BUDGETRY

CONTROL
Salomon Eldhose
SME-2022-21-33
DBAM,KUFOS

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CONTENT Y TUN
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FUN

 Meaning & Definition

 Objectives & Scope
 Advantages & disadvantages
 Essentials for effective budgetary control

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Budgetary control refers to the process of planning,

controlling, and monitoring the organization’s revenue and
expenses to ensure that they align with the budget. It

MEANING involves creating budgets for various business activities,

monitoring actual performance against the budget,
identifying variations, and taking corrective actions to bring
the budget back on track.

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According to Brown and Howard, “Budgetary control is a

system of controlling costs which includes the preparation

DEFINITION of budgets, coordinating the departments and establishing

responsibilities, comparing actual performance with the
budgeted and acting upon results to achieve maximum
profitability.”

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To ensure planning for future by setting up various budget.

To co-ordinate the activities of different departments.
Elimination of wastes & increase in profitability.
OBJECTIVES To anticipate Capital expenditure for future.
To centralize the control system.

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 To define the business objectives precisely and establish the
performance targets.
 To delineate the responsibilities of each department as well as
each person.
 To create a standard benchmark for measuring performance.
SCOPE  To identify the reasons for variation, if any, and take necessary
corrective actions.
 To ensure optimal utilization of available resources to improve
productivity and profitability.
 Monitor and revise the budgetary plans if there is any such
requirement due to changing environment.
 To articulate long-term policies with maximum accuracy.

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ADVANTAGES OF BUDGETRY CONTROL
 Participation: Budgetary control allows the employees of the organization to participate in
the process and contribute their maximum effort towards achieving the goal.

 Top management support: Budgetary control is a process that works mainly with the
assistance of the top management like the directors, managers, etc. Therefore, if the
management is supportive and cooperative, this system of budget control becomes easier and
more efficient.

 Reduce cost: It manages the cost of production of the company by effective planning of
financial activities and ensures that the resources are being utilized properly so that there is
minimum wastage. This brings down the cost of operation to the organization.

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 Maximization of profit: Through planned goals and proper coordination, the organization functions
efficiently as all the activities are adequately performed and the expenditures and capital are put to use
correctly with the help of the process of budgetary control.
 Specific aims: The process of budgetary control makes the goal of the organization clearer and easier to
accomplish. The expenses and resources are well allocated into areas required and help avoid
unnecessary wastage in terms of time and money. Therefore, the improved control over activities and
finance makes the goal more definite for the organization.
 Tool for measuring performance: The budgetary control acts as a tool for measuring performance. It
helps compare the result achieved by the organization and the objectives that were set earlier while
planning. It detects the areas that need attention and provides assistance or solutions.

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DISADVANTAGES OF BUDGETRY CONTROL
 Limited to the financial aspect: The concept or process of budgetary control solely focuses on
only the financial outlook of the organization. The other issues like customer satisfaction,
employee benefit, safety issues, etc. are disregarded.
 No stability: It is almost impossible to have a stable business environment. Considering that the
business condition remains constant, the process of budgetary control may not be accurate for a
lot of the financial decisions. The organization can find it difficult to work or adjust according to
the changes it faces.
 Inflexibility: Budgetary control depends on specific capital and limited time. However, this can
create inflexibility in the organization as the employees might not be ready for a change and keep
new ideas and projects to themselves, which would have benefited the organization.

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 Dependent on assumptions: Budgets are often dependent on financial aspects like expenses,
revenue, and future profits. Since these data are mostly based on previous years’
performances, they might not be helpful or accurate for future reference. If any of those
assumptions turn out to be wrong, the organization can suffer some kind of loss or damage.

 Time-consuming: Making a detailed budget report can take up a lot of time and effort that
otherwise would have been used for other important activities such as strategic planning,
customer service, and product development. Though budgeting helps reduce the wastage of
resources, a long process of monitoring, planning, and adjusting can exhaust a lot of resources
too.

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ESSENTIALS OF BUDGETRY CONTROL
 Sound forecasting: The estimates for the future needs of business should be precise and
accurate.

 Goal orientation: Budgets must directly flow from objectives of the enterprise, and goals of
budgetary control must be clearly defined.

 Proper recording system: Sound accounting procedures should be allowed for proper
recording of actual operations. Unless the actual performance is accurately recorded and
quickly reported; the whole structure of budgeting will fall. Budgeting is greatly helped if
there is also the system of standard costing in use.

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 Participation: All individuals responsible for achieving results should be consulted in the
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formulation of budgets. No system of budgetary control can succeed without the mutual
understanding of superiors and subordinates. Participation assures full co-operation and
commitment for making budgets successful. Participation also makes budgets realistic and
workable.
 Top Management support: Since budgeting highlights inefficiencies there is bound to be
resistance. This makes it more necessary that top management should believe in the importance of
budgetary control. Thus the overall budgets must be set and approved at the chief executive level.
 Flexibility: Budgets should be flexible. If actual business conditions differ from what was
expected, it should be possible to recast the budget quickly
 Sound administration: Budgets cannot replace good management. Budgets should be
administered efficiently by responsible executives.
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 Enforce timeliness: Budgets must be prepared so as to be ready before the period to which they
relate. Moreover sufficient time should be allowed for the budget programme to develop and
reach near perfection.
 Efficient organization: A good organisation structure is necessary for success in budgeting.
There should be fixed responsibility centres, budget committee and budget controller.
 Proper Co-ordination: The budget plans must be properly co-ordinated in order to eliminate
bottlenecks. Individual budgets should be co-ordinated with one another.
 Constant Review: Constant review of the budgets is necessary so as to prevent them
from degenerating into license for spending the full budgeted amount even though it may
not be necessary.

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 ES
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Thank
You

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