Question

Is it possible that the control process might have detrimental impacts on the budget process, such as slowing it down or making it less responsive to the market conditions an organization faces?

Answer 1

A budget is a financial plan showing how the organization will acquire resources and use them in operations during a specified time period. A control process is designed to ensure that an organization's objective are achieved. Every organization exercises a control on the budget to ensure that the actuals match the budgeted figures. However, this is not possible in every market scenario.

Take for example, the telecommunication sector which is an extremely dynamic industry and whrein technology changes with rapid speed. The cost of 1 GB of data which has to be sold out in a year might be set high at the thestart of the year. However, as competitors enter the market and lower their prices, competitive pricing has to be introduced. If the company sticks to the budget and does not lower the prices, whatever it will gain by keeping the prices constant will be lost in volume of data sold.

Thus, a very stringent control on the budget process can make it unrealistic in terms of achievement resulting in demotivation among the employees and loss to the organization.