Ethical Considerations
Budget projections always involve a degree of judgment because managers can never predict the future with total accuracy. For instance, one manager with an optimistic view and another manager with a pessimistic view could look at the same set of facts and arrive at distinctly different conclusions about the company's financial prospects.
When budgets will influence decisions made by investors or lenders, how should the people who prepare the budgets deal with the variance between optimistic and pessimistic viewpoints?
On the one hand, being too pessimistic could result in lower levels of funding, which could be detrimental to employees, existing investors, existing creditors, and other financial stakeholders.
On the other hand, being too optimistic could be detrimental to prospective investors or creditors. How do you find the right balance?