Business – 5.5 Budgets – Meaning and purpose of budgets | e-Consult
5.5 Budgets – Meaning and purpose of budgets (1 questions)
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Budgets act as a planning tool that directs financial and non‑financial resources to the areas that support strategic objectives.
- Prioritisation of projects: By allocating funds to projects with the highest expected return, budgets ensure that limited resources are used where they add the most value.
- Coordination across departments: A central budget aligns departmental plans, preventing duplication of effort and encouraging collaboration.
- Performance incentives: When resources are tied to measurable targets, employees are motivated to achieve the budgeted outcomes.
Potential drawback: Rigid adherence to a budget can stifle flexibility; unexpected opportunities or threats may be missed if managers are unwilling or unable to re‑allocate resources quickly.