Meaning and Definition of Budgetary Control
Budgetary control involves determining budgeted figures for definite period of future,comparing actual figures with the budgeted ones and finding out the variances. This process helps in finding deviations and the reasons behind them. It aids in implementing corrective measures for improving the situation.
According to Brown and Howard___ “Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability“.
According to CIMA___” The establishment of budgets relating the responsibilities of executives to the requirement of a policy, and the continuous comparison of actual with budgeted results either to secure by individual action the objective of that policy or to provide a basis for its revision“.
Advantages of Budgetary Control
1. Maximization of profit: The budgetary controls helps the organization in achieving maximum profits by properly planning and controlling various activities.
2. Coordination: The working of different areas of an organization is coordinated through the use of budgetary controls. Such coordination helps in the different achievement of organisational objectives.
3. Specific Aims: Budgetary controls helps in setting up specific aims which are important for the purpose of planning and control. This also helps in setting up targets for various departments. Top management is responsible for setting up plans and policies to be followed.
4. Measuring Performance: Budgetary controls are important measuring tools are these help in setting up specific targets which help in measuring the performance. The actual performance is compared with the budgeted ones to find out the deviations. This helps in the implementation of ‘management by exception’ system.
5. Economy: Budgetary controls helps in controlling expenditures as well. Systematic planning through budgeting is important for this purpose. The efficient use of resources is not only important for firms but has economy-wide impact. It also helps in reducing the wastage of precious resources and increases performance.
Disadvantages of Budgetary Control
1. Uncertain future: Budget involves future projections and future is uncertain. This generally reduces the efficacy of budgets as future cannot be predicted with certainty. Any significant change in conditions may require change in budget as well. Such changes may increase the running costs of the organization.
2. Budgetary revisions: Since future is uncertain,the budgets may be required to be revised. However,frequent change in budgets is not desirable as it may affect the efficiency of employees. Such revisions are also expensive.
3. Problems of coordination: The coordination between various departments helps in proper implementation of budgetary control.
4. Inter-department conflict: Budgetary control may lead to inter-departmental conflicts as they may fight for the limited resources.
Objectives of Budgetary Control
- Basic purpose
- Cooperative spirit
- Maximum profitability
- Centralized control
- Best use of resource
- Remedial measures