Advantages and Challenges of Implementing Budgets

Learning Objective 2 Describe the advantages and challenges of implementing budgets

• coordination, communication, performance evaluation, and managerial motivation 
• time-consuming back and forth debates

Budgets are an integral part of management control systems. As we discussed at the start of this chapter, when administered thoughtfully by managers, budgets do the following:

• Promote coordination and communication among subunits within the company
• Provide a framework for judging performance and facilitating learning
• Motivate managers and other employees

Promoting Coordination and Communication

Coordination is meshing and balancing all aspects of production or service and all departments in a company in the best way for the company to meet its goals. Communication is making sure all employees understand those goals. Coordination forces executives to think about the relationships among individual departments within the company, as well as between the company and its supply-chain partners.

Consider budgeting at Pace, a United Kingdom–based manufacturer of electronic products. A key product is Pace’s digital set-top box for decoding satellite broadcasts. The marketing team coordinates and communicates with Pace’s customers, such as BSkyB, to understand new services they plan to launch and to predict future demand. The production manager coordinates and communicates with the marketing department and with the materials procurement group to plan the production of set-top boxes as needed by customers.