Budgetary Control is the process of establishing of departmental budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objectives of that policy, or to provide a firm basis for its revision.
The primary objective of budgetary control is to help the management in systematic planning and in controlling the operations of the enterprise. The primary objective can be met only if there is proper communication and coordination amongst different within the organization. Thus the objectives of budgetary control can be stated as:
- Planning: Business requires planning to ensure efficient and maximum use of their resources. The first step in planning is to define the broad aims and objectives of the businesses. Then, strategies to achieve the e desired goals are formulated and tentative schedule of the proposed combinations of the various factors of production, which is the most profitable for the defined period. Budget influences strategies that need to be followed by the origination’s. It cultivates forced planning aiming managers.
- Co-Ordination: Co-ordination is a managerial function under which all factors of production and all departmental activities an balanced and integrated to achieve the objectives of the organization. Budgeting provides the basis for individuals in all departments to exchange ides on how best the organizations objectives can be realized. Executives are forced to think of the relationship between their department and the company as a whole – This removes unconscious biases against other departments. It also helps to identify weaknesses in the organization structure
- Communications: All people in the organization must know the objectives, policies and performances of the organizations. They must have a clear understanding of their part in the organizations goals. This is made possible by ensuring their participation in the budgeting process.
- Controls And Performance Evaluation: Control ensures control by continuous comparison of actual performance with the budgeted performance. Variances are highlighted and corrective action can be initiated. Budgets also from the basis of performance evaluation in an organization as they reflect realistic estimates of acceptable and expected performance.