Importance of Budgetary Control
Budgetary control is a system of planning and controlling costs based on budgets. Keeping track of budgets lays out what is to be accomplished and how it is to be achieved while controlling ensures that the objectives are achieved and actual results do not deviate more than necessary from the original plan. Budgetary control makes all the difference between drifting aimlessly in an uncharted sea and following a well-charted course towards a desired result. It assists in planning, coordination, and control as a valuable management tool.The principal importance of a budgetary control system are enumerated below:
- By controlling financial resources and capital, budget control enables companies to maximize profits. It enables capital and resources to be directed to the most profitable channels to maximize profits.
- A planned approach is used in expenditures and financing of the business so that the optimum benefit of the concern can be achieved in the use of funds.
- This document defines the objectives and policies of the concern and provides a means for objecting to these policies on a periodic basis.
- Budgetary control makes the process of managerial coordination easier.
- The optimum use of manpower, materials and resources can be achieved because each level of management is aware of the task and is fully conscious of how it should be accomplished.
- Reports are provided in accordance with the principle of management by exception. A proper investigation will only be conducted on deviations from budgets that point out weak spots and inefficiencies.
- It cultivates in management an attitude of thinking ahead – making careful studies of problems in advance.
- The budgetary control system assists in delegation of authority and is a powerful tool for accountability.
- Budgets are the forerunners of standard costs, as they create the necessary conditions for standard cost setting.
- When performance is evaluated against budgets, an incentive system of remuneration by results can be established as well as identifying people with exceptional leadership and management skills.
- This involves anticipating a variety of problems, so that they can be removed in a timely manner.