BUDGETARY CONTROL AND ORGANIZATIONAL PERFORMANCE
Budgetary control involves comparing actual expenses and revenues to the budgeted figures and taking the necessary action to correct any variances. This enables business owners to manage and monitor spending, making it easier to stick to the budget and correct variances in good time.
Budgetary controls are used to spot variances, fix problems and incentivize managers and employees to do better. The budgetary control process therefore involves; budget preparation, coordination at organizational and departmental level, analyzing actual and budgeted results, and putting in place remedial measures to achieve maximum results.
Budgetary control plays the following roles in organizational performance:
Increases Profits
Budgetary control provides for adequate planning and coordination of company resources to ensure implementation of activities and actions that maximize profits. It provides for proper expending of capital and revenues in the best way possible.
Coordinates Departments
Budgetary control coordinates the activities and working of different departments in an organization. This is because budgets of various departments are dependent on each other, therefore coordination becomes important in order to achieve budget targets.
Economical Spending
Budgetary control ensures that company funds are spent in a systematic and optimized way, reducing wastage, conserving funds, and maximizing profits. This systematic spending sets good habits that lead to better financial systems and processes, financial reporting and financial management.
Performance Evaluation
Budgetary controls are a great tool to evaluate the performance of departments and their managers. Budgetary controls are used to identify variations from the target and this is communicated to relevant management to take remedial action.
Decision Making
Budgetary control leads to more level-headed and thoughtful decision making as it relies on actual data that is constantly updated to give an extremely accurate overview of company revenue and expenditure.
Allocation Accuracy
Budgeting is typically based on historical spending trends meaning departments that usually get large proportions of resources may be incurring waste while other departments may be held back from growth as they don’t receive sufficient funds.
With budgetary controls in place, every single expense has to be justified which helps to control costs and creates a ‘cash budget’ mindset where departments are only granted exact budget amounts. This ensures that resources are allocated more accurately and wastage is reduced.
Communication
The budgeting and budgetary control process involve seeking opinions and feedback from different employees in different departments. This means that team members can communicate their needs and their requests. This process ensures that company employees are on the same page and every employee feels responsible for hitting expenditure and revenue targets.
References
- Budgetary Control: Meaning, Objectives and Essentials. https://www.yourarticlelibrary.com/organization/budgetary-control/budgetary-control-meaning-objectives-and-essentials/53355
- SPENDESK (2022). Budgeting control. https://www.spendesk.com/glossary/budgeting-control/
- Ashish Kumar Srivastav (2022). Budgetary Control. https://www.wallstreetmojo.com/budgetary-control/
- Dubai Sensor (2022). What’s The Functions Of Budgetary Control For Industry. https://www.dubai-sensor.com/blog/whats-the-functions-of-budgetary-control-for-industry/
