Budgetary control is the process of determining several actual results with budgeted figures for the company for the future period and established standards, comparing the budgeted figures with the actual performance to calculate the variances, if any. First, budgets are prepared and then actual results are recorded. Comparison of budgeted and actual figures will enable management to identify discrepancies and take corrective action at the appropriate time. Budgetary control is an ongoing process that helps planning and coordination. It provides a method of control as well. A budget is a means and budgetary control is the end result.
According to Brown and Howard, "budget control is a cost control system that includes budget preparation, departmental coordination, and accountability, comparing actual versus budgeted performance and acting on results to achieve maximum cost effectiveness". As the advance planning of the various functions of a business so that the business as a whole is controlled.
J. Batty defines it as "A system that uses budgets as a means of planning and controlling all aspects of the production and / or sale of products and services." Welsch relates budget control to the day-to-day control process. According to him, "budgetary control involves the use of budgetary and budgetary reports, over the period to coordinate, evaluate and control day-to-day operations in accordance with the objectives specified by the budget."
Objectives of budgetary control:
Budgetary control is essential for policy planning and control. It also acts as an instrument of coordination.
The main objectives of budgetary control are as follows:
1. To ensure planning for the future by creating multiple budgets, anticipate the requirements and expected performance of the company.
3. Operate several cost centers and departments with efficiency and economy.
4. Elimination of waste and increased profitability.
5. Anticipate capital expenditures for the future.
6. To centralize the control system.
7. Correction of deviations from established standards.
8. Setting the responsibility of several individuals in the organization.
Advantages of budgetary control:
The budget control system helps to set the goals of the organization as a whole and concerted efforts are made for its achievements. It allows savings in the company.
Some of the advantages of budgetary control are:
1. Maximization of benefits:
Budgetary control aims to maximize the benefits of the company. To achieve this objective, adequate planning and coordination of different functions is carried out. There is adequate control over various capital and income expenditures. Resources are put to the best use possible.
2. Coordination:
The work of the different departments and sectors is properly coordinated. The budgets of the different departments are related to each other. The coordination of several executives and subordinates is necessary to achieve the budgeted objectives.
3. Specific objectives:
The plans, policies and objectives are decided by senior management. All efforts are put together to achieve the common goal of the organization. Each department is given a goal to achieve. Efforts are directed towards the achievement of specific objectives. If there is no defined objective, then efforts will be wasted in achieving different goals.
4. Performance measurement tool:
By providing objectives to different departments, budget control provides a tool for measuring management performance. The budgeted objectives are compared to the actual results and the deviations are determined. The performance of each department is reported to top management. This system allows the introduction of management by exception.
5. Economy:
The planning of the expenses will be systematic and there will be an economy in spending. Finances will be put to optimal use. The benefits derived from the concern will ultimately be extended to the industry and then to the national economy. National resources will be used economically and waste will be eliminated.
6. Determination of weaknesses:
Deviations in budgeted and actual performance will allow the determination of weaknesses. Efforts are focused on those aspects where performance is less than stipulated.
7. Corrective Action:
Management may take corrective action whenever there is a discrepancy in performance. The deviations will be reported periodically so that the necessary measures are taken.