Five objectives of budgetary control

Budgetary control is the system of preparing budgets for each function of the business, comparing actual results with them continuously, and taking action on the differences. Its objectives include:

Objectives of budgetary control

1. Planning. To make management plan ahead for every activity, sales, production, purchases, cash and capital expenditure, on the basis of forecasts, so that the business moves towards its goals.
2. Coordination. To coordinate the activities of different departments, so that sales, production, purchasing and finance plans fit together into a single master budget.
3. Control. To compare actual performance with the budget, find variances, investigate their causes and take corrective action in time.
4. Fixing responsibility. To make each manager responsible for the budget of his or her centre, so that performance can be evaluated fairly.
5. Communication. To tell every manager and, through them, every employee what is expected of their unit for the period: the targets, the resources allowed and who answers for each figure.
6. Economy and efficient use of resources. To keep costs within limits, eliminate waste and use materials, labour, machines and money efficiently, so that profit is maximised.

Other objectives include motivating staff through clear targets, guiding the provision of finance at the right time, and providing a basis for revising policies and standards. Together these objectives make budgetary control a tool for both planning and control. They also help management anticipate cash needs.