Advantages and disadvantages of budgetary control. What are the advantages and disadvantages of budgetary control? 2022-11-16
Advantages and disadvantages of budgetary control Rating:
Budgetary control is a process that helps organizations plan, monitor, and control their financial resources to achieve their goals. It involves setting financial targets, forecasting future performance, and comparing actual results to the budget to identify any deviations and take corrective action. Budgetary control can provide several advantages for organizations, but it also has its limitations and drawbacks.
One of the main advantages of budgetary control is that it helps organizations plan and allocate their resources effectively. By setting financial targets and creating budgets, organizations can identify the resources they need to achieve their goals and allocate them appropriately. This helps ensure that resources are used efficiently and effectively, which can improve organizational performance and increase the chances of achieving the desired outcomes.
Budgetary control also helps organizations monitor their financial performance and identify any deviations from the budget. This allows organizations to take corrective action to address any issues or challenges they may be facing. By regularly comparing actual results to the budget, organizations can identify any problems or areas for improvement and take action to address them.
Another advantage of budgetary control is that it helps organizations make informed decisions about their financial resources. By forecasting future performance, organizations can anticipate potential challenges and opportunities and make plans to address them. This can help organizations be more proactive and better prepared for the future.
However, there are also some disadvantages to using budgetary control. One limitation is that it can be time-consuming and resource-intensive to create and maintain budgets, particularly for larger organizations. It can also be challenging to accurately forecast future performance, as it is often difficult to predict changes in the market or other external factors that can impact an organization's financial performance.
In addition, some organizations may find that budgeting can be inflexible and may not allow for the quick response to changes that may be necessary. This can make it difficult for organizations to adapt to unexpected events or shifts in the market.
Another disadvantage of budgetary control is that it can create a focus on short-term results rather than long-term goals. Organizations may be more concerned with meeting their budget targets in the short-term rather than considering the long-term implications of their actions. This can lead to a narrow focus on financial performance at the expense of other important organizational goals.
In conclusion, while budgetary control can provide several advantages for organizations, including helping them plan and allocate resources effectively, monitor financial performance, and make informed decisions, it also has its limitations and drawbacks. Organizations should carefully consider the pros and cons of using budgetary control and determine if it is the right approach for them.
Budgetary Control (Meaning)
Thus, it ensures team work. For instance, by having a flexible budget, the equipment maintenance department would not be having trouble making budget and responding to maintenance problems facing the machine department. Source of Conflict within Departmental Managers Budgetary control can also be a source of conflicts within managers of different departments. Its advantages can be summarised as follows: 1. We can calculate the cost, efficiency, yield or mix variances, etc.
Therefore, they must be motivated periodically using monetary and non-monetary benefits. Advantages of Budgetary Control — 6 Important Advantages: Ensures Economy in Working, Avoids Buck-Passing, Establishes Co-Ordination among Divisions and a Few Others Budgetary Control System is being viewed by the corporate society as an effective management tool for both minimizing cost, and maximizing revenue and profits. Budgetary control creates conditions for setting up a system of standard costing. If you are smart about your money and budget it right away, you can achieve your goals because you will stay financially focused on what you want to accomplish. Not helpful in Generating Business Budgetary control requires a substantial amount of time, money and effort on the part of the company and unlike other activities of the business which contribute towards bringing more business to the company, budgetary control acts only as a controlling tool. The other benefits which accrue to the company from Budgetary Control System are as follows: 1.
The budgetary control acts as a complimentary aspect to budget and works and in hand. Budgeting puts a cap not just on spending but also restricts thinking in a big way. Determining Weaknesses The deviations in budgeted and actual performance will enable the determination of weak spots. Advantages of Budgetary Control: Planning, Coordination, Control, Simplicity, Help to Administrators and a Few Others Advantages of Budgetary Control — 3 Main Advantages: Planning, Coordination and Control Budgetary control makes all the difference between drifting in an uncharted sea and following a well-planned course towards predetermined destination. Budget is only a tool of the management and is not a substitute of management. Inflation can also influence both revenue and expenditure levels.
A small business organization cannot afford the employment of budgetary control as a cost control technique since it involves more expenses. There are many reasons why variances may occur. Lower level also get educated about the objectives and the policy of the organisation. Compels management to plan economically and carefully. It can also help in reducing the waste of precious resources and improves efficiency.
What are the advantages and disadvantages of budgetary control?
The significance of budgetary control can be undermined by the fact that there really is no way to anticipate certain outcomes, such as shifts in customer demand that affect sales numbers and shortages that affect the cost of critical materials. If their support of them is stopped then it becomes a failure. It identifies if there is any issue or chance of improvement with input material procurement, the desired output from the material, any processing issue, or sales team administration. Co-ordination Problem The success of budgetary control depends upon the coordination among different departments. In other words, the concept of budgetary control can be described as an action relating to the usage on the budget to attain pre-determined organizational success. Standard are fixed in budget and efforts are made to control them.
Optimum Utilization of Resources 13. There is no reason why a budget period has to be one year, but typically it is. It helps in the review of the current trends and in making the policies for the future. Therefore, budgetary control can also help in increasing the profits of a business. But, we hope that the report will provide a brief idea about the subject. A budget cannot be used as a substitute for management.
The budget is an impersonal policeman that maintains ordered effort and brings about efficiency in result. Advantages of Budgetary Control — 9 Major Advantages: Efficiency, Advance Thinking, Prevent Buck- Passing, Team Work and a Few Others Advantage 1. And if the result is positive then it is good for the company and the plan can proceed. Establishes Co-Ordination among Divisions: Since the success of the scheme viz. It may be included income, expenditure and employment of capital.
Therefore, when any of the budgets are changed it has its direct impact on the other related budgets. Forecasting credit needs: The budgets of cash expenditure and cash receipts make it possible for the financial manager to forecast their need for credit and arrange for it in advance. Recommended Articles This has guided what Budgetary Control is, and its meaning and definition. To achieve accurate results, the managers create a Master Budget and this Budget incorporates several Functional Budgets. As a result, they may affect the production of the actual output. Work Efficiency — Targets are fixed for every department and efforts are made to achieve these targets. Elements Of Master Budgeting 936 Words 4 Pages Master Budget Elements A master budget is an expectation, or a statement based on sales, volume etc.