Budgetary Control

Budgetary Control

Budgetary control is a systematic process that helps organizations monitor and

manage their financial performance by comparing actual results with planned
budgets. It allows businesses to track expenses, identify variances, and take
corrective actions to ensure financial goals are met.
Here you will understand what is budgetary control in management accounting
along with its related concepts.
 What is Budget?

The budget is a blue-print of the projected plan of action expressed in quantitative

terms and for a specified period. The budgets put the plan in a concrete form and
follow up action to see that the plan adheres to complete the system of control. It
shows income and expenses plan of spending. It shows how much money you will
earn and spend over a while. Creating a budget is to manage personal or
organizational finances effectively. It predicts future financial activity and sets
spending limits. This tool helps you track your spending, identify areas where you
can save money, and make informed investment and saving decisions. Businesses
and organizations can prepare their budgets monthly, quarterly, or yearly.
 What is Budgeting?

Budgeting is the art of planning. It is the process of making a plan to spend money.
Making this spending plan helps the companies determine whether they have
enough money to do the things they need or would like to do. If your expenses
exceed your spending, you can use the planning process to prioritize the more
essential things. It involves making a comprehensive list of expenditures or focusing
on a few categories. Some companies use to prepare budgets using spreadsheets,
while others use budgeting apps.
 Objectives of Budgetary Control

•Plan for the Future: Budgetary control helps organizations plan for the future by
forecasting future income and expenditures. This allows organizations to recognize
potential problems and develop strategies to address them.
•Coordinate Activities: Budgetary control helps to coordinate the activities of
different departments and units within an organization. As a result, everyone works
towards the same goals and resources are not duplicated.
•Control Costs: It helps organizations control costs by setting targets for spending
and tracking actual performance against those targets. This allows organizations to
identify areas where costs are overspending and take corrective action.
 Advantages of Budgetary Control

•Improved Financial Performance: Budgetary control can help organizations improve their financial
performance by ensuring that they are using their resources efficiently and effectively. This can lead
to enhanced revenues, lower costs, and improved profitability.
•Better Decision-Making: Budgetary control provides organizations with a better understanding of
their financial performance. Companies can use this information to make better decisions about
where to allocate resources, how to grow the business, and how to manage risk.
•Increased Accountability. Budgetary control helps to increase accountability within an organization
by setting clear and achievable goals for individuals, departments, and the organization. In addition
to motivating employees to work harder and smarter, this can help identify and address
performance problems early on.
•Improved Coordination and Communication: Budgetary control helps to improve coordination and
communication between different organisational departments and units. The reason is that
everyone is working towards common goals and is aware of the budget and how their performance
will impact the organisation’s financial performance.
•More Efficient Use of Resources: Budgetary control enables organizations to identify areas to
reduce or eliminate costs. Thereby helping them use resources more efficiently. This can lead to
savings that the organization can reinvest in other business areas or use to improve profitability.
•Reduce Waste and Fraud. By tracking actual performance against budgeted
results, organizations can identify areas where waste and fraud may occur. This can
lead to savings and improvements in efficiency.
•Improve Customer Service. By using budgetary control to ensure that resources
are allocated efficiently, organizations can improve their customer service by
offering customers the products and services they need when they need them.
•Enhance Investor Confidence. Organizations can enhance investor confidence by
demonstrating that they have a good understanding of their financial performance
and that they are managing their resources effectively. This can lead to improved
access to capital and lower borrowing costs.
 Limitations of Budgetary Control
•It is based on estimates: Budgets are based on estimates of future income and
expenditures. These estimates can be inaccurate, especially in a rapidly changing business
environment. This can lead to budgets that are unrealistic and unattainable.
•It can be inflexible: Budgets are typically set for a period of time, such as a year or a
quarter. This can make responding to unexpected events, such as a recession or a natural
disaster, difficult.
•It can be time-consuming and expensive to implement: Developing and maintaining a
budgetary control system can be time-consuming and expensive. This can be especially
challenging for small businesses.
•It can be difficult to motivate employees to support the budget: Employees may not be
motivated to support the budget if they feel it is unrealistic or unattainable. Therefore, it is
important to communicate the budget to employees and explain how it is aligned with the
organization’s strategic goals.
•It can lead to conflicts between departments. Departments may compete for resources
and blame each other for budget overruns. It is important to create a culture of
cooperation and collaboration between departments.
 Conclusion
Budgetary control is a crucial aspect of managing a business’s finances.
Organizations can improve their planning and forecasting abilities by setting
budgets, monitoring performance against those budgets, and taking corrective
action. This system allows organisations to use their financial resources effectively
and efficiently to achieve their goals.
However, it is important to note that budgetary control is not a one-time process. It
requires ongoing monitoring and adjustment to remain relevant and effective. The
involvement of relevant stakeholders, including employees, managers, and
stakeholders, is also necessary. This ensures that everyone knows the budget, the
financial targets, and their role in achieving them.