Question

some people say that budgets are great for planning but not for control. What do you think they mean? Do you agree with this sentiment? Explain

Answer 1

Budget is a managerial tool used by the financial manager and cost analysts for various purposes. Some people say that budgets are great for planning and they disagree with the controlling aspect of the budgets. They think that using budget we can make a forecast of our future expenditures and we can manage our fund according to that budget and hence it is very much helpful for planning. They are much more oriented towards the initial advantages they are getting from the budget and they do not think about the application of budgetary analysis at the end of the budgeted job.

I agree it that the budget helps in better planning but I disagree with the statement that it is not for controlling. Budget can help tremendously in controlling. First we make a budget then the actual transactions takes place after that we start budgetary analysis. From budgetary analysis we can see the differences and deviations between Actual and budgeted figures and also we can mark which figures goes up or down actually compared to the budgeted figure. Based on such a budgetary analysis we can take corrective actions to convert our point of inefficiencies to efficiencies. So, budget is for a good planning as well as it helps in a better controlling in the same way.

Thank You.