Flexible Budget: Is It Always Better Than Static One?

Subject: Accounting
Pages: 2
Words: 290
Reading time:
< 1 min

A flexible budget refers to a summary of intended expenditures along with proposals for meeting them. It allows room for changes to be made depending on the amount of work done. Flexible budgets are very effective compared to static budgets, which maintain the same monetary allocation regardless of whether the number of work increases or decreases. Another difference between flexible budgets and static budgets is that the former easily accounts for various expenditures while the latter cannot achieve the same because alterations are not allowed. Flexible budgets are highly effective in determining the cost of a project, while static budgets are very ineffective because of the fact that they assume everything in the proposal remains the same. Another notable difference is that flexible budgets often consider the possible effects of variation in the cost of the project, while static budgets do not make considerations on any possible changes.

Flexible budgets are always better compared to static budgets. The main reason for this is that it allows an organization to adapt effectively to unprecedented changes in various processes. The organizational environment changes all the time, thus the need to use flexible budgets because they help in achieving efficiency in crucial processes such as change management. However, there are certain circumstances within an organization when static budgets would be more favorable compared to flexible budgets. One such situation is when an organization has limited financial resources to divide among several projects. Such situations necessitate the need for a budget that requires project managers to work with available resources regardless of the presence or absence of new developments. Static budgets play a pivotal role in helping organizations make mandatory changes even when they have financial limitations.