Identify and describe the major differences between budgeting and long-range planning?

Answer 1

A budget is management's written plan for the future, stated in financial terms. While a budget may cover any length of time, the typical budget period is one year, with supplemental budgets as desired by the organization. A budget should not be confused with a long-range plan, which typically covers at least 5 years. In addition to the difference in time period involved, budgets and long-range plans also differ in their emphasis and the amount of detail presented. Budgets are more detailed and focus on achieving short-term goals. In contrast, long-range plans are considerably less detailed and focus on long-term goals and the strategies to achieve those goals.

Budgets represent the primary means of communicating goals throughout the company. They also provide several distinct benefits to an organization. They require management to plan ahead and state specific goals. Budgets alert management to potential problems before they escalate to extreme levels. They can also motivate personnel by providing the objectives for performance evaluation. However, there are some disadvantages as well. Managers may perceive the budget to be unfair, particularly, if they are not included in the budgeting process. In addition, unrealistic budgets may lead employees to conduct themselves unethically in order to meet the objectives.