Reasons Why Budgets Fail

budgets management Reasons Why Budgets FailBudgeting has been an age-old practice that has formed part and parcel of our social and economic fabric. Whether done formally or informally, budgeting has been a key pillar in personal, organizational and national resource management. There is usually an aura of fear and dread that is associated with budgeting that makes most people shy away from engaging in the process. Research has however shown that lack of budgeting and resource management has been responsible for failure of many businesses before they start or mature.

Call it a financial map or a resource planning guide, the utility of a budget has permeated every sphere and arena of our existence. Coming in the form of sales budgets, financial budgets and purchase budgets; budgets have been tools for cohesively orchestrating the various parts and people in an organization to achieve the set goals.

Failure of a budgeting process can mean more than a financial loss. The confusion and disarray occasioned by such a failed process makes it very critical that all the likely places of error be examined beforehand. Below are some of areas that can easily make a budget fail if not factored in appropriately.

Unrealistic projections

Budgeting is a process that needs honesty and accuracy in the setting and achievement of the goals and objectives. The inclusion of some items such as dining out or the purchase of the latest software may not be realistic if the whole organizational or personal financial position were to be considered. It is imperative that you always size your needs according to your financial muscles. Any ambition that is not achievable should be shelved at the earliest possible stage. Remember goals not realized bring an aura of demoralization and failure.

Immeasurability of budget details

Every goal put forward in a budget must have the element of measurability. Typically it is difficult for you to know with certainty whether you have achieved a target or not if there is no sure way to scaling such an achievement. Two dangers can arise out of this; the target could be reached but you still continue pursuing it leading to a waste of resources and secondly a period of complacency could be reached even before the target is achieved. The measurements can be financial or non-financial such as number of acres to be cultivated or sacks of potatoes to be sold. Therefore be sure to have metrics in place.

Lack of adequate involvement

Just like any other process, the budgetary discipline needs to be well thought out and its contents representative of all the concerned parties. For this reason such a process should include the input of those whose efforts will be necessary in making the whole undertaking a success. Failure to include the opinions of such people can easily lead to a boycott which will ultimately jeopardize the whole process.

Inadequate break down and communication of action points

Any budget however complex should be able to be broken down into actionable points if the achievement of such a budget is to be realistic. Lack of clear action points has led to many budget failures. Clarity of communication has also been a major factor contributing to failed implementation of budgets. Let the people be aware of what they should do and preferably at the earliest possible stage.

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Check out the blog section of the Focused Umbrella company for more articles about finance and business.

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