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business and management articles
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financial common-sense
Six Key Benefits of Budgeting by Gerry Robert
Benefits of Budgeting
IF done correctly, budgeting is an arduous and time-consuming proccess. So, why budget? Normally, the benefits of budgeting outweighs the effort put into it. There are six main benefits:
- Planning
By forcing management to plan ahead and systematically anticipate the future. Most managers are very busy with their day-to-day activities and may avoid formalized planning unless budgeting is part of their job. If a formal plan of attack is created, it allows managers (or individuals) to focus on problems before they actually occur. Daily operating distractions are therefore reduced, because knowledge of possible problems generally initiate corrective actions, rather than 'knee-jerk' solutions.
- Organising
By placing economic and human resources in the most financially rewarding areas and making managers aware of any scarcity of resources.
- Controlling
By investigating variances from established targets (ie differences between actual and budgeted) and taking corrective actions. Actual performance can be compared against budgeted amounts, giving managers an insight whether operations are up to expectations. If deficiencies arise, corrective actions can be implemented to bring the operation back on target. Specific areas can be pin-pointed and investigated.
- Co-ordinating
By serving as a formal coordination system so that managers of different functions do not operate in different directions and against the best interest of the company. If everyone concerned sticks to the formal plan adopted by a budget, everyone knows where the enterprise is heading and ensures that it stays on track. In a large company, operations are generally divided into different departments and under the responsibility of different managers. To achieve overall objectives, close coordination of activities is a necessity. The problems that could arise from a lack of coordination are gigantic. When a budget for the overall organisation is in place, every department knows where they fit into the overall plan and can be expected to work towards it.
- Communicating
By using it to exchange information concerning goals, ideas, and achievements and interact and develop an awareness of how each of their activities contributes to the firm's overall operation.
- Motivating
By acting as a stimulus to work hard and maintain an enthusiastic attitude toward their jobs. This is achieved by having realistic goals and the thrill it gives when such goals are met or achieved.
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business and management articles
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