Budgetary Control

Budgetary control is intimately connected with budgets. The Chartered Institute of Management Accountants, London defines budgetary control as “the establishment of budgets, relating the responsibilities of executive to the requirements of a policy and the continuous comparison of actual with budgeted results either to secure by individual action the objectives of that policy or to provide a firm basis for its revision”. A budgetary control system secures control over performance and costs in the different parts of a business:

• By establishing budgets
• By comparing actual attainments against the budgets; and
• By taking corrective action and remedial measures or revision of the budgets, if necessary.

The budget is a blue-print of the projected plan of action expressed in quantitative terms and for a specified period of time. The budgets put the plan in a concrete form and follow up action to see that plan is adhere to complete the system of control. In other words, while budgeting is the art of planning, budgetary control is the act of adhering to the plan. In fact, budgetary control involves continuous comparison of actual results with the budgets and taking appropriate remedial action promptly.

It is well recognized that a control system involves fixing of targets (in the form of specific tasks), collection of information regarding actual and continuous comparison of actual with the targets with a view to reporting for action. A budgetary control system, in this sense is also a control system. It is an excellent system for decentralization of authority without losing control over the operations of the firm.

In short, budgetary control means laying down in momentary and quantitative term what exactly has to be done and how exactly it has to be done over the coming period and then to ensure that actual results do not diverge from the planned course more than necessary. The word “necessary” is not to be loosely interpreted. Divergence due to inefficiency is not necessary.

Rowland and William in their book entitled Budgeting for Management Control has given the difference between budget, budgeting and budgetary control as follows:

“Budgets are the individual objectives of a department, etc. whereas budgeting may be said to be the act of building budgets. Budgetary Control embraces all this and in addition includes the science of planning the budgets themselves and the utilization of such budgets to affect an overall management tool for the business planning and control”.

Thus, a budget is a financial plan and budgetary control results from the administration of the financial plan.