Common Problems of Budgeting!

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    There are various problems linked to budgeting such as the long time needed to do the budget, the inaccuracy of the calculations…etc. Most of these problems are really difficult to tackle or overcome. Here are some of these problems in a brief description:

    The required time to create the budget. The process of creating the budget is really time-consuming, especially when a lot of iterations need to be done in an unorganized environment. If you are organized, having a well-established procedure and using a digital tool for budgeting, the involved time will be less.

    The inaccuracy of the budget. Usually, there is a set of general assumptions needed to do the budget which can be not that accurately formulated for each case. If you are facing a business situation where the environment changes to a certain degree, your revenue and cost structure of the company will be fluctuating and may not even meet the expectations defined according to the budget. The management should always respond quickly to any sudden change in the conditions that may affect the budget such as, interest rates, currency exchange…etc.

    The wise use of expenditure allocation. Usually, each department is set to have a certain fund for its expenditures. At some point, the department may not spend all the funds in a certain period, however, the manager may spend the remaining fund in the last minute for doing unusual tasks just to avoid having a reduced budget for the next period.

    Inflexible decision making. The creation of the budget takes place near the end of the fiscal year. Mostly, the management team has the upper hand for the formulation of the budget and once they finish it there no commitment during the year to modify it. This situation may cause a problem in case there is a shift in the market which may need to adopt a change in the budget to it. This will give an advantage to the competitor.

    The focus on the financial outcome. Some people think that improving the profitability of your business is the main outcome of the budget. This is a wrong perception as there are many other outcomes that you have to consider such as, the satisfaction of your customers, quality of the product…etc. This concept of qualitative outcomes is really difficult to convince people about and even they can be difficult to implement into the budget itself.

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