Meaning of Budgetary Control
Budgetary control is a process of monitoring and controlling revenues and expenditures of business organizations by preparing budgets. It is one in which comparison is made in between actual results and standard results to find out the deviations. Management considers these deviations and takes suitable remedial measures accordingly for removing them at right time.
Budgetary control is an efficient tool which enables management in ensuring that all activities are going in accordance with pre-determined plan and policies. It helps in proper implementation of all plans for achieving the targeted goals timely. This process is concerned with controlling all expenses of organization by preparing budgets and coordinating it to all departments for performing accordingly.
Budgetary control defines the targets to be achieved, provide plan of action for attaining them, coordinates the responsibilities within organization and checks performance regularly for removing the variations. It plays an efficient role in raising the profitability of business by minimizing any wastage of resources.
Advantages of Budgetary Control
Budgetary control provides plans for achieving the targeted objectives of organization. It involves deciding in advance what we are going to do and introduces limit to all expenses.
It focuses on bringing proper coordination among all departments or divisions of a business organization. Budget committee decides roles and responsibilities for all departments and communicates them for performing accordingly. It is one which regulates all diversified operations of organizations.
Budgetary control assists management in measuring the performance by providing various comparison tools. It fixes various standards and finds out the deviations in actual performance by comparing it with pre-established standards. Management by recognizing them takes all remedial measures timely.
It enables in controlling the expenses by fixing cost budgets for all departments of business. All divisions of organization need to maintain their expenditure within the planned budget and should not exceed it.
Budgetary control promotes free flow of information within the organization. Budget committee frames all budgets and polices in consultation with all employees and also considers their feedback.
Maximization of Profit
It aims at enhancing the overall efficiency of organization by eliminating all wastage of resources. This process monitors the performance of all divisions and takes necessary steps to increase their productivity. Preparation of budgets control all expenditures and aims at raising the profitability.
Budgetary control process makes all employees conscious of their responsibilities by fixing their targets. Every person working within the organization knows clearly what they need to do and therefore perform without any interruption.
Disadvantages of Budgetary Control
Fear of Wrong Estimates
Budgets are framed for future events which are uncertain. The effectiveness of these budgets depends upon the accuracy with which forecasting regarding future is made. There may be chances of making wrong estimates which affects the utility of budgetary control system.
Another major drawback of budgeting system is that it is expensive in nature. It requires huge expenditure on the part of organization to formulate budgets after doing various researches and forecasting.
Budgeting system requires revision from time to time to suit the changing circumstances. The assumptions which are considered while preparing budgets changes due to future uncertainties thereby bringing the needs for updating the framed budgets.
Budgetary control is a time consuming process. It requires huge time for preparing budgets and implementing them in organization. Employees working within the organization also take time to get familiar with budgeting system and working in accordance with it.
Problem of Coordination
Efficiency of budgetary system mainly depends upon better coordination among all departments of organization. Performance of one division affects the performance of other divisions and overall organization. It is quite difficult to bring proper coordination among various departments of large organizations.