Advantages of Budget

Advantages of Budget

1. Communicate the plans

The budgets may be a source of communication plans to the relevant manager. Because the budgets are formal documents of the organization and prepared in a formal and structure way. Therefore it is not possible for manager to ignore the budgets.

2. Budget Set Targets

Budget can set performance targets for the organization and budget can be used as source document to evaluate performance of the manager. The performance evolution is critical for the employees because usually it is linked with the reward announcement for the employee. Therefore budget can play important role for improving the performance of manager and employees.

3. Budget set Limits

When the budgets are formally approved then it becomes an authorized expenditure limits and any expenditure which does not fall under these limit require special approval. Furthermore any expenditure which is not mentioned in the budget will also go to management for approval. Therefore budget put an effective control over expenditure.

4. Set a Direction

Budget is basically linking different department in formal way. Budget is prepared in a structured way and it takes into account the every department and therefore budget set a direction of moving forward. The budget is a linkage between different departments. Each department can get an idea about other department direction and activities from the budget.

5. Budget is Medium Term

The budget is normally considered to be a medium term plan and it provides a linkage between short term and long term planning. The budget is normally prepared for one year keeping in view the long term objective of the organization. The budget gives a direction to short term plan for achieving the long term plan.