Managerial Accounting

How Budgetary Control Has become a Critical Integrative Control Mechanism of late.

1.0 Introduction

In this research, the topics that will be explored are budgetary control and the role it plays in performance management as part of management planning and control and why it has become a critical integrative control mechanism for organizations lately.

2.0 Performance Management

Performance managementmay be a combination of both financial and non-financial data that is gathered internally and externally for the purpose of benchmarking primarily against the organization’s objectives. It can also be used to compare against competitor’s performance. There are several types of accounting based management, these are, Activity-Based Costing (ABC), Activity-Based Cost Management (ABCM), Strategic Management Accounting (SMA), Balance Scorecard, Economic Value Added (EVA) and Budgets. ABC and ABCM both focus on effective allocation of cost within the organization. SMA focuses on external parties namely customers and competitors to meet customer’s expectations via adapting their operations effectively to either meet or go beyond those provided by their competitors. Balance Scorecard founded by Dr. Robert Kaplan and David Norton with the intention to align business activities to the vision and strategy of the organization and eventually creating long-term value for sustained growth. EVA is design to deliver shareholder value. (Otley, 2001) Budgets are used mainly to measure actual performance against planned performance which will be further elaborated in the next section.

2.0 Budgetary Control

Budgetary control is incorporated into performance management as a tool to rate the performance of the organization. Budgets are used in an organization for the purposes of quantitative analysis for a future time period to aid the implementation and coordination of plan. It covers both financial and non-financial areas and acts as a guideline for the company’s...