Advantages of Budgetary Control – Importance of budgetary control PDF

Advantages of Budgetary Control

The following are the advantages of budgetary control system,

1. Profit Maximisation

The resources are put to best possible use, eliminating wastage Proper control is exercised both on revenue and capital expenditure To achieve this, proper planning and co-ordination of various functions is undertaken. So, the system helps in reducing losses and increasing profits.

2. Co-ordination

Co-ordination between the plans, policy and control is established

The budgets of various departments have a bearing with each other, as activities are inter-related. As the size of operations increases, co-ordination amongst the different departments for achieving a common goal assumes more importance. This is possible through budgetary control system.

As all the personnel in the management team are involved and coordinated, there is bound to be maximum profits. Budgetary control system acts as a friend, philosopher and guide to the management.

3. Communication

A budget serves as a means of communicating information through out the organisation. A sales manager for a district knows what is expected of his performance. Similarly, production manager knows the amount of material, labour and other expenses that can be incurred by him to achieve the goal set to him. So, every department knows the performance expectation and authority for achieving the same.

Advantages of Budgetary Control

4.Tool for Measuring Performance

Budgetary control system provides a tool for measuring the performance of various departments. The performance of each department is reported to the top management.

The system helps the management to set the goals. The current performance is compared with the pre-planned performance to ascertain deviations so that corrective measures are taken, well at the right time.

It helps the management to economise costs and maximise profits.

5. Economy

Planning at each level brings efficiency and economy in the working of the business enterprise. Resources are put to optimum use. All this leads to elimination of wastage and achievement of overall efficiency.

6. Determining Weaknesses

Actual performance is compared with the planned performance, periodically, and deviations are found out. This shows the variances highlighting the weaknesses, where concentration for action is needed.

7. Consciousness

Budgets are prepared in advance. So, every employee knows what is expected of him and they are made aware of their responsibility. So, they do their job uninterrupted for achieving, what is set to him to do.

8. Timely Corrective Action

The deviations are reported to the attention of the top management as well as functional heads for suitable corrective action. in time. In the absence of budgetary control, deviations would be known only at the end of the period. There is no time and opportunity for necessary corrective action.

9. Motivation

Success is measured by comparing the actual performance with the planned performance. Suitable recognition and reward system cam be introduced to motivate the employees, at all levels, provided the budgets are prepared with adequate planning and foresight.

10. Management by Exception

The management is required to exercise action only when there are deviations. So long as the plans are achieved, management need not be alerted. This system enables the introduction of ‘Management by Exception’ for effective delegation and control.

Advantages of Budgetary Control

11. Overall Efficiency

Every one in the management is associated with the preparation of budget. There is involvement from the top functionaries and each one knows how the target fixed can be achieved. Budgets once, finally, approved by the Budget Committee, it represents the collective decision of the organisation. With the implementation of budgetary control, there would be over all alertness and improved working in all the departments, with better coordination. Budgetary Control acts like an impersonal policeman to bring all round efficiency in performance.

12. Optimum Utilisation of Resources

As there is effective control over production, the resources of the organisation would be put to optimum utilisation.

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