What is the top Objectives and Characteristics of Budget Control?

Budget, Budgeting, and Budgetary Control: A budget is a blueprint of a plan expressed in quantitative terms. Budgeting is the technique for formulating budgets. Budgetary control, on the other hand, refers to the principles, procedures, and practices of achieving given objectives through budgets. So, what is the question we are going to discuss; What is the top Objectives and Characteristics of Budget Control?… Read in Hindi.

Here are explained; Meaning, Definition, Nature, Objectives, and Characteristics of Budget Control.

The word is given in Upper “Budget, Budgeting and Budgetary Control” Rowland and William have differentiated the three terms as: “Budgets are the individual objectives of a department, etc., whereas Budgeting may be said to be the act of building budgets. Budgetary control embraces all and in addition, includes the science of planning the budgets to effect an overall management tool for the business planning and control”.

Meaning and Nature:

Budgetary or Budget control is the process of determining various budgeted figures for the enterprises for the future period and then comparing the budgeted figures with the actual performance for calculating variances if any. First of all, budgets are prepared and then the actual results are recorded. The comparison of budgeted and actual figures will enable the management to find out discrepancies and take remedial measures at a proper time.

The budgetary control is a continuous process which helps in planning and coordination. It provides a method of control too. A budget is a means and budgetary control is the end result.

Definition:

According to Brown and Howard,

“Budgetary control is a system of controlling costs which includes the preparation of budgets. Coordinating the department and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.” Wheldon characterizes budgetary control as ‘planning in advance of the various functions of a business so that the business as a whole is controlled’.

J. Batty defines it as,

“A system which uses budgets as a means of planning and controlling all aspects of producing and/or selling commodities and services.” Welch relates budgetary control with-day-to-day control process. According to him, ‘Budgetary control involves the use of budget and budgetary reports, throughout the period to coordinate, evaluate and control day-to-day operations in accordance with the goals specified by the budget’.

From the above-given definitions it is clear that budgetary control involves the following:

• The objects are set by preparing budgets.
• The business is divided into various responsibility centers for preparing various budgets.
• The actual figures are recorded.
• The budgeted and actual figures are compared for studying the performance of different cost centers.
• If actual performance is less than the budgeted norms, remedial action is taken immediately.

Top three Objectives of Budget Control:

The following points highlight the top three objectives of Budgetary control or Budget control. The objectives are:

• Planning.
• Co-Ordination, and.
• Control.

Now, explain;

Planning:

A budget is a plan of the policy to be pursued during the defined period of time to attain a given objective. The budgetary control will force management at all levels to plan in time all the activities to be done during future periods. A budget as a plan of action achieves the following purposes:

• The action is guided by the well thought out plan because a budget is prepared after a careful study and research.
• The budget serves as a mechanism through which management’s objectives and policies are affected.
• It is a bridge through which communication is established between the top management and the operatives who are to implement the policies of the top management.
• The most profitable course of action is selected from the various available alternatives.
• A budget is a complete formulation of the policy of the undertaking to be pursued for the purpose of attaining a given objective.

Co-Ordination:

The budgetary control co-ordinates the various activities of the firm and secures co-operation of all concerned so that the common objective of the firm may be successfully achieved. It forces executives to think and think as a group. It coordinates the broader economic trends and the economic position of an undertaking. It is also helpful in coordinating the policies, plans, and actions. An organization without a budgetary control is like a ship sailing in a chartered sea. A budget gives direction to the business and imparts meaning and significance to its achievement by making the comparison of actual performance and budgeted performance.

Control:

Control consists of the action necessary to ensure that the performance of the organization conforms to the plans and objectives. Control of performance is possible with pre­determined standards which are laid down in a budget. Thus, budgetary control makes control possible by continuous comparison of actual performance with that of the budget so as to report the variations from the budget to the management of corrective action. Thus, the budgeting system integrates key managerial functions as it links top management’s planning function with the control function performed at all levels in the managerial hierarchy.

But the efficiency of the budget as a planning and control device depends upon the activity in which it is being used. A more accurate budget can be developed for those activities where a direct relationship exists between inputs and outputs. The relationship between inputs and outputs becomes the basis for developing budgets and exercising control.

The main objectives are stated below:

• To determine business policies for the attainment of desired objectives during a particular period of time. It provides definite targets of performance and gives the guidance for the execution of activities and effort.
• To ensures planning for future by setting up various budgets. The requirements and expected performance of the enterprise are anticipated.
• To co-ordinate the activities of different departments.
• To operate various cost centers and departments with efficiency and economy.
• Elimination of wastes and increase in profitability.
• To co-ordinate the activities and efforts of different departments in the enterprise so that the policies are successfully implemented.
• To regulate the activities and efforts of people to ensure that the actual results conform to the planned results.
• To operate various cost centers and departments with efficiency and economy.
• To correct the deviations from the established standards, and to provide a basis for revision of policies.

The Characteristics of Budget Control:

The above definitions reveal the following characteristics of budgetary control:

• Budgetary control presumes that management has made budgets for all departments/units of the enterprise and these budgets are summarised into a master budget.
• Budgetary control needs the recording of the actual performance, its continuous comparison with the budgeted performance, and the analysis of variations in terms of causes and responsibility.
• Budgetary control is a system suggesting suitable corrective action to prevent deviations in the future.

The Characteristics of Good Budgeting:

The following characteristics below are:

• A good budgeting system should involve persons at different levels while preparing the budgets. The subordinates should not feel any imposition on them.
• Budgetary control assumes the existence of forecasts and plans of the business enterprise.
• There should be a proper fixation of authority and responsibility. The delegation of authority should be done in a proper way.
• The targets of the budgets should be realistic, if the targets are difficult to be achieved then they will not enthuse the persons concerned.
• A good system of accounting is also essential to make the budgeting successful.
• The budgeting system should have whole-hearted support of the top management.
• The employees should be imparted budgeting education. There should be meetings and discussions and the targets should be explained to the employees concerned.
• A proper reporting system should be introduced, the actual results should be promptly reported so that performance appraisal is undertaken.