CS Executive Budgeting and Budgetary control as a tool of management
Budgetary control has become a fundamental tool of management for costs and maximizing profits. It may be appreciated as one of the utmost examples of rationality in management. It is a useful management tool for comparing the current performance with pre-planned performance with a view to attain equilibrium between ends and means, output and effort.
It corrects the deviations from pre-planned path through the media of observation, research planning, control and decision- making and thus helps in performance of future activities in an orderly way. It uncovers un-economies in operations, weaknesses in the organization structure and minimizes wasteful spending. It acts as a philosopher, friend, and guide to the management.
Budgetary management is the method of preparing budgets for the future period and comparing them to actual results to identify any variances. The comparison of budgeted and real figures will assist management in identifying variances and taking corrective measures as soon as possible.
It establishes the company’s objectives, strategies, and policies. If there is no clear goal in mind, resources would be wasted on achieving other goals.
Budgetary control establishes goals. To meet the deadline, every department is required to function efficiently. As a result, it’s a good way to keep track of the activities of different departments within a company.
Budgetary control is a term used in finance to describe how revenue and expenses are managed. In practise, this means comparing real income or expenditure to expected income or expenditure on a regular basis to determine if corrective action is necessary.
Budgetary control is a mechanism for forecasting and managing expenditures through the use of budgets. Budgeting specifies what must be accomplished and how it must be accomplished, while monitoring ensures that the goals are met and that actual outcomes do not stray too far from the intended route.
Budgetary control also creates budgets for different operations and helps to draw a comparison between them to the budgeted figures to identify any anomalies that need to be addressed in the future. As a result, the budget is a means to an end, and budgetary control is the end result. Budgetary management is an ongoing mechanism that aids in the preparation and coordination of resources. It also has a control mechanism.
Advantages of budgetary control to management can be summarized as follows:
- It brings efficiency and economy in the working of the business enterprise.
- It establishes divisional and departmental responsibilities. It thus prevents ‘buck-passing’ when the budget figures are not met.
- It coordinates the various divisions of a business, namely, the production, financial, marketing and administrative decisions.
- If guards against undue optimism leading to over-expansion because the targets are fixed by executives, after cool and careful thoughts.
- It acts as a safety signal. It shows when to proceed cautiously and when manufacturing or merchandising expansion can be safely undertaken. It serves as an automatic check on the judgment of the executives as losses are revealed well in time which is a caution to the management to stop wastage.
- Budgetary control acknowledges variations of actual performance from budgeted performance. The variations point to the root of inefficiencies enabling management to consider only the items that do not go according to plan and leave the others, i.e., to concentrate on exceptions.
- It is a powerful means of pre-determining when and to what extent financing will be necessary avoiding the possibility of both over and under capitalization.
Budgetary management is the method of creating budgets for different operations and comparing them to the budgeted figures to identify any anomalies that need to be addressed in the future. As a result, the budget is a means to an end, and budgetary control is the end result. Budgetary management is an ongoing mechanism that aids in the preparation and coordination of resources. It also has a control mechanism.
Budgetary management allows business executives to keep track of revenue and expenses in day-to-day operations. A company’s revenue is the money it makes from selling products or delivering services. A cost incurred as a result of operations is referred to as expenditure.
Budgetary management also ensures that cash outflows (payments) and inflows (receipts) remain within acceptable limits. The cash flows from operating operations, investment activities, and funding activities are seen on a cash flow statement.
Budgetary control is one of the most effective methods of monitoring, managing, and financing, in which each department’s budget is created using projected data. Following that, the manager compares the approximate data to the original data and assigns blame to the employee if the difference is unfavourable.
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