Question

Explain why budgeting is such a useful tool in decision-making.

Answer 1

Yes, it is true that budgeting is very useful tool in decision making due to following reasons;

1. Budgeting provides basic financial data for taking vital decisions.

2. Budgeting provides maximum and minimum limits of the operations hence on the basis of this span we can take desired decisions.

3. Budgeting helps in eliminating emotionalism, thus as a result we can take more rational decisions on the basis of prepared budgets.

4. Budgeting helps in proper estimation of inflows and outflows, so decision can be made more accurately about capital and revenue expenditures.

5. As we know that budgeting is done for several components hence such process provides a perfect balance in decision making.

6. We can make proper adjustmets in the business decisions on the basis of required adjustments in the budgets or incomes etc. In other words we can say that budgeting provides proper flexibility in the decision making.

7. Decisions regarding growth and expansion can be taken easily on the basis of prepared budgets because on the basis of budgeting we can save required funds for growth and expansion.

8. Budgeting is very helpful in business forecasting and we know that for better business decisions forecasting is the solid base that is why budgeting is helpful in decision making etc.