budgetary control

What is Budget:

A formal statement of the financial resources set aside for carrying out specific activities in a given period of time. A budget is prepared for the effective utilization of resources.  It is based on the implementations of a forecast and related to planned events.

Meaning of Budgeting: Budgeting is basically implementation of budget.

What is Budgetary Control:

Budgetary control is the use of the comprehensive system of budgeting to aid management in carrying out its functions like planning, coordinating and control. Budgetary control system is very helpful in bringing economy in business. Budgetary control is applied to a system of management and accounting control by which all operations and output are forecasted  in a proper manner to achieve the actual results when known are compared with budget estimates.

The Essentials of  budgetary control:
  1. Establishment of budgets for each function and section of  the organisation.
  2. Executing responsibilities in order to perform the specific tasks to attain the objectives.
  3. Continuous comparison of actual performance with standard performance.
  4. Taking suitable remedial action if there is any deviation.
  5. Revision of budgets in the light of change circumstances.

Steps for the successful implementation of a budgetary control

The following are the steps for the successful implementation of a budgetary control
Organization chart:
An organization must have a proper chart from where authority and responsibility of each executive get clear. If organization chart is not clear then there may be conflicts among the employees. if duties are clear among the workers then every person will be answerable for his performance. Nobody can blame to other for the poor performance.

Determination of objectives:
it is very important that the objectives should be very clear to all the executives in the organization. Having determined the objectives of budgetary control the following future problems will have to be sorted out:

  • Laying down a plan for the implementation of the firm’s objectives.
  • Coordination of the activities of the different departments.
  • Controlling each function to get best possible results.

Budget manual:
The budget should be in writing. It should be like a rulebook in which objectives should be clear. Following of the some important matters covered in budget manual.

  • A statement regarding the objective that how that objective can be achieved.
  • Functions and responsibilities should be clear.
  • Timetable for all stages of budgeting.
  • Reports, statement and other records to be maintained.

Responsibility for budgeting:
Budget controller: there should be someone budget controller. Chief executive should be responsible in the form of budget controller for budget programme. Budget controller should be technically sound person.

Budget committee:
budget controller by his own may not be successful in all the process. There should be a proper to assist him all the time. There should be members from all the departments of the organization like production, finance, sales etc. each head of the department will have his own subcommittee and person will be responsible to his respective head.

Fixation of budget period:
By budget period we mean the period for which we are going to prepare a budget. Period of budget depends on so many factors as
(i) nature and size of business
(ii) the controlling techniques applied. A seasonal nature business need short term budget and for a regular nature business we can opt a long-term budget plan.

Determination of key factors:
key factors always very important for every organization. Budgetary control system should be capable of using key factors in a proper manner. Key factors may b the raw material, labour; finance etc. budgetary control system must give guidance to select a profitable unit among more than one option if any.

To motivate the workers, the budget must be prepared by those who are responsible for its performance.

Making of forecasts:
after studying all the steps then forecast should start for the future. There should be alternative forecast for the future. The best forecast should send to top management for converting that forecast in budget.

Approval from top management:
The top management approval is necessary in order to get full cooperation and acceptance of  the system of budgetary control. The system may fail in future due to disagreements which may arise later on without approval of top management.