The Budgetary Control

The Chartered Institute of Management Accountants (CIMA), London; defines a budget as a financial and/or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during the period for the aim of attaining a given objective. As a management function, Control has been defined as “the process by which managers assure that resources are attained and used effectively and efficiently in the achievement of the organization’s goals” (Robert N.Anthony,1975). Budgets are one of the most generally used systems for planning and controlling organizations. Planning means deciding what is to be done and how is it to be done. Controlling is assuring that desired results are attained. Budget is simply a plan of action. Therefore the technique of budgetary control is an importance tool of managing control.

Budgetary control is defined by CIMA as “The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision”. Performance management has been defined as “the set of metrics used to quantify both the efficiency and effectiveness of actions” (Neely and Mills, 1995). The essence of the budget process is the influencing of management behavior by setting agreed performance standards and controlling the attainment of those standards. The main steps under budgetary control are (1) establishment of budgets, (2) comparison on a continuous basis of actual results with budgets, (3) ascertainment of variances by responsibility centre, (4) investigation of variances to highlight causes, (5) corrective action to remedy the causes in order to ensure the defined objectives are attained (Dutta,2003). The process of budgetary control lets managers to monitor the actual results against the budget and different found can be examined and follow by...