CONTROL TECHNIQUES: THE BUDGET
Reviewed by Hammad Naziron Apr 01 2013
Rating:
Reviewed by Hammad Naziron Apr 01 2013
Rating:
THE BUDGET
A widely used device for managerial control is the budget. Budgeting is the device
for accomplishing control.
THE CONCEPT OF BUDGETING
Budgeting is the formulation of plans for a given future period in numerical terms.
THE PURPSE OF BUDGETING
Starting plans in terms of numbers and breaking into parts parallel the parts of an
organization. Budgets enables managers to see clearly what capital will be spent by
whom and where, and what expense, revenue the plans will involve. A budget must
reflect the organizational pattern. When plans are completed, co-coordinated and
developed a departmental budget can be used as an instrument of control.
TYPES OF BUDGETS
Budgets may be classified in to several basic types
1. REVENUE AND EXPENSE BUDGETS
Revenue and expense budgets are most common budget which are used to make plans
for revenue and expenses in dollar terms.
2. TIME , SPACE , MATERIAL &PRODUCT BUDGETS
Many budgets are better expressed in quantities rather then in numerical terms or
monetary terms. Although such budgets are usually translated into monitory terms but
if they are expressed in terms of quantities, they are must significant at certain stage
of planning and control. I.e. machine hours, etc.
3. CAPITAL EXPENDITURE BUDGETS
Capital expenditure budgets shows capital expenditure for plant, machinery,
equipment, inventories etc.
4. CASH BUDGETS
The cash budget is a fore cast of cash receipts. Cash budgeting shows the availability
of excess cash etc.
EFFECTIVE BUDGETARY CONTROL
If budgetary controls are to work well managers have limitations and they must be
tailored to each job. There are many effective budgetary controls.
1. TOP-MANAGEMENT SUPPORT
To make most effective budget, administration must receive the whole hearted
support of top-management.
2. PARTICIPATION
Real participation in budget making is necessary for success.
3. STANDARDS
One of the key to successful budgeting is to develop and make available standards by
which programs and work can be translated in to need for labor, operating expenses ,
capital expenditures , space and other resources. Many budgets fail for lake of such
standards.
4. INFORMATIONS
Finally if budgetary control is to work managers need ready information about actual
and forecast performance under budgets by their departments. This information must
be designed to show them how well thy are doing.
DANGERS IN BUDGETING
Budgets are used for planning and control. Unfortunately, some budgetary control
programs are so complete and detailed that they must become meaningless and
expensive.
There are many dangers in budgeting.
1. Over budgeting.
2. Hiding influences.
3. Causing inflexibility.
4. Overriding enterprise goals.
METHODS FOR DECREASING DANGERS
1. VARIABLE BUDGETS
Because dangers arise from inflexibility in budgets so these dangers can e decrease by
variable or flexible budgeting?
2. ALTERNATIVE AND SUPLEMENTARY BUDGETS
Another method of obtaining variable budgeting is to establish alternative budgets
and variable budgets can also be obtained by supplementary budgets.
3. ZERO BASE BUDGETING
Another method to obtained budget flexibility is zero- base budgeting.
