Planning and control are almost among the most important functions of the financial department of the company. They include preparing plans, forecasts and budgets that help businesses achieve their goals and formulate appropriate strategies. Budget is a quantitative expression of company plans at a specified time. There are the following reasons why budgets play such an important role.
Efficiency
Well-defined understanding of the next steps and long-term goal significantly facilitates daily work, provides confidence in the actions, saves time and reduces the risk of interruptions in workflows.
Coordination
The availability of a general budget ensures the coherence of efforts of individual units of the organization. This enables everyone to see a picture of the future in a quantitative measurement, taking into account his/her individual contribution. For large companies with complex operations, budgets are critical for synchronizing activities and harmonious combination of different directions towards a common goal.
Responsibility
Budgets formalize the areas of responsibility of managers and their departments, provide powers and limits on resource spending, recruitment, achievement of goals.
Perspectives
The budget process forces managers to keep moving forward, look for new opportunities for development, and develop action to address potential barriers.
Control
Comparison of actual results with planned ones is an effective tool for evaluating the effectiveness of subdivisions, finding the most profitable ways of doing business, and developing corrective actions to address imperfections.
Motivation
Goals set correctly have an impact on the behavior of employees, give an understanding of their role and requirements, encourage action in the business. Execution or non-fulfillment of the budget often becomes the basis for assessing the quality of personnel.