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Introduction of Budget 

Budget is an estimation of certain expenditures & incomes for a specified future time. Budget is prepared in present by the management for future period as a set of objectives for organisation.

Hence' budget is a standard statement of all desired inputs and outputs. This is prepared on the basis of past experience, present scenario and future forecasting. It laid down the specified set of goals for enterprise and whole organisation work accordingly for achieving theses set of goals. Budget work as a controlling parameter too for smooth and efficient work.           

What do you mean by budget control?

Budget control is a system of controlling in which performance of an organisation is compare with predetermined goals. In budget control system performance of business units is measured on the basis of budget standards.

With the help of budget control, management can know their weak and strength points. Budget control also helps top management in finding out the variations in actual performance so that corrective actions can be taken for improvement.   

What is the budget system

 First of all we should know, what is System? System refers to a condition where many components work together for achieving a common goal. In other words we can say that whenever different types of elements are systematically combined for achieving a common target, then it is called System.

 In preview of above given paragraph we can easily understand the meaning of 'Budget System'. It refers to combination of various elements like planning, coordination and allocation of budgeted resources in the organisation.

In different words we can say that Budget System indicates a process which starts with planning and continue till controlling.

Budgetary Control: Meaning, Objectives and Essentials:

 Meaning of Budgetary Control

 Lets' understand something about term 'Controlling'.

Controlling is a very important element of management process which is required for checking actual performance of the organisation time to time. In controlling top level management compare actual performance with set standards or goals for finding out any positive and negative variation.

Now come to the main point Budgetary Control. In budgetary control top management of the organisation compare actual performance with budgeted data and measure positive or negative variations. If management finds any negative variation then management takes corrective actions for avoiding such variations in the future time.

Objectives of Budgetary Control

 There are various objectives of budgetary control in any form of business organisation but here we are going to discuss some main motives / objectives of budgetary control.

Budgetary control is done;

  • To keep performance of the organisation in the right & desired direction for getting set targets. As we know that without controlling we cannot know measure real performance of the business thus controlling factor becomes more important. Controlling helps management in finding variations and on the basis of these known variations management can correct their business operations to keep these business operations in right direction.
  • To brings efficiency in the operation with the help of determined goals and a set system of working. Without objectives efforts can be gone in the vain so budget gives the organisation a right path of working. Under a set target, human resources work together efficiently for getting those goals. Thus we can say that with the help of budgetary control, human resource can be utilized efficiently.
  • To reduce the cost of operation efficiently for making a product cost competitive in the market. Cost of operations play a major role in the profitability of the organisation and management can reduce this cost with the use of budgetary control. Hence budgetary control helps a lot in reducing the cost of operations.
  • To make better coordination amongst various units of the organisation. If there is no better budgetary control then all units of the organisation will work independently and it may lead misunderstanding amongst all units. So for bringing better coordination amongst various units of the organisation we need to have a proper budgetary control system.
  • To avoid overlapping of efforts / duplication of the activity. Budgetary control gives a specified target to every human & units of the organisation thus it will reduce duplication of the activity and overlapping of the efforts because work of each person and unit is specified clearly.
  • To fix the responsibility with the help of specified cost centers. So that in case of any variation right person can be make responsible for his mistakes. If there is no proper budgetary control system then no one can be clearly made responsible for wrongdoing because authority & responsibility is not defined specifically.
  • To finds deviations / variations easily with the help of specified predetermined system of work. This is the one of the main motive of the budgetary control because through comparing actual outputs with standards, variations can be easily found out.
  • To keep all receipts and expenses in control as per set standards. Under budgetary controlling management can keep various receipts & expenses under control easily.
  • To take immediate and proper corrective actions for improvement of the performance. With the help of budgetary control system management will be able to take quick & effective actions as a remedy.

Essentials of Budgetary Control 

Budgetary Control cannot be done in isolation; it required some basic tools and techniques. In the absence of followings data or requirements we cannot expect a success in Budgetary Control.

Following are the main essentials of Budgetary Control;

  • A standard budget document is the main essence of budgetary control process because this document contains all parameter and standards about budgetary control. These basic norms guide all workers of the organisation for further course of actions.
  • There should be a well-trained and efficient budget officer, who will be responsible and authorized for whole process of budget.
  • A proper organisation for Budgetary Control. In this case a team of well-trained employees is required.Theseemployees is responsible for preparation of budget, implementation of budget plan and controlling of budget etc.
  • Well defined budget centersare also a main prerequisite of budgetary control because without budget centers we cannot fix authority and responsibility properly. In the absence of proper budget center we cannot fix liability of an employee.
  • And last but not least there should be a committee for budget related matter in top management. This committee will see whole outcomes and shortcomings of budget process and will take all required actions.

What do you mean by performance budgeting? 

This is a modern way of budgeting. Now governments or corporates give more emphasis on performance budgeting because under this way resources are allocated on the basis of main outcomes. In earlier times budget was not made using performance indicator but now focus has been shifted towards this modern thought.

In performance budgeting, first of all outcomes (performance) are decided then allocations made accordingly. In this technique utilization of resources has become more efficient because resources are allocated more rationally. At the end of a financial year performance of budget is measured on the basis of achieved outcomes, if the outcomes (performance) not achieved then allocations of resources is reviewed and re-determined.

So in brief, it can be said that under this type of budgeting budget is prepared on the basis of final outcomes to be achieved.

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