According to Schneider (2012), a budget is “a plan showing what and how resources are to be used over a specified time period” (section 6.1). Every company develops a budget plan to forecast the business goal over a period of time scheduled to control and monitor the assets, revenues, resources, and costs from the plan. The ability to prepare the accurate budget plan helps to maximize the benefits and values for an organization. The purposes of budgeting emphasize these primary advantages to an organization as followed:
Budgeting process enforces leadership to formulate the planning for both short and long term visions. Planning is the key for business success to identify goal objectives, resolve challenges, discover opportunities, brainstorm the strategies, and plan out the corrective actions (Cassar & Gibson, 2008; Schneider, 2012).
Budgeting sets a baseline as a benchmark to measure an organization’s performance evaluation for what success looks like. The comparison provides estimated values against the actual results and determines the variances with reasonable explanations (Schneider, 2012).
Budgeting is a flexible process with continuous improvements that can be enriched based on historical data, lessons learned, or previous experiences to achieve better results in the future (Schneider, 2012). For example, the valuable improvement of doing budgeting is the efficiency gain and with producing the accurate forecasts and estimates confidently over time (Cassar & Gibson, 2008).
Budget acts as a master plan with a road map to integrate, coordinate, and control the impacted functions within the company from resources management, finances, work efforts and durations, deadlines, and quality (Schneider, 2012).
Budget plays a critical factor for motivating managers and employees with incentives, bonuses, raises, promotions, commissions, and benefits when the budget targets are met (Schneider, 2012).
Budget plan is an effective way to...