Study notes

Budgets - Limitations and Potential Problems

  • Levels: AS, A Level
  • Exam boards: AQA, Edexcel, OCR, IB, Other
Whilst budgets are widely used to in business, you should appreciate that they have some important limitations.

In particular:

  • Budgets are only as good as the data being used to create them. Inaccurate or unreasonable assumptions can quickly make a budget unrealistic
  • Budgets can lead to inflexibility in decision-making
  • Budgets need to be changed as circumstances change
  • Budgeting is a time consuming process – in large businesses, whole departments are sometimes dedicated to budget setting and control
  • Budgets can result in short term decisions to keep within the budget rather than the right long term decision which exceeds the budget
  • Managers can become too preoccupied with setting and reviewing budgets and forgetting to focus on the real issues of winning customers

Budgets can also create some behavioural challenges in a business

  • Budgeting has behavioural implications for the motivation employees
  • Budgets are de-motivating if they are imposed rather than negotiated
  • Setting unrealistic targets adds to de-motivation
  • Budgets contribute to departmental rivalry - battles over budget allocation
  • Spending up to budget: it can result in a “use it or lose it” mentality - spend up to the budget to preserve it for next year
  • Budgetary slack occurs if targets are set too low
  • A “name, blame and shame” culture can develop - but managers should be answerable only for variations that were under their control
Job board

BTEC Business (First and National) Resource Contributors

tutor2u, Various - online and face-to-face events

Join the tutor2u community

With a tutor2u account you can access extra features to support your teaching & learning.

Subscribe to the daily digest

Curate your own content

Track your training schedule

Manage your resource library

Receive job alerts

Join the community

Already joined? Sign in now ›

More From the Digital Store

A full set of practice exam papers (including marks schemes) for the three AQA A Level Business exams at the end of the linear AQA course.

£75.00 (+VAT)

AQA A Level Business Practice Exam Papers (Vol 1)

This is the PowerPoint slide deck from the recent A Level Business revision webinar on Quantitative Skills - Index Numbers.

£1.00 (+VAT)

Quantitative Skills - Index Numbers

Editable worksheets that that enable students to practice all elements of the quantitative and data analysis skills required by the Edexcel A Level Year 1 (AS) teaching content.

£50.00 (+VAT)

Edexcel A Level Business Year 1 (AS) Calculation Practice Sheets

Recruitment

Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

Find our more ›

Advertise your teaching jobs with tutor2u