Reference no: EM132854602

Budget approximates expenses and revenues over a certain period and is usually composed and re-evaluated periodically. Budget can be made for an individual, group of people, a government, a business, or about anything that spends on and makes money. Budgets play an essential part of running a business efficiently and effectively. The budget shows the company's goals and how the organizational management wants to get and use available resources to achieve those objectives. Non-profitable organizations, companies, and governmental parastatals use various types of budgets to run their operations (Bužinskiene, 2019) Organizations can use budgets to compare and evaluate individual performance in the period the budget is estimated. Budgets are essential to organizations in various ways: managers can plan on days ahead, validates the management's plans in quantitative terms, motivates the workers to achieve the set goals, and makes the management levels of the organization to think ahead, anticipate results, and have remedies in case of poor results.

• Organizations use different types of budgets in running their operations, and these types have benefits and challenges. Most companies' common types of budgets include activity-based, incremental, zero-based, and value proposition (Fotakis, D., Gourvès, L., Mathieu, C., & Srivastav, A. 2018). In the value proposition budget, the management considers these questions.

Question 1: Why is the amount included in the budget?

Question 2: Does the substance or item create value to the organization, customers, and other stakeholders?

Question 3: Does the value of the item outweigh the cost? If not, then there is a reason why the price is accepted?