Substantial Role of Budgeting

Budget
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A budget plays a substantial role in showing the financial visions of any organization. Therefore, institutions ought to identify the best tools that they can use to keep clear budget reports. As a result, the organization will be able to allocate the available resources to meet its goals effectively. Incremental and formula budgeting stand out to be the most commonly used tools of budgeting. As well, responsibility-centered budgeting has its own advantages and disadvantages.
The incremental budgeting uses a method where a percentage of increment is made on the existing budget base. As a result, the institution can allocate more resources to an area that has spent more on the allocated budget. The current budget is made on the basis of the previous budget, hence making it easy for the planners to estimate the required amount. As well, the formula budgeting tool makes it easy for planners to allocate resources since it uses quantitative measures. As a result, this creates an unbiased distribution of resources. Besides, the incremental budgeting tool assumes that the needs of the organization have not changed. Therefore, it supports the achievement of each objective. Similarly, the formula budgeting tool supports future programs through the use of mathematical expressions to determine the cost and demand of a program.
One of the challenges of incremental budgeting is that it has a high chance of providing suboptimal results. It is the wish of every organization to ensure an effective resource allocation for the different programs. If the resources are not effectively allocated, then it would turn out difficult to maintain certain programs. As well, the formula budgeting crea...