There are two types of control, namely budgetary and financial. This chapter concentrates on budgetary control only. This is because financial control was covered in detail in chapters one and two. Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as: "The establishment of budgets relating the responsibilities of executives to the requirements 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". Chapter objectives This chapter is intended to provide: marketing as a key marketing control technique An ...view middle of the document...
b) Expense centres Units where inputs are measured in monetary terms but outputs are not. c) Profit centres Where performance is measured by the difference between revenues (outputs) and expenditure (inputs). Inter-departmental sales are often made using "transfer prices". d) Investment centres Where outputs are compared with the assets employed in producing them, i.e. ROI. Advantages of budgeting and budgetary control There are a number of advantages to budgeting and budgetary control: important feature of a budgetary planning and control system. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organisation purpose and direction.
be made responsible for the achievement of budget targets for the operations under their personal control. basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget plan. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors.
tivates employees by participating in the setting of budgets.
Problems in budgeting Whilst budgets may be an essential part of any marketing activity they do have a number of disadvantages, particularly in perception terms. resulting in: a) bad labour relations b) inaccurate record-keeping. ct arises due to: a) disputes over resource allocation b) departments blaming each other if targets are not attained.
nd it or we will lose it". This is often coupled with "empire building" in order to enhance the prestige of a department. Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs. overestimate costs so that they will not be blamed in the future should they overspend. Characteristics of a budget A good budget is characterised by the following: iveness: embrace the whole organisation.
sis of product lines, departments or cost centres. Budget organisation and administration:
In organising and administering a budget system the following characteristics may apply: a) Budget centres: Units responsible for the preparation of budgets. A budget centre may encompass several cost centres. b) Budget committee: This may consist of senior members of the organisation, e.g. departmental heads and executives (with the managing director as chairman). Every part of the organisation should be represented on the committee, so there should be a representative from sales, production, marketing and so on. Functions of the budget committee include:
ces. c) Budget Officer: Controls the budget administration The job involves: preparation ople about budgetary control. d) Budget manual: This document:
s involved in the budgeting system. Budget preparation Firstly, determine the principal budget factor. This is also known as the key budget...