FUNCTIONS OF BUDGET

FUNCTIONS OF BUDGET

Pene A. et al (1991:145 -146) considered four primary functions of budgeting which are as follows:

1. PLANNING: The primary purpose of a budget is to represent and describe the financial ramifications of plans for the future. The budgeting process requires individual to consider possible future course of actions and the resources needed to accomplish the various activities.

2. COMMUNICATION AND CO-ORDINATION: The budgeting process promotes communication and co-ordination among divisions or departments within a company. In order for the organization or company to function effectively management and other employees must understand the interaction among the departments and how the actions of one department affects another. Then management must communicate their plans to each other in order to co-ordinate the activities of the organization as a whole.

3. RESOURCES ALLOCATION: Organization operates with limited resources which therefore, requires some types of allocation. Budgeting aids resources allocation by ensuring that information is available to help managers determine which activities should be limited, resources of the organization. In addition, trough budgeting process, organization can analyze activities to determine if they add value to the company.

4. EVALUATION AND CONTROL: Finally, a budget serves as a useful benchmark against which to evaluate and control actual performance. The evaluation process consists of comparing actual performance results to the budge to determine what deviated from planned activities and whether to take corrective action. When actual and budgeted results do not match, the financial and operating activities of the organization may need to be revised.