Evaluation of Budgeting Practice

In previous chapters, we discussed what the Budgeting practice means, how it can apply to perform company’s activities in a proper manner, and also how much it is important as a supportive function to other related activities. Even though there are so many techniques for budgeting in an organization, there must be a severe investigation to identify a suitable budgeting system and match it with organization’s budgeting process to achieve best performance resulting minimization of wastages and anticipated risks through budgeting within the organization. This chapter will describe how the management of an organization can evaluate budgeting system.

Drawbacks in the system

·         Administration

A disadvantage of a rolling budget is that it is similar to preparing a new budget again and again. Such a budget requires you to regularly gather the facts from the previous period. Furthermore, rolling budgets require robust information systems and skilled personnel to extract accurate information for the various subcategories. This constant revision of the budget may be distracting or disturbing for employees. Employees may ignore their core functions and other pertinent issues while continuously preparing for and updating the rolling budget. Frequent budgetary changes may make them wary of implementing any one particular version.

·         Justification

Preparation of rolling budgets is not advisable when the circumstances or conditions are not constantly changing. It may be a waste of your time and resources to prepare rolling budgets in unvarying environments. If your business is not exposed to extremely varying elements of commerce or the greater economy, a rolling budget will be an unwise choice.