Purpose of Budgets

Six Key Purposes of Budgets
• A method of planning the use of resources
• A vehicle for forecasting
• A means of controlling the activities of various groups within the firm
• A means of motivating individuals to achieve performance levels agreed and set.
• A means of communicating the wishes and aspirations of senior management
• A means of resolving conflicts of interest between groups with the organisation
Role of Budgets
• To aid the planning of the organisation in a systematic and logical manner that adheres to the long term strategy• To determine direction• To forecast outcomes• To allocate resources• To promote forward thinking• To turn strategic objectives into practical reality• To establish priorities.• To set targets in numerical terms• To provide direction and co-ordination• To communicate objectives, opportunities and plans various managers.• To assign responsibilities.• To allocate resources.• To delegate without loss of control. • To provide motivation for managers to achieve goals• To motivate staff.• To improve efficiency.• To establish targets and standards which employees are motivated to achieve• To evaluate performance against the budget • To provide a framework for evaluating the performance of managers in meeting individual and department targets• To control activities by measuring progress against the original plan, making adjustments where necessary• To control income and expenditure• To facilitates management by exception• To take remedial action when there is deviation from the plan

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