BBA Notes Advantage Limitations of Budgetary Control
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Advantage of Budgetary Control (Introduction Of Management BBA)
- Effective planning : Budgeting involves forecasts of future events and preparation of future courses of action. Therefore, budgetary control is a tool of planning. Budgets make plans certain and specific because they are expressed in numerical terms. They clarify the objectives and targets of the organisation and avoid uncertainty.
- Communication : Budgets are prepared with the help of feedback information supplied by lower levels of management. Every department prepares its own budgets with the consulation and participation of the departmental staff. Thus, budgetary control promotes two way communication in the organisation.
- Co-ordination : Budgetary control promotes co-ordination between different departments or divisions of the enterprise. It facilitates centralized regulation of diversified operations. The budget committee itself serves as a means of co-ordination between production, sales and other departments.
- Higher efficiency : Budgetary control is helpful in efficient use of human and physical resources. It minimizes undesirable expenditure and needless activity. It leads to continuous and planned progress of the concern. Budgetary control is an effective means of controlling costs and eliminating wastage. Budgeting promotes economy and efficiency.
- Control : Budget serve as standards for accurate measurement of the actual performance. By identifying the cause of deviations, budgetary control helps to fix responsibility and to device suitable corrective action for the future. Budgets make possible ‘management by exception.’ The top management performance and for spotting weaknesses.
- Motivation : Budgets serve as strong incentives to employees by laying down targets of performance.
- Delegation of authority : Budgeting facilitates delegation of authority because a budget provides a budget provides automatic sanction for execution of work. It lays down the limits with in which delegated authority can be use. Subordinate executive can exercise initiative and judgement with in the budgetary limits.
Limitations of Budgetary Control (BBA Notes fundamental of Management )
- Inaccuracy : Budgets are estimates of anticipated results and they involve forecasting of future events. The future uncertain and unknown. It is rarely possible to estimate the future with cent percent accuracy. Errors and bias in estimating reduce considerably the value of budgets.
- Expensive : Budgeting control involves considerable expenditure of time, money and effort. A lot of time is required in learning effective budgeting. Budgets can not give results over night and great patience is required on the part of management. Management may lose interest and confidence in budgeting if quick results are expected.
- Human factor : Budgeting require the whole hearted co-operation and active participation of people in the organisation. It is not always possible to secure the voluntary co-operation and support from all in the preparation and administration of budget.
- Danger of rigidity : In practice, budgets often tend to become rigid and it becomes extremely difficult to carry out changes in budgets to take case of changing circumstances. Budgetary limits are considered as final and little scope is left for initiative and judgement on the part of the subordinate staff. Inflexibility makes budgets unrealistic and invalid under new conditions.
- Concealment of inefficiency : There is a danger that budgets may hide and even perpetuate inefficiency. The budget for a particular period tends to become a precedent for the future. Many items which cease to be relevant are continued because of their use in previous budgets.
- Sectional outlook : Budgeting fails when departmental goals are allowed to supersede organisational objectives. Functional budgets may fail to reflect the overall goals of the enterprise. over enthusiasm may prompt department managers to present over estimates in case of departmental budgets. Very often requirements of personnel and investment are over stated.
- Not self sustaining : Budgeting is a tool of management and it can not serve as a substitute for executive judgement. Budgets by themselves neither control nor co-ordinate activities. Efficient management is required to make budgeting successful.
Essentials of Good Budgetary Control : (Requisites for Successful Budgeting) The following precautions must be borne in mind in order to avoid the dangers of budgeting and to make budgetary control effective.
- Goal orientation
- Sound forecasting
- Recording system
- Efficient organisation
- Top management support