The Importance Of Budgeting

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The use of a budget is to acquire and use resources over a period of time. An individual creates a budget for their personal activities. A corporation also tends to use budgets because it helps to run the business smoothly as it more effective and efficient. For an instance, companies will create an annual budget because they want to outline the expected needs of each department. Without planning a budget, we may overspend or underspend our money.

As stated by Bhimani et al, 2012, the first step of budgeting control is to set the goals and objectives that the management would like to achieve and also most importantly, creating a budget. Secondly, the management would need to compare, analyze and interpret the actual performance results with
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It can also be measured using Balanced Scorecard (BSC) and Economic value added (EAC). Both the methods are used to increase the shareholder value. It has been many years that performance management is the focal point of management accounting and mainly focuses the area of budgetary control (Otley, 2001).

Budgets communicate management’s plans throughout the organization. Moreover, the budgeting process provides a means of allocating resources to those parts of the organization where they can be used more effectively. Furthermore, budgets can define goals and objectives that can serve as benchmarks for evaluating subsequent
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According to Avis (2009) each budget-holder can monitor their center’s activities and take control when it is necessary. In addition, managers can raise the target high for the next fiscal year through budgetary control system as the variances will be solved and identified.

From the above analysis of budgetary control system, it shows that performance management top management controls the budget mainly but also with the help of the individuals from the various departments. According to Otley (2001), budgetary control works well in stable environment. Hofstede (1968) believes that budgetary control system is the main integrative control system. Yucel and Gunluk (2007) articulated that budgets are used as a control mechanism to regulate behavior in an

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