Question

Assess how and why budgeting adds value to an organization?

Answer 1

A budget is a process of projecting the financial results of an organization for future years. This projection includes projected Revenue and expenses that an organization would receive or pay during the future years. This further helps in estimating the future profitability of an organization and also shows the organization the way forward with respect to various segments.

Budgeting adds value to an organization in many ways which include the following:

1. Strategic decisions: Budgeting helps in formulating the strategic decisions by the management of an organization. This helps the organization to have the goals set with adding the value.

2. Estimating Resources: The Budgeting helps in estimating the resources that would be required to achieve the targets set by the management. This helps in timely allocation of resources to achieve the desired results, thus adding value to the organization.

3. Provides encouragement to different segments of an organization: Budgeting encourages the segments of an organization to achieve the targets and in turn adds value to the operations and the organization.

4. Ensures consistency of projected and actual results: The Budgeting helps in comparing the projected and actual results of an organization. This helps to identify the gaps, if any, and work towards overcoming these gaps. Thus, adding value to an organization.

5. Attracts Investors: The Budgeting helps to present the plans of an organization to an investor and attract them to invest in the organization. Thus, adding value to the organization.

6. Timely raising of finance: The Budgeting helps to identify the time where the funds would be required by the organization to expand its operations. This would help the organization to raise the funds timely and adds value to the organization.