“Budgetary Control Is Part of Overall Organisation Control and Is Concerned Primarily with the Control of Performance. the Use of Budgetary Control in Performance Management Has of Late Taken on Greater Importance
In today world, many organisations have established their divisional offices in several countries and most organisations are going into decentralisation structure whereby each divisional manager can make his/her own decision. A control system is required to improve and consolidate control in their operating, revenue and cost activities.
Budgetary control is described as the process of planning, controlling, coordinating and motivation through money values and departments within an organization. (Ryan, 2007) Budgetary control is a major feature of management control system in most organisations. The use of budgetary control in performance management has become more significant especially as a more integrative control …show more content…
Advantages of Budget and Budgetary Control
Firstly, they promote coordination across departments and communication within the organisation to guide and direct individual or group actions towards achieving goal congruence. This also improves in allocating resources effectively. (YÜCEL and GÜNLÜK, 2007)
Secondly, budgets induce planning and implement the plans. Thus, this forces management to plan ahead, to set up detailed plans for achieving targets for all groups and individuals, to anticipate problem or shortfall and give the organisation purpose and direction. (Fao.org, n.d.)
Thirdly, the Finance Department can use the budget as a financial tool to ensure that the organisation is operating within her financial constraints. (Otley, 2002)
Lastly, the management is able to use the budget as a basis to measure and access each division performance. This is done by comparing actual results with budgeted plans and then investigates the variances. (Otley, 2002)
However, there are several disadvantages shown below.