Budget is basically a planning of businesses all expenses and revenue. A budget is defined as a formal statement of financial resources set aside for a specific activity over a certain period, budgetary control refers to the formal statements of financial resources. Where all the activities of an organization are allocated financial resources for a given period of time, in addition the budget is a financial control for the organization; the three most important tools are the – income, balance sheet, and cash flow statement,
How budgets contribute to control of operations:
One of management's major occupations is to control company maneuvers. Control consists of the steps taken by management to see that planned objectives are met. The use of budgets in controlling operations is known as budgetary control budget reports that compare actual result with designed objectives. The use of budget reports is based on the conviction that planned objectives lose much of their potential value without some monitoring of progress along the way, so top management requires periodic reports on the progress of department managers near their planned objectives, budgetary control engages the tricks of (I) develop budget (II) examine difference between actual and budget (III) adjust future plans (IV) acquire curative deed,
Objectives of a Budgetary Control:
01. Clarity of aims: the overall aims of the business and determining targets of performance for each section or department of the business.
02. Major Responsibilities: the responsibilities of each individual so that everyone knows what is expected of him and how he will be judged.
03. Finest use of possessions: Ensuring the best use of all available possessions to maximize profit or production, subject to the limiting factors.
04. Skill: organizing the various activities of the business and centralizing control, but also making a facility for the Management to disperse dependability and entrust influence.
05. Considered deed: stimulating a spirit of careful forethought, assessment of what is possible and an attempt at it. It leads to vitality without recklessness. It also helps to draw up long range Plans with a fair gauge of accurateness.
06. Source for rule: Providing a source for revision of current and future rules.
Advantages of Budgetary Control:
A budget is a plan of articulated in quantitative terms. Budgeting is a technique for originating budgets. Budgetary Control refers to the ideologies, events and performs of accomplishing given purpose during budgets. The budgetary control system helps in setting up the goals for the organization as complete and concentrated efforts completed for its accomplishment. It facilitates financial system in the project. a few of the advantages of budgetary control are express below
01. Maximization of Profit: The budgetary control aims at the maximization of profits of the enterprise. To achieve this aim, a proper planning and co-ordination of different functions is assume.
02. Harmonization: The working of the different departments and sectors is properly harmonized. The budgets of different departments have a bearing on one another. The harmonization of various supervisors and inferiors is essential.
03. Exact plans: The plans, policies and goals are decided by the top management. All efforts are put together to reach the common goal of the organization. Every department is given a target to be achieved. The efforts are directed towards achieving come exact plans.
04. Economy: The planning of expenses will be methodical and there will be economy in expenditure. The finances will be put to optimum use. The benefits derived for the concern will eventually enlarge to industry and then to national economy.
05. Shaping fault: The deviations in budgeted and actual performance will enable the resolve of weak spots. Efforts are concerted on those facets where presentation is less than the predetermined.
06. Decreases Costs: In the present day competitive world budgetary control has a significant role to play. Every businessman tries to decrease the cost of production for increasing sales.
Limitations of Budgetary Control:
01. Guesstimates: Budgets may or may not be true, as they are based on Guesstimates. The hypothesis about future proceedings may or may not really occur.
02. Strictness: Budgets are considered as inflexible document. Too much emphasis on budgets may affect day to day operations and ignores the dynamic state of organizational functioning.
03. False Sense of Security: Mere budgeting cannot lead to prosperity. Budgets cannot be implementing repeatedly. It may generate a false sense of defense that all has been in use concern of in the budgets.
04. Lack of harmonization: Staff collaboration is usually not available during Budgetary Control implements.
05. Time and Cost: The foreword and accomplishment of the system may be luxurious.
Conclusion: Budgets are an significant management implement, they help with financial control, help organize business activity, boost the chance of making the right decision based on accurate information and can encourage staff, but a poorly ready budget is worthless, it misuses time, can discourage staff, and may confine business activities so that management cannot respond to changes in the market place.