Budgetary control - Strategic Management

Budget is a financial and /or quantitative statement, prepared and approved prior to a defined Period of time of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and employment of capital. Features:

  1. Financial and/or Quantitative Statement.
  2. Futuristic ­ prepared and approved prior to a defined period of time.
  3. Goal Oriented ­ for the purpose of attaining a given objective.
  4. Components ­ Income, Expenditure and Employment of Capital.

The objectives of Budgeting are­

  1. To encourage self­study in all aspects of a Company's operations.
  2. To get all members of management to “put their heads” to the basic question of how the business should be run, to make them of a co­ordinated team operating in unison towards clearly defined objectives.
  3. To promote the planning process and provide a sense of direction to every member of the organization.
  4. To force a definition and crystallization of Company policies and aims.
  5. To increase the effectiveness with which people and capital are employed.
  6. To disclose areas of potential improvement in the Company’s operations.
  7. To stimulate study of relationship of the Company to its external economic environment for improving the effectiveness of its direction.
  8. To direct and co­ordinate business activities and units to achieve stated targets of performance.
  9. To facilitate the control process, by comparing actual results with plan, and provide feedback to the employees about their performance

The objectives of a Budgetary Control System are ­

  1. Definition of Goals: Portraying with precision, the overall aims of the business and determining targets of performance for each section or department of the business.
  2. Defining Responsibilities: Laying down the responsibilities of each individual so that everyone knows what is expected of him and how he will be judged.
  3. Basis for Performance Evaluation: Providing basis for the comparison of actual performance with the predetermined targets and investigation of deviation, if any, of actual performance and expenses from the budgeted figures. It helps to take timely corrective measures.
  4. Optimum use of Resources: Ensuring the best use of all available resources to maximize profit or production, subject to the limiting factors.
  5. Co­ordination: Coordinating the various activities of the business and centralizing control, but also making a facility for the Management to decentralize responsibility and delegate authority.
  6. Planned action: Engendering a spirit of careful forethought, assessment of what is possible and an attempt at it. It leads to dynamism without recklessness. It also helps to draw up long range plans with a fair measure of accuracy.
  7. Basis for policy: Providing a basis for revision of current and future policies

All rights reserved © 2018 Wisdom IT Services India Pvt. Ltd DMCA.com Protection Status

Strategic Management Topics