers, in their desire to keep within limits, might forget that they owe loyalty to the organization's ideals and objectives.
In one organization with a budgetary control program, the sales department could not get needed information from the medical department on the ground that the latter's budget would not stand such expenses.
This conflict exists perhaps because there is no proper coordination; and normally, these are symptoms of inadequate management. Plans constitute a supporting and interlocking network and every plan should be clearly in a budget.
It is interesting to note that it is often common for managers to say that an idea is good but it is rejected because it is not within the budget. Sometimes, budgets often control the wrong things. They measure inputs but ignore outputs such as the quality of the product or customer satisfaction. These items may be difficult to measure; yet they may be the key to success or failure of the enterprise.
Some managers may no invest in research and development or invest in activities that will result eventually in greater market share because these investments normally do not show immediate results.
It is wiser