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Friday, 1 June 2012

Why Budgeting A Necessity?

Budgeting is a financial plan for allocation of available funds. Why 'Budgeting' is neccessary?

  • Budgeting helps an individual, department and organisation achieve planned objectives.

  • Budgets helps to illustrate the financial responsibilities of the organization to its shareholders, lenders, suppliers, employers, customers and the owners.

  • Budgets are only as good as the individuals who prepare them. The validity and usefulness of a budget depend on the people who put it together.
  • Budgeting helps in planning of an organization in a systematic and logical manner for a long-term business strategy.

  • Budgeting helps in co-ordinating the activities of the various parts of the organization and ensure that they are consistent.

  • Budgeting helps in communicating more easily the objectives, opportunities, and plans of the business to the various business team managers.

  • Budgeting helps in motivating managers to try to achieve the organisational and individual goals.

  • Budgeting helps in controlling activities by measuring progress against the original plan, adjusting where necessary.

  • Budgeting helps in providing a framework for evaluating the peformance of managers in meeting individual and departmental targets.

  • In spite of its many advantages, Budgeting can increase paperwork and can be a drain on management time, especially early on.

  • Budgets are slow to work, since the benefits will not be seen until the next year. Budgets require standardization, which can lead to inflexibility.

  • Budgets can meet with resistance from managers with no willingness to accept new procedures.