Question

Define budgeting and control. How are budgets used in planning? How are budgets used to control? What are some of the reasons for budgeting?

Answer 1

Budgeting;

The Budgeting is a method of planning in monetary values that initiated and approved before the actual period of time in which the real time activities will expected take place as per planning. The budget planning generally included the estimate of Capital required to execute the planned activities to achieve desired objective, expenses to be incurred, and income expected during the period.

Budgetary control;

Budgetary control is the process of regular focus on following up and comparing the actual result achieved with the values planned at the budgeting stage. The enable to review the objective of the policy and/or the planning that needs revision as per the difference between actual and the budgeted results.

How are budgets used in planning?

• The process of budgeting and the established budget provides basic policies for initiation of new project and/or business.  
• The budget helps the management to conduct business effectively and efficiently by getting the optimum utilisation of resources.
• The good budgeting increases the probability of efficient production by eliminating the scope of unnecessary wastages.
• Since the budget is pre-planned for certain period of time so it enables the management to conduct comparative analysis between the planned and achieved result, so that the management could decide whether their action is in right direct or whether it needed a remedial action.
• The Budgeting not only helping organisation to achieve desired objective but a good budgeting will also attract other stakeholder such as Banks in obtaining credit.

How are budgets used to control?

We know that imposing a Control is healthier to ensure that whether the organisation planning towards it objectives is moving ahead positively or not. Once the budgeting is completed by an organisation for a particular project, it provides an organisation with the values and/figures that become basis for organisation to track whether their actions are well determine to achieve the desired result as set out in their initial planning. So, the budget is the most systematic method that keep informing the management that whether the performance is achieved as per planning or not, or whether organisation action require some modification to achieve the desired result. So, the budgeting not only works as identification of the correct action that need to be taken to achieve the desired result but also it is a medicine to cure the poor performance. Therefore, budgeting generally used to control.

What are some of the reasons for budgeting?

As discussed above that the scope of budgeting is so vast, so resultantly there are various reason for budgeting. Let discuss some of them as below;

• The budgeting helps in creating and sustaining coordination within the organisation by assisting the people in coordination irrespective of hierarchies and divisions to ensure organisation to achieve their objectives with harmony and greater responsibility which could lead in the quantitative production along with maintaining best quality.
• The budgeting provides the values and/or figures that works as barometer for an organisation to measure the success of its planning execution. The budgeting provides useful means of information that helps management in identifying whether the performance meeting targets established. The budgeting is deciding the path of success by providing details for comparative analysis.
• The budget is also considered as a factor for motivation by encouraging the people to perform as per the set objectives assigned to them. For xample, A production manager who actively participated in budgeting, have motivated to achieve the objectives decided with their involvement.

Hopes this Clarifies!