OBJECTIVES OF

BUDGETING

MADE BY

HIMANI BEHAL 64

SECTIN D

Planning

Companies use a budgeting system to plan for the business's growth and development over a specified period of time.

The person who oversees the budgeting system uses the document to specify the opportunities and investments needed as well as their cost.

For instance, if you own a pizza store and want to expand through franchise agreements, you would develop a budgeting system that shows the commercial space needed for additional operations, the cost for training new owners, marketing expenses and the money required to buy additional pizza-making supplies.

Coordination

Budgeting systems encourage managers and

executives within a company to coordinate and keep

costs manageable throughout the fiscal year.

Without a budgeting system, managers do not know

the monetary restrictions on their actions or the actions

of their co-workers.

For instance, the manager of one production

department could use the entire payroll budget for his

own needs, leaving the manager of another department

without the flexibility to hire additional workers. The

budgeting system requires managers to talk with one

another and plan accordingly.

CONTROLLING

Unless and until, actual performance are not compared

with the budgets and control is exercised for off budget

performances. The basic purpose of budgeting stands

defeated.

Proper reporting to the management is essential and

feedback is to be provided to the employees from time

to time so that corrective steps can be taken to meet

the targets.

Resource Allocation

Efficient resource allocation is one of the major objectives companies have when developing their budgeting systems.

A company has a finite amount of capital and assets it can devote to operations during the year. The budgeting system allocates resources across the company while setting aside enough capital for unexpected problems.

For instance, a company could lose inventory to a natural disaster or some other problem -- an efficient budgeting system would have capital set aside for a "rainy day" that allows the company to buy more inventory without significant revenue loss.

Performance Review

Managers use the company's budgeting system to determine if the company operates efficiently and within the confines of its allocated resources.

If there are many instances in which a department runs over budget, internal auditors can investigate and find the source of the problem.

For example, if the advertising department of a company goes over budget consistently, an investigation could show that the company pays too much for print advertisements in magazines. Budgeting systems set most of the financial benchmarks to which employees and managers are compared.