Control Techniques: Budget and Budgetary Control

Control Techniques

Budget and Budgetary Control

A budget can be defined as a numerical statement expressing the plans, policies and goals of an organization for a definite period in future. Budget are mostly expressed in financial terms though they can be expressed in non-monetary terms also.

Budgetary control is a process of comparing the actual results with the corresponding budget data in order to approve accomplishments or to remedy differences by either adjusting the budget estimates or correcting the cause of the difference.

Features

Budgetary control establishment a plan or target of performance which becomes the basis of measuring progression of activities in the organization.

It tries to focus attention of the management on deviation between what is planned and what is being achieved so that necessary actions are taken to correct the situation and to achieve the objectives of the activities.

Benefits of Budgetary Control

Budget and budgetary control leads to maximum utilization f resources with a view to ensure maximum returns because it provides aid to managerial planning and control.

A.  Budgetary Control as Tool for Planning

The system of budgetary control by preparing budgets before the activities are actually undertaken.

            Budgetary control forces managers to plan their activities. Since budget allocated is based on the nature of activities undertaken in a department or section, the managers have to define what activities they plan for future.

            Since budgetary control is duly concerned with concrete numerical goals, it does not leave any ambiguity regarding the targets.

            It leads to a continuous utilization of resources since it keeps a rigid check over activities in the organisation.

            It also contributes indirectly to the managerial planning at higher levels.

Budgetary control provides an effective means by which management can delegate authority without sacrificing overall control.

Budgetary Control as Tool for Control

            As a control device, is very exact, accurate and precise budget provides standards against which control activities are undertaken.

            Budgetary control pinpoints any deviation between budgeted standards and actual achievement.

            Budgetary control system also points out the reasons which may be responsible for deviation between budget and actual.

Budgetary Control as an Aid to Co-ordination

udgetary control system promotes co-operation among various sub-units in the organisation.

The system encourages exchange of information among various units of the organisation.

The system promotes balanced activities in the organisation.

Volume of each activity depends upon the objectives of the organization.

Problems in Budgetary Control

            Planning Problems

            Uncertainity of future

            Inflexibility

            Operational Problems

            Sophisticated guesswork

            TO save themselves from criticism, they may pass on the blame on other manager.

This may create many types of problems and conflicts in the organisation.

            Budgetary Control System requires a lot of paper work which the technical personnel always resent.

Types of Budgets

1.  Functional Budget

Have a number of classifications depending upon the types of functions performed and budgeting practices adopted by an organisation.

2.  Master Budget

The master budget is the summary budget incorporating its component functional budgets.

3.  Capital and Revenue Budget

Creating of facilities for carrying the business activities is called capital.

Carry out the activities is called revenue budget.

4.  Flexible Budget

A budget which is designed to change in accordance with the activities of the ognaisation is known as flexible budget.

5.  Performance Budgeting

It shows costs matching with operation.