BUDGET AND BUDGETARY CONTROL AND ITS EFFECT ON ORGANIZATIONAL EFFICIENCY

A business concern has to utilize its resources effectively, in order to achieve its main objective of maximizing profit. Profit maximization depends on planning and controlling of its activities. Budgets and budgetary controls are the tool in the hand of the management for effective utilization of resources.

WHAT IS BUDGET AND BUDGETARY CONTROL?

BUDGET

A budget is a written plan covering projected activities of a business for a definite future period of time. It is a financial and /or quantitative expression of business plans and policies to be pursued in the future period of time. A Budget is prepared to have effective utilization of funds and for the realization of objectives as effectively as possible.
CIMA defines a budget as, “A budget is a financial and /or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective.”

BUDGETORY CONTROL

Budgetary control is the process of determining various budgeted figures and comparing them with the actual performance for calculating variances, if any. Comparison of budgeted and actual figures will enable the management to find out discrepancies and take remedial measures at proper time.

OBJECTIVES OF BUDGETING AND BUDGETARY CONTROL   

• Budget helps to formulate a plan of action.
• All the activities of the business are to be coordinated to achieve the objectives. Although different budgets are prepared for different activities, coordination between them can be made possible by preparing a summary budget called Master Budget.
• Budget is a means for the top management to control the business operation centrally. For the proper implementation of the policy and achieving targets, there should be central control and delegation of authority and responsibility to the executives.
• The main objective of the budget is cost control. Cost control is the process of controlling the cost by eliminating wastage. Preparation of budgets helps in the control of cost through comparison.
• Budgeting helps for the fixation of responsibility of executives.
• Budgeting system provides adequate and satisfactory norms of performance over the various activities of the enterprises.
• Budgeting and budgetary control helps to use the assets  and resources of the enterprise most efficiently and effectively.

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