Purpose, Nature, and Benefits of the Planning and Budgeting Process
According to Williamson (1996), the budgeting and planning process refers to the application of budgetary control techniques to forecast receipts and expenses of cash in future fiscal periods.
The overall purpose of the budgeting process is to ensure that the organization has enough finances of operations and expenditure. The first purpose of the budgeting process is communication, where each department in the organization communicates the need for resources and how the resources will be used. This is done by explaining the volume of activities that the department will engage in and the amount of resources that will be needed.
The budgeting and planning process is also important for coordination of tasks in the organization, since the different departments in the organization perform interrelated task (Hansen and Wim, 2004). Coordination of processes is achieved when the different departments provide a plan for their resource allocation and the relation to the resource allocation from other departments. Budgets are also used for planning the activities of the organization for a specified period. This is achieved by preparing budgets that predict resource usage for forthcoming fiscal periods. When these budgets are prepared, the organization can determine the resource needs and, therefore, prepare the necessary financial resources for acquisition of the planned resources. Budgets are also used for control and motivation, where the budgets act as a measure of performance and improvement. ...