6 main Limitations of Budget

6 Main Limitations of Budget are:

1. Budget provides only approximate estimates. Hence results cannot be measured accurately.

2. Another limitation of budgeting is “over-budgeting”. This means the minor expenses are worked out in detail. This will not allow the managers to delegate even minor powers to their subordinates.

3. Budget may also be used to hide inefficiencies. Unnecessary boosting of certain expenditure and deliberately omitting needed items are quite a common practice.

4. Quick results cannot be achieved as it is prepared for a year.

5. One of the important limitations of budget is its inflexibility. The figures mentioned are not final. As prices change very often estimates mentioned in the budget may become absolute. Hence it may not provide any flexibility.

6. Budget has psychological reaction and restricts freedom of action. Dale viewed that, “While on the one hand, people like to know what they are working for and how they will be judged on the other, many of them are resentful of budget restrictions. This seeming incompatibility between the needs of the enterprise for system and the needs of individuals for elbowroom is as yet a largely unresolved problem”.