Question

What advantages does a business have by going through the budget process?

Answer 1

Budgeting is a complex process and helps in developing quantitative plans that show how the required resources of an organization are to be procured and available scarce resources are to be used in a specified time period. Budgeting serves the following purposes

• Budgeting helps in quantifying plans that the management wants to pursue during a specified period of time.

• It facilitates effective communication and coordination among different parts of the organization.

• It helps in the optimal allocation of available resources as the resources at the disposal of any organization are limited and have multiple uses.

• It serves as a benchmark to compare the results of an organization and therefore helps in controlling operations of the organization and profit planning.

• And finally it also helps the management of an organization in performance evaluation of various individuals, departments in the organization and incentivizing those sections of the organization that are performing well.