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What are budgetary and Non budgetary control techniques? Discuss the types and benefits of non –
budgetary control techniques

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Budgetary and non-budgetary control techniques are methods used by organizations to manage and control
their financial resources and operations. These techniques help organizations achieve their financial and
operational goals and objectives.

1. Budgetary Control Techniques: Budgetary control techniques primarily revolve around the use of
budgets, which are detailed financial plans that outline an organization's expected revenues and
expenses over a specific period. The key budgetary control techniques include:

a. Budgets: Budgets can be classified into various types, such as the master budget, operating budget, cash
budget, and capital budget. They help in planning and controlling financial resources.

b. Variance Analysis: This technique involves comparing actual financial performance to budgeted figures to
identify variances. Variances can be favorable (spending less than budgeted) or adverse (spending more than
budgeted). Organizations can take corrective actions based on these variances.

c. Performance Reports: Regular performance reports track progress against the budget, helping
management make informed decisions and adjustments as necessary.

d. Cost Control: This technique involves monitoring and controlling costs to ensure that they align with
budgeted amounts. It includes cost reduction and cost containment strategies.

e. Zero-Based Budgeting: This approach starts the budgeting process from scratch, requiring justification for
all expenditures, even those previously included in the budget.

2. Non-Budgetary Control Techniques: Non-budgetary control techniques are alternative methods for
managing and controlling an organization's activities without relying on traditional budgets. These
techniques focus on factors other than financial targets and are often used in conjunction with budgetary
control. Types and benefits of non-budgetary control techniques include:

a. Management by Objectives (MBO): MBO is a performance management technique that sets specific
objectives for each department or individual within an organization. These objectives are aligned with the
organization's goals, and progress is assessed through regular performance reviews.

Benefits:

Enhanced employee motivation and commitment.

Better alignment of individual and departmental goals with the organization's objectives.
Improved communication and coordination within the organization.

b. Key Performance Indicators (KPIs): KPIs are specific metrics used to measure various aspects of an
organization's performance. They are not necessarily tied to financial targets and can include non-financial
indicators like customer satisfaction, employee turnover, or product quality.

Benefits:

Focus on important areas of performance.

Real-time measurement of critical factors.
Enables quick response to changes in performance.

c. Balanced Scorecard: The balanced scorecard is a strategic performance measurement framework that
incorporates financial and non-financial KPIs, helping organizations assess their performance from multiple
perspectives, such as financial, customer, internal processes, and learning and growth.

Benefits:

A holistic view of performance.

Improved strategic planning and execution.
Alignment of performance with the organization's strategy.

d. Benchmarking: Benchmarking involves comparing an organization's performance with that of similar or top-
performing organizations in the industry. It helps identify areas for improvement and opportunities for
innovation.

Benefits:

Identification of best practices.

Continuous improvement and competitiveness.
Enhanced decision-making through industry comparisons.

e. Total Quality Management (TQM): TQM focuses on improving the quality of products and services through
continuous process improvement and customer satisfaction. It's not directly tied to budgets but can
significantly impact an organization's performance.

Benefits:

Improved product or service quality.

Customer satisfaction and loyalty.
Reduced waste and costs.

Non-budgetary control techniques offer several advantages, such as flexibility, adaptability, and a focus on
long-term goals and performance. They can complement traditional budgetary control methods and provide a
more comprehensive approach to managing an organization's activities and resources.

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