While allocating the resources, an organization may take two alternative steps of resource allocation
i Resources should be allocated at a place where these have their maximum contributions, or
ii Resources should be put according to the needs of various organizational units/subunits. Both these alternatives may become complementary to each other if there is an objective evaluation of the resource requirement of various units.
Budgeting is the means through which resources ‘are allocated to various organizational units. However, the traditional budgeting which focuses just on the past resource allocation as the basis is not useful for resource allocation in any way because the conditions, both external as well internal, change making the past practices of resource allocation meaningless.
Therefore, when budgeting is used as a tool for resource allocation, it has to be oriented to the objectives of the organization and the way each unit of the organization will contribute to the achievement of these objectives. From this point of view, following types of budgeting are more relevant:
- Capital budgeting
- Performance budgeting
- Zero-base budgeting
- Strategic budgeting.