A budget is a quantitative expression of a plan of action prepared for the entire organization or for various departments or for various functions involved in the organization. In other words, the budget can be defined as estimates of future needs arranged according to an orderly basis, covering some or all activities of an organization for a definite period of time
The following are usefulness/advantages of budget to the organization:
- Planning – the budget will help the organization management to act systematically and avoid dealing with problems as they arise;
- Motivation – a budget is a plan that the company intends to achieve. For that reason, it should have a strong motivating effect on managers responsible for its achievement. Motivation will be strongest when these managers have been involved in the budget setting process.
- Controlling – a budget is useful when it is part of an ongoing process of control. Control involves comparing actual results to a budget and reacting to unexpected differences or variances.
- Communicating – the budget will inform all employees of the company’s plans for the year ahead, and help explain what is expected of each individual.
- Coordinating – the budget of different functional areas should be combined as a master budget. This will be ensuring that the whole organization runs smoothly, and clashes between different departments may be avoided.
- Directors, managers, and employees can all be appraised on whether budgeted income or expenditure was successfully met, provided that each individual had some influence over actual results