Budgetary Control Report

1. Introduction

Budgetary control, as defined by Chartered Institute of Management Accountants (CIMA) is “the establishment of budgets relating the responsibilities of executives to the requirements of a policy and the continuous comparisons of actual with budgeted results, either to secure by individual action the objectives of that policy or to provide a basis for its revision.” In other words, budgetary controls set a limit to how much the department is allowed to spend for example on a particular project. It is usually prepared before a period for the purpose of achieving a given target. These forecasts are on average for the duration of one year. At the end of this duration, management comes back to see how they have done with regards

Uses of Budgeting Control

2.1 Planning A budget requires the management to plan for the future. This in turn forces the managers to consider departmental operations and individual managerial objectives and produce a course of action in which meagre resources are allocated efficiently to attain desired objectives.

2.2 Communication

The budgeting process is an important avenue through which the company’s objectives and the problems likely to be faced when trying to achieve them are conveyed between top and middle management. Once it has been approved, the relevant managers will tell all the staff involved. This ensures that the efforts contributed by the departments are all in the same wavelength.

2.3

Conclusion

In conclusion, budgetary control is a major tool in overall organisational control. It is used to help set ways to achieve future objectives and to communicate expectations onto their staff ensuring that everyone is working towards the same goals. By meeting or exceeding the expectations of the budget, staff and managers should be rewarded, giving them an incentive to work towards the firm’s goals. This gives everyone in the firm the motivation to meet these objectives using the resources allocated for them.

However, if unrealistic goals have been set, this could bring down the productiveness of the firm. The preparation of budgets can be time consuming and may be wasting precious time that could have been put into increasing the efficiency of the firm. Moreover, the pressure to perform may cause managers to fabricate their budgets in order to make it look like they have met the firm’s objective.

Thus, as important a role management gives to budgetary controls, they should not be too rigid. There should be flexibility to provide for individual initiative and drive. The budget should be reviewed at adjusted from time to time to make it more