A budget– is a formal expression of income and expenditure for a given future period.
Budgeting– refers to the mechanism of preparing budgets.
Budgetary control – refers to the process of comparing actual results with budgeted results and analyzing the causes of any variances so as to provide the basis for managerial planning and control.
- It ensures the achievement of organizations objectives.
- It compels planning i.e. the management is forced to look ahead and set out a detailed plan for achieving the targets.
- It communicates the ideas and plans in a formal system that ensures that each person affected by the plan is aware of his responsibility in the budget process.
- A formal budget may act as a formal authorization to budget managers to incur expenditure.
- It helps to establish a system of control.
- It provides a means of performance evaluation.
- It motivates employees to improve their performance.
- Leads to economy in operations
- Gives motivation to workers
- Serves as a medium of communication i.e. translates goals and targets of the organization in quantitative and monetary terms.
- Encourages management by exception (MBE) i.e. The management can concentrate only on the areas where performance is below the targets.
- Are prepared using estimated figures which may not be accurate
- Installation and operation of a budgetary control system is expensive since it requires technical and qualified staff
- Opposition by staff i.e. budgets provide a „yard stick‟ against which the workers performance may be measured. Inefficient workers may create difficulties in the operation of the budgetary control systems.
- It’s simply a tool of management and cannot replace the management.