Professional Documents
Culture Documents
Budgeting
Budgeting
Control
IPE 4111
Afia Ahsan
Lecturer
MPE, AUST
Basic Framework of Budgeting
as budgetary control.
Planning and Control
Planning – Control –
involves the steps taken by
involves developing management to increase
objectives and the likelihood that the
preparing various objectives set down while
budgets to achieve planning are attained and
those objectives. that all parts of the
organization are working
together toward that goal.
To be effective, a good budgeting system must provide for both planning and control.
Good planning without effective control is time wasted.
Advantages of Budgeting
Advantages of Budgeting
❑ Compels management to think about the future, which is probably the most
important feature of a budgetary planning and control system. Forces
management to look ahead, to set out detailed plans for achieving the targets for
each department, operation and (ideally) each manager, to anticipate and give
the organization purpose and direction.
❑ Promotes coordination and communication.
❑ Clearly defines areas of responsibility. Requires managers of budget centers to be
made responsible for the achievement of budget targets for the operations under
their personal control.
❑ Motivates employees by participating in the setting of budgets.
❑ Improves the allocation of scarce resources.
❑ Economizes management time by using the management by exception principle
Top-down Budget Approach
1. Individuals at all levels of the organization are viewed as members of the team
whose judgments are valued by top management.
2. Budget estimates prepared by front-line managers are often more accurate
than estimates prepared by top managers.
3. Motivation is generally higher when individuals participate in setting their own
goals than when the goals are imposed from above.
4. A manager who is not able to meet a budget imposed from above can claim
that it was unrealistic. Self-imposed budgets eliminate this excuse.
Types of Budgeting
Incremental Budgeting
When the prior year’s budget is used as the starting point for preparing the
current budget, it is called incremental budgeting.
Zero-based Budgeting
With zero-based budgeting, each expenditure item must be justified for the
new budget period. No expenditure is presumed to be acceptable
Human Factors in Budgeting