Advantages and Disadvantages of Budgetary Control: Budgetary control is a system that plays an important role in both planning and controlling the budget. In budgetary control, the budgeted amount, which is made according to the current market status and business status, is compared to the actual amount. It has limitations, so it can be used as a strategy rather than a fact. Basically, it is a system of comparing actual revenues and expenditures with the planned budget and then taking action according to the need or controlling the revenue as required.
Budgetary control is a course of arranging and controlling every one of the elements of an association through examination and investigation of planned numbers to genuine outcomes. By contrasting the planned numbers and genuine outcomes, it distinguishes the regions which need improvement and where cost decrease is achievable or planned numbers should be reexamined.
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What is Budgetary Control? Advantages and Disadvantages of Budgeter control 2022
Budgetary control is a concept of financial management where the company analyze and control the expenses and actual requirement of finances. After analyzing all the expenditures the future budget is prepared and the expenses are managed accordingly. Though it cannot predict whether the company will gain or lose but can help to make a budget plan using past records or facts which can be beneficial for the company.
In budgetary control, the budgeted amount which is made according to the current market status and business status is compared to the actual amount. It has limitations so it can be used as a strategy rather than a fact. It is cash flow management which includes profitability, capital management, financial management, and all other aspects of business management. There are many ways budgetary control can be useful if used wisely.
- Advantages of Budgetary Control
- Disadvantages of Budgetary Control
- Comparison Table for Advantages and Disadvantages of Budgetary control
- FAQs on Advantages and Disadvantages of Budgetary control
Objectives of Budgetary Control
The main objective of budgetary control is to compare performances, control and plan financial expenses, and organize different responsibilities. Using this the company can achieve progress if it is made correctly and proceed accordingly. Let us see the objective of budget control and how it is used in an organization.
- If there is an abnormality in the comparison between the budgeted amount and the actual amount then the investigation is done if the negative result was due to the effect of the market situation or the negligence of the manager, then an action can be taken against it. And if the result is positive then it is good for the company and the plan can proceed. Thus budgetary control provides proper planning.
- It sets a target for the manager to achieve in a given time and it’s easy for them to understand if there is any problem in achieving this.
- Budgetary control helps to set a center for responsibilities to identify the profit and loss for the company.
- It mainly helps in setting the thinking in managerial aspects which includes the inventory purchase, production cost, production losses, forecasted sales, forecasted expenses, expected sales, cost of sales, other expenses, etc.
Now let us see the advantages and disadvantages of budgetary control.
Advantages of Budgetary Control
There are many benefits of using budgetary control that benefit the company in many ways. Let us see the advantages of budgetary control, which are as follows:
Setting Aims: The budgetary control becomes essential in making planning projects in the long and short terms. Every department gets a goal to achieve a particular time that helps the company to achieve the required profit and employee retention.
Profit increases: Proper budgetary control planning increases the chance of maximizing profit. Actual expenditure and budgeted expenditure give the idea and increased scope of more profit.
Clear Strategy: Clear budgetary control helps the company to smoothly run all the operations with the different departments. All the expenditure is controlled accordingly to the budget and everyone is clear with the steps to be followed.
Reduce cost: If the steps of expenditure are clear then it is possible to save cost on every point which is needed by every company in the present situation. Also, it improves the company to glorify its image.
Correcting weakness: When things are planned it is easy to identify the factors that negatively impact the company and can be corrected in different steps. All the expenditures are calculated according to the budgetary control plan.
Disadvantages of Budgetary Control
Though many good advantages are there in budgetary control it follows with some drawbacks. Let us see some of its disadvantages
Uncertainty and Unpredictable: The budget prepared is a prediction that cannot be totally reliable and can give different results according to the current situation. The budgets get reduced which have to be prepared on the basis of certain assumptions change due to future conditions.
Coordination issue: The budgetary control depends upon the coordination between the different departments that leads to success. Due to coordination issues, the outcome does not match as expected.
Dependent on Senior Management: budgetary control system can only be successful if the top management supports it. If their support of them is stopped then it becomes a failure.
Employee limitation: One of the drawbacks of Budgetary control is that the employee talent sometimes gets hidden. If an employee can do more productive work within a given time but cannot do it due to the system. This leads to employee talent limitations.
Comparison Table for Advantages and Disadvantages of Budgetary control
| Advantages of Budgetary control | Disadvantages of Budgetary control |
| Helps in setting goals that are required | It can be uncertain and unpredictable |
| Leads to making maximum profit | Deapramental coordination can become an issue |
| Strategy can be viewed clearly | Dependent on top management |
| Cost is controlled and saved more | Employee talent is limited |
| It helps in correcting weaknesses in the target | Create insecurity |
FAQs on Advantages and Disadvantages of Budgetary control
Question 1.
What is budgetary control? How it is used?
Answer:
Budgetary control is a concept of financial management where the company analyze and control the expenses and actual requirement of finances. After analyzing all the expenditures the future budget is prepared and the expenses are managed accordingly.
Budgetary control is used to set a center for responsibilities to identify the profit and loss for the company. If there is an abnormality in the comparison between the budgeted amount and the actual amount then the investigation is done if the negative result was due to the effect of the market situation or the negligence of the manager, then an action can be taken against it. And if the result is positive then it is good for the company and the plan can proceed. Thus budgetary control provides proper planning.
Question 2.
What are the drawbacks of Budegertery control?
Answer:
The budgetary control helps the company in many ways but still it has some drawbacks which sometimes do not favor the situation. Some of the disadvantages are as follows:
- It can be unpredictable and cannot be followed blindly.
- Sometimes there occur coordination issues between the different departments.
- Totally dependent on senior management.
Question 3.
How does the budgetary control system work?
Answer:
The Budgetary control system works in a simple way that can be easily followed
- Firstly budget is prepared
- It is then communicated to others
- The final results are analyzed
- If any correction is needed then it is corrected
- In the end, it is revised