The paper will explore the pro and cons of budgeting in an aviation firm. The analysis will be based on the thesis statement that although budgeting is considered an integral part of strategic management, it also have some shortcomings which managers should be aware of.
Pro
There are a number of advantages of budgeting to an aviation firm. First, budgeting can form a crucial tool for planning. Budgeting allows aviation firm to prepare for future and arrange necessary resources. For example, it may help the aviation form adjust personnel, allocate human and physical resources, organize the acquisition of new equipment.
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Second, budgeting can act as a framework for controlling aviation. It makes company’s procedures transparent and hence facilitates a better understanding of costs. Budgeting enables organization to detect any deviation and correct it earlier ( Shim, Siegel & Shim, 2012) . For example, the controlling and anticipating part of budgeting will help Aviation Company or firm to identify and eliminate costs that can be avoided.
Third, budgeting helps aviation form coordinate various departments. Purchasing manager will communicate easily with production manager by using a budget. Budgeting also encourages employees to find out ways of making operations and resources more productive, competitive and profitable. Budgeting also reveals deviations between budget and actual. This can act as a warning signal for changes or alterations.
Cons
Despite the many advantages, budgeting is also associated with a number of disadvantages. The first disadvantage is that managers can use it to achieve their personal needs. Manages can inflate requests and then use extra allocation for their needs.
Second, budgeting is associated with judgment and subjectivity. This implies that there is no objective way of ascertaining the validity and reliability of the budget. Third, budgeting can be restrictive and may discourage flexibility. Fourth, budgeting can promote budgetary slack whereby the managers underestimate revenue or overestimate cost ( Shim, Siegel & Shim, 2012) .
References
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Shim, J. K., Siegel, J. G., & Shim, A. I. (2012). Budgeting basics and beyond . Hoboken, N.J: Wiley.
