Budget control is where managers evaluate a Company’s quantitative plan
(budget) in order to point out the areas that are not operating as expected and
then they take corrective measures so as to put the plan of action in line with
the set goals and objectives.
The norm is that, budgets are drawn up for those aspects of the business that can be expressed in monetary terms. They do not incorporate elements that can not be reported in numbers. However, an effective budgetary control process covers even the non-financial aspects of the business.
Managers use the information from budgets to make decisions. But the information might (and quite often it does) not adequately address critical decision points. Therefore the budgetary control process also seeks to determine important non budgetary information that is overlooked during decision making.
Effective budgeting control means that a Company’s management must first review the budgeted versus the actual performance at a specific point in time during the budget period. Managers must then answer the question as to whether they are moving in the right direction as per the plan. They should also be able to determine the reasons behind any deviations. This means that the evaluation process must be carried out against set the objectives.
The objectives against which the performance is measured must be realistic and attainable. However, although the objectives should be achievable with minimum effort, they must not be simplified. Some managers are tempted to set objectives that are very easy to attain so that they appear to be doing very well when evaluated. However this tends to have long term negative effects on other operational aspects of the business. For instance when managers set low sales targets, the company might miss out on important revenue opportunities because the budgeted production levels will equally be low.
For the performance evaluation to be effective, the management must be involved in the budgeting process from the onset. Indeed this should include the input of lower level managers. They understand the organization better and so they should plan the organization’s performance and also approve the goals and objectives. During the review process, the management should be involved in the implementation of corrective measures.
The budgetary control process should have the necessary checks and balances. So that managers can be held accountable for those actions that they have control over. The performance evaluation process must therefore be able to identify those variables that are not within the management’s control; on this they can not be punished for failing to deliver. It is a form of introducing fairness in the evaluation process.
The end product of the budgetary control process is a report on the company’s overall health. If the objectives are not being met, the management should look for remedies. In view of this, budgetary control must be continuous. Effective performance evaluation should preferably be carried out quarterly.
Managers are supposed to be forward looking in decision making therefore they rely heavily on estimates. But estimates could be wrong and so the decisions made may end up misleading as opposed to directing. Effective budgetary control aims at helping the management keep track of its decisions.
The norm is that, budgets are drawn up for those aspects of the business that can be expressed in monetary terms. They do not incorporate elements that can not be reported in numbers. However, an effective budgetary control process covers even the non-financial aspects of the business.
Managers use the information from budgets to make decisions. But the information might (and quite often it does) not adequately address critical decision points. Therefore the budgetary control process also seeks to determine important non budgetary information that is overlooked during decision making.
Effective budgeting control means that a Company’s management must first review the budgeted versus the actual performance at a specific point in time during the budget period. Managers must then answer the question as to whether they are moving in the right direction as per the plan. They should also be able to determine the reasons behind any deviations. This means that the evaluation process must be carried out against set the objectives.
The objectives against which the performance is measured must be realistic and attainable. However, although the objectives should be achievable with minimum effort, they must not be simplified. Some managers are tempted to set objectives that are very easy to attain so that they appear to be doing very well when evaluated. However this tends to have long term negative effects on other operational aspects of the business. For instance when managers set low sales targets, the company might miss out on important revenue opportunities because the budgeted production levels will equally be low.
For the performance evaluation to be effective, the management must be involved in the budgeting process from the onset. Indeed this should include the input of lower level managers. They understand the organization better and so they should plan the organization’s performance and also approve the goals and objectives. During the review process, the management should be involved in the implementation of corrective measures.
The budgetary control process should have the necessary checks and balances. So that managers can be held accountable for those actions that they have control over. The performance evaluation process must therefore be able to identify those variables that are not within the management’s control; on this they can not be punished for failing to deliver. It is a form of introducing fairness in the evaluation process.
The end product of the budgetary control process is a report on the company’s overall health. If the objectives are not being met, the management should look for remedies. In view of this, budgetary control must be continuous. Effective performance evaluation should preferably be carried out quarterly.
Managers are supposed to be forward looking in decision making therefore they rely heavily on estimates. But estimates could be wrong and so the decisions made may end up misleading as opposed to directing. Effective budgetary control aims at helping the management keep track of its decisions.