Budgetary Control Definition
The financial resources in a formal statement allocated for particular activities in a company in a stipulated time frame of usually 3, 6 or 12 months is known as a budget. Budgetary control is the comparison between budgets with actual operational results and one of the major aspects of management control would be budgetary control. Llewellyn (Ryan, 2007) speaks of accountability as a rather recent phenomenon and that the process of the budgetary control acts as not only a resources allocation platform, but also one that allocates responsibility as well. However, he strongly argues that these accountabilities cannot be invoked unless responsibilities have been ...view middle of the document...
Advantages of Budgetary Control and Budget
There are always two sides to a coin and despite having some disadvantages, there are also advantages to having a budgetary system in an organisation.
There are countless advantages to a budget system and the budgetary control in an organisation. To begin with, having a structured budget allocated to individual departments can compel the management to think further about the future, which is probably one of the more important feature of a budgetary plan. It ensures that the management would look ahead to set out detailed plans in order to achieve targets to anticipate and give the organisation a purpose and direction. The greatest advantage of budgetary control is that it makes a clear view of businesses to ensure that the plans laid for the future are achievable and it gives managers a distinct direction when carrying out day to day activities with their team to ensure that every business day in that financial year would be beneficial and driven towards the goals set.
Having a structured budget not only improves the allocation of scarce resources, it also provides a basis for performance appraisal within departments. With the budget, an organisations expenditure can then be compared against the planned budget to see if it would match up. Deviations too large from the planned budget can then be investigated and the reasons can then be divided into controllable and non-controllable factors before further resolving issues to better meet the expected planned budget for the fiscal term.
Uses of a Budgetary Control
Besides using the budget to force organisations to think ahead for the future, having a good budget plan could also improve communication in an organisation. Agreed goals of a company would be communicated to all other departments in which departmental efforts are coordinated to achieve these goals within the stipulated time frame. A budget has also been seen as one of the bridge of both performance control and the awareness of stakeholders in relation to the aspirations of a firm and has brought closer ties between the business and the shareholders in recent times.
When achieving assigned operational objectives, managers are responsible for the use of the financial resources assigned in the budget. The budget would enable managers to compare costs to benefits of a particular activity and efficiently allocate resources to the best of benefits. A manager’s performance can then be evaluated based on the budget variances at the end of every fiscal term, to determine if the manager was able to properly control the resources. This process of budgetary control enables managers to compare actual results against the budget and deviated discrepancies found can be further probed and a follow-up action could be put in place to correct it. Ultimately, a budget supports the efficient allocation of scarce resources in which it controls the volume of production of a certain good or service. This...