Benefits or Advantages of Budgeting
Budgeting plays an important role in the effective utilization of available resources in order to achieve over all objectives of an organization.
It has the following advantages.
1. Budgeting forces the management to study about the problems relating to the timely implementation. It generates a sense of caution and care among the line managers.
2. It guides the management relating to the planning and formulation of policies.
3. Budgeting provides a means of controlling income and expenditure of a business. It gives a plan for spending.
4. It defines the objectives of an organization in numerical terms for a specific period.
5. Budgeting is used to evaluate the policies and goals of an organization. Moreover, such policies and goals are tested with the help of budgetary control.
6. It involves the management at all levels to participate in the goals setting.
7. Budgeting helps in directing both capital and revenue resources in a profitable way.
8. It helps the management to understand and co-ordinate various functional activities.
9. Budgeting empowers the management to decentralize obligations without losing business control.
10. Responsibility can be easily fixed with the help of budgeting.
ll. It discloses the weaknesses, inefficiencies and deviations in an organization promptly and provides a means to overcome them for the purpose of achieving goals.
12. It standardizes production, equipment and processes.
13. It creates an environment of profit mindedness throughout the organization.
14. An efficient and economy in production control is achieved through budgeting.
15. It provides a basis or yardstick that can be used to measure the performance of department and an individual in an organization.
16. It provides an accurate forecast of customer’s demand.
17. Budgeting encourages competitiveness among employees and provides incentive to those who perform efficiently.
18. It avoids sales of unprofitable and less profitable goods.
19. A systematic and disciplined approach is followed to solve the problems in an organization through budgetary control.
20. Finished goods can be timely delivered.
21. National economy is improved by providing more employment opportunity, effective utilization of resources and avoiding wastage. Those things are achieved through budgetary control.
22. It ensures availability of adequate working capital and uses the capital expenditure in a profitable way.
23. Budgeting informs every employee about the stage of achievement of objectives periodically.
24. Budget gets approval from every employee of an organization and not merely that of an individual or a group of individuals.
25. It facilitates management by exception.
26. It creates conditions for setting up a standard costing system.
27. Seasonal and cyclical fluctuations of an industry are stabilized with the help of budgeting.
28. It enhances credit worthiness of an organization through which adequate finance can be raised from banks and financial institutions.
29. Proper incentive system of wage payment can be introduced with the help of budgeting.
30. The uppermost point of budgeting is that it provide a discipline that brings planning to the forefront as a key managerial responsibility.