Advantages of budgeting:
Compels management to think about the future. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organisation purpose and direction.
Improve resources allocation, because all requests are clarified and justified.
Improve internal communication with employees as departments need to communicate to get the information and estimate the budget.
Clearly defines areas of responsibility. Requires managers of budget centres to be made responsible for the achievement of budget targets for the operations under their personal control.
Provides a basis for performance appraisal (variance analysis).
Compels management to think about the future. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organisation purpose and direction.
Improve resources allocation, because all requests are clarified and justified.
Improve internal communication with employees as departments need to communicate to get the information and estimate the budget.
Clearly defines areas of responsibility. Requires managers of budget centres to be made responsible for the achievement of budget targets for the operations under their personal control.
Provides a basis for performance appraisal (variance analysis).
