Budgetary Control

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Budgetary Control

Financial Performance Control

Financial performance control, or simply referred to as financial control, is relevant for those aspects of business operations whose outcomes are expressed in monetary terms. Financial control is exercised at an operative level as well as at overall organisation level though techniques involved are different. Financial control techniques are grouped into three categories from a strategic management point of view:
1. Budgetary control,
2. Financial ratio analysis, and
3. Return on investment.

Budgetary Control

Budgetary Control

Budgetary control is derived from the concept and use of budgets. We have seen in chapter 6 that a budget is the financial expression of various organisational operations and the way in which budgets are prepared as tools for planning. Thus, It is a system which uses budgets as a means for planning and controlling entire aspects of organisational activities or parts thereof. Terry has defined budgetary control as follows:
“Budgetary control is a process of comparing the actual results with the corresponding budget data in order to approve accomplishments or to remedy differences by either adjusting the budget estimates or correcting the cause of the difference.” Some people treat this only as a technique of cost control. For example, Brown and Howard have defined budgetary control as follows:
“Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibility, comparing actual performance with budgeted and acting upon results to achieve maximum profitability.” However, the scope of budgetary control extends beyond cost control with the introduction of several types of budgeting.

Features of Budgetary Control

1. It establishes a plan or target of performance which becomes the basis of measuring the progression of activities in the organisation.
2. It tries to measure the outcomes of activities in quantified terms so that actual performance can be compared with budgeted performance.

Benefits of Budgetary Control

1. Budgetary control forces managers to plan their activities. Since budget allocation is based on the nature of activities undertaken in a department or section, the managers have to define what activities they plan for future. Thus, planning becomes an integral part of total managerial functions.
2. Since budgetary control is duly concerned with concrete numerical goals, it does not leave any ambiguity regarding the targets. Thus, every manager in the organisation is sure about what he is expected to do. This offers the opportunity of objective appraisal of performance, self-examination and even self-criticism.