Question

Discussions 1. When should a company prepare budgets? What are the advantages of preparing budgets? 2. Why are human factors crucial in budgeting?

Answer 1

1

Company should typically prepare the budget at the beginning of the year. Early decision making Willl help the company to know it's boundaries in which it can function and excell.

Advantages of preparation of budgets :

* Allocation of appropriate resources to the projects

* Meet your objectIves timely.

* Plan for future

* Strict monitoring of performance

* Improved decision making

* Increase staff motivation

2

Human beings in general don't like to be controlled by others. A manager won't like someone else to set the targets for him and then evaluate his performance to find out the deviations from the target set . The study of psychologiCal conflict in the implementation of budgetary control system is often termed as behavioral aspects of budgetary control.

Behavioural aspects explains that many of the goals of budgeting are contradictory. On the one side, we want to be able to fairly evaluate the performance of managers. But we also motivate managers and therefore even if managers are not involved in the process, managers may find the budget too challenging and therefore reduce their efforts. That in turn would disort any evaluation.

Many of the conflicts arise due to the human nature of a budgetary control system. Managers do not always follow organizational goals ,they do no always think long term , they may be cautious of moving away from the plans etc. This provides a conflict between many of the goals of a budgetary control system which needs to be considered at a strategic level when impllementing such a system