Management must consider the following limitations in using the budgeting system as a device to solve managerial problems:
- Budgeting is not an exact science; its success depends upon the precision of estimates. Estimates are based on facts and managerial judgment. Managerial judgment can suffer from subjectivity and personal biases. The efficiency of budgeting thus depends upon the quality of managerial judgment.
- A perfect system of budgeting cannot be organized in a short period. Business conditions change rapidly. Therefore, the budgeting system should be continuously adapted to changing circumstances. Budgeting has to be a continuous expertise; it is a dynamic process. Management should not lose patient it should go on trying various techniques and procedures in developing and the budgeting system.
- Any prepared budget system will not by itself improve the enterprise unless it is properly implemented. For the success of the system, it is essential that all understands it, and put efforts for accomplishing the budget goals. All persons in the enterprise must be fully involved in the preparation and execution of but it’s otherwise being not be effective.
- Budgeting is a management tool, a way of managers not the management. The presence of a budgetary system should not make management complacent. To get the best results, management should use budgeting with, intelligence and foresight, as long with other control systems.
- Budgeting will be ineffective and expensive if it is unnecessarily detailed and complicated. A budget should be precise in format and to understand; it should be flexible in application.
- The purpose of budgeting will be defeated if the budget goals are set carelessly. Budget goals are the definite targets to achieve the overall objectives of the enterprise. They must be in harmony with the aims in the enterprise.
- Budgeting will hide inefficiencies instead of revitalize them if there is no evaluation system. Here should be, continuous evaluation of the actual performance and the standards should also be re-examined regularly.
- Budgeting will lower the morale and productivity of the personnel if unrealistic targets are set and if it is used as a pressure tool. To some extent budding may be used a pressure device but its effect must be carefully determined.