What is a key benefit of using performance measurement in budgeting?

Using performance measurement in budgeting primarily helps identify areas of overspending or underspending. This is crucial for effective financial management, as it allows organizations to track how resources are utilized in relation to their expected outcomes. By analyzing key performance indicators, organizations can pinpoint where they are not aligning with their budgetary goals. This might lead to adjustments in spending or reallocating resources to optimize efficiency and effectiveness.

The process of performance measurement provides a clear understanding of financial performance relative to outputs and outcomes, supporting decision-making that can lead to improved budget adherence and overall financial health. Monitoring performance enables organizations to react proactively to financial variances rather than passively observing them, ultimately leading to more informed management and better stewardship of resources.

This approach significantly contributes to the strategic alignment of budgeting with organizational goals, ensuring that funds are allocated where they can provide the greatest impact.