BUDGETING CONTROL

BUDGET
• An estimate of future costs and revenues expressed in
monetary term, covering over a specific period of
time.

• Helps in - Prioritizing your spending

- Identify wasteful expenditures

- Adapt quickly as your financial

situation changes

- Achieve your financial goals

 ‘‘ Gives you control
over your money’’
BUDGET CONTROL
• The exercise of control in the organization
with the help of budgets (control documents).

• To ensure that planned performance as laid

down in the budgets are being achieved.

• A comparison of plans and actual performance

is done and the difference is reported , thus
the management will take corrective actions.
• Regulating the activity of the business to
follow the pattern which was planned in the
budget.

• According to Appiah - Mensah (1993)

‘ If actual performance is not controlled, then

it will differ from planned performance and the
business will not achieve its objectives’
OBJECTIVE OF BUDGET CONTROL
Planning
Force management of all levels to plan for
future activities.
Co-ordination
Coordinates C - operation so that objective
is successfully achieved.
Control
Ensuring the performance by continuous
comparisons for corrective action.
PRINCIPLES OF GOOD BUDGETARY
CONTROL
• Managerial responsibilities is clearly defined.
• Budgets must include plan of action.
• Performance must be monitored against the budget.
• Corrective action to be taken if performance differs.
• Budgetary control must enhance ‘Management by
Exception’.
ESSENTIALS OF BUDGETARY
CONTROL
• Establish budgets for each function and section of
the organization.

• Continuous comparison of the actual performance

with that of the budget.

• Taking suitable remedial action to achieve the desires

objective.

• Revision of budgets in the light of changed

circumstances.
EFFECTIVE BUDGETARY CONTROL
REPORT
• Important in the feedback process
• To ensure maximum effectiveness
• Its design, timing ,impact is not misunderstood
• Key items - The budgeted level of costs and
revenue for the period
- Actual level of cost and revenue for
the period
- The variance
- Making variances under control
WHY MANAGERS USE BUDGETARY
CONTROLS
• Determining the cost of a project

• To adequately plan and allocate resources

• Tools to control finances and budget

- Financial forecasting calculations

- Budgeting techniques

- Variance analysis

• To control every stage of the project expenses

• If resources are mismanaged, the project will be characterized

by sunk costs (i.e., investments that procure no returns).
Drummond (1998)
‘ When any of such variance occurs,
it will involve budgeters in taking
three steps towards controlling the
budgets ’

I Reviewing
II Reaching
III Revising
PROCESS OF BUDGET CONTROL
• Preparation of various budgets
• Continuous comparison of actual
performance with budgetary
performance
• Revision of budgets according to
circumstances
BUDGET CONTROL TOOL

• The Budget Control System (BCS) is

designed to allow flexible customer-
specific adjustments to all important
functions

A Product of SAP
INSTALLING A BUDGETARY
CONTROL SYSTEM

• What is likely to happen?

• What can the objectives to be achieved?

• What are the constraints and to what

extent their effects can be minimized?
 BUDGET CONTROLLER
• Supervisory responsibility is delegated to
Budget Controller or Budget Director

• Should have knowledge of the technical

details of the business

• Should report directly to the president or

the Chief Executive of the organization
 BUDGETARY CONTROL
RESPONSIBILITY CENTRES
Enable managers to monitor organisational
functions
Four types
a) Revenue centres
Outputs are measured in monetary terms but
are not directly compared to input costs.
b) Expense centres
Inputs are measured in monetary terms but
outputs are not.
c) Profit centres

Performance is measured by the

difference between revenues and
expenditure.

d) Investment centres

Outputs are compared with the assets

employed in producing them, i.e. ROI.
ADVANTAGES
• Economy in working : Efficiency in business
economy
• Buck passing avoided : Divisional and
departmental responsibility
• Establishes coordination : Coordinates the
various divisions
• Acts as a safety signal : Shows when to be
caution and when to expand
• Adoption of uniform policy : Military type of
organization
• Decrease in production costs : By developing
new fill in products
• Optimum mix : Obtaining the most profitable
combination of different factors of production
• Favour with credit agencies : Well ordered
budget plan organizations receive greater favour
from credit agencies
DISADVANTAGES
• Reduces initiative and innovation for
employees

• Impossible to obtain money for new ideas.

• De-motivate employees because of lack of

participation

• Cause perceptions of unfairness

• Create competition for resources and politics

• Based on estimates: Estimate must be based on
only available facts and good

• Need for continuous adaptation: Continuously

adapted and cannot be installed and perfected in
a short time

• Only a tool of the management: The budget

control should be regarded not as a master but as
a servant
THANK YOU