Here is a term paper on ‘Budgetary Control’ for class 11 and 12. Find paragraphs, long and short term papers on ‘Budgetary Control’ especially written for school and college students.
Term Paper on Budgetary Control
Term Paper Contents:
- Term Paper on the Meaning of Budgetary Control
- Term Paper on the Objectives of Budgetary Control
- Term Paper on the Essentials of Effective Budgetary Control
- Term Paper on the Merits of Budgetary Control
- Term Paper on the Limitations or Problems of Budgetary Control
Term Paper # 1. Meaning of Budgetary Control:
It is a system wherein budgets are used as a means of planning and controlling the activities of an organisation. It is an useful technique of management control which brings efficiency and economy in the working of business enterprise. It facilitates control by establishing budgets in respect of each function and assigning responsibilities for achieving budgetary objectives.
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It imposes control by assigning responsibilities of achieving and prevents back-passing when the budget figures are not met. It coordinates the working of various unit of a business and makes delegation and decentralisation possible.
In the words of J.Betty, Budgetary control is defined as a “system which uses budgets as a means of planning and controlling in all aspects of producing and/or selling commodities or services.”
The steps in budgetary control are:
(i) Preparation of budgets
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(ii) Continuous comparison of actual results with planned ones.
(iii) Revision of plans or budgets in the light of changed circumstances.
Term Paper # 2. Objectives of Budgetary Control:
The objectives are:
(a) Budgets are sub-plans for a specific period. They establish targets of performance which serve as the basis of measuring progress of activities in the organisation. They are specific action programmes which are amenable to implementation through the various activity centres of the enterprise.
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(b) It tries to rationalise activities. It tries to impart precision, discipline, direction and predictability to the day-to-day activities of the enterprise.
(c) It aims at coordinating and integrating enterprise functions and operations performed by various departments. They highlight the interdependent nature of enterprise functions and operations as also the need for consistency in operations. This is done by preparing various budgets and master budget with the object of co-ordination.
(d) The object of preparation of budget is to enthuse the employees by providing them an opportunity to offer their suggestions and comments and to achieve co-operation and their commitment in the achievement of organisational goals.
(e) Next object of budgetary control is to ensure efficiency in operations over various activities. It measures the outcome of activities in quantified terms and compares it with budgeted performance.
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(f) As a control device it not only evaluates performance but also focus attention on deviations between plans and performance and tries to take timely corrective action for effective performance.
(g) It tries to minimise operational cost and facilitates the identification of strong aspects and weak points.
Term Paper # 3. Essentials of Effective Budgetary Control:
The following are the essentials of an effective budgetary control system:
(1) Determination of Objective:
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The Budgeting officer or controller is to determine precisely the objectives of the organisation to be achieved. Irrespective of the nature of objectives it is the duty of the organisation to clarify objectives precisely. In budgetary control system is to flow from the objectives of the enterprise.
(2) Co-Operation of Top Management:
Budget must have the complete co-operation of the top-management. This requires the commitment of top management to the budget idea, its principles and policies. The top management is to consult the field staff and associate them in the preparation of budgets. In essence there should be commitment of top management and that of the lower order in the preparation of budgets.
(3) Matching Responsibility with Authority:
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The managers are to be assigned with the responsibility to achieve budget targets should also be given necessary authority to implement the budget. There should be clear cut and well defined authority responsibility relationships and lines of communication should be defined clearly.
(4) Periodic, Frequent Comparison:
There should be periodic and frequent comparison between the budget targets and actuals. The basic function in budgetary control is to compare the budget estimates with the actuals. The object of such comparison is to identify deviations in performance and to correct the deviations.
(5) Definite Plan:
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There should be a comprehensive planning in the enterprise. The operations are to be planned in clear terms. The administration of the budget should also be planned. It must be determined well in advance to find out who is responsible for the implementation of the budget.
(6) Appropriate Budget Period:
The management is to choose an appropriate period for budgets. This is done after taking into consideration changing complexities, strategies of the business forecast techniques and the type of budget to be developed. Based on the nature and requirement the period should be decided. Usually one year period is selected for budgets like cash budget, revenue and expenses budget. More than one year is selected for capital expenditure budget and research and development budget.
(7) Flexibility:
Budgets must be capable of incorporating changes and accommodating changes. The budget estimates should be reviewed and revised quickly in the light of changes. The field staff entrusted with the implementation of budgets should be given sufficient freedom for its implementation. So the organisation must not only be dynamic in nature but it should be capable of infusing a sense of dynamism in budget preparation and implementation.
(8) Key Factor or Limiting Factor:
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The budget managers should always keep in mind the limiting factors for performance. This is to be considered to make the budget more realistic. The limiting factor may vary from organisation to organisation and situation to situation. In some cases availability of raw materials may be a key factor in some others labour may be a key factor and in yet others power may be the limiting factor. So based on the local problem, the situation, the budgets are to be prepared.
(9) Quick Reporting:
A good budgetary control system requires the establishment of a quick, regular and orderly system of reporting current events and performances. This is done with the object of informing deficiencies and deviations immediately so that necessary corrective action can be taken.
(10) Reward and Punishment:
There should be rewards for proper performance and penalty for failure to achieve targets. This will help in achieving better results.
Term Paper # 4. Merits of Budgetary Control:
This is an useful technique of managerial planning, control and coordination.
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The benefits which arise can be discussed as follows:
(1) As a planning tool budgetary control is helpful in the following ways:
(a) It helps managers to plan their activities by clarifying its goals and policies in operational and realistic terms.
(b) It is mainly concerned with the achievement of goals. It forces the managers to plan their operations in realistic, complete, tangible and explicit terms. Every manager in the organisation knows what he is expected to do. This offers an opportunity of objective appraisal of performance self-examination and self-criticism.
(c) Budgetary control leads to cautious utilisation of resources. The objective of budgeting is to minimise wastage of resources and to maximise profits and revenue. The result is higher efficiency and profitability.
(d) It contributes to effective managerial planning at higher levels. Managers at operational levels need not obtain sanction every time for acquisition of resources. Budgetary control provides a concrete frame of reference to managers in their day-to-day decisions thereby obviating the occasion for reflection and deliberation. It facilitates management by exception. Only exceptional variances or deviations are reported to higher managerial levels.
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(2) Budgetary control is helpful as a tool of control in the following ways:
(a) As a control device it provides exact, accurate and precise standards for performance. So a measure of precision is injected into the performance of various units. This enables the managers to know whether their efforts are in the right direction.
(b) By enforcing budgetary discipline and order, it reduces the extent of variability and perversity in enterprise functioning. It pinpoints deviations between budgeted and actual results. It facilitates the management to take timely remedial measures.
(c) It provides the necessary direction for control. By focusing on deviations and their courses it facilitates to improve control and then planning wherever necessary.
(d) Budgetary control is a source of positive influence on the motivation and behaviour of enterprise personnel as it fixes the responsibility for deviations.
(3) Budgetary control helps coordination also:
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(a) Since it is an integrated control device, it strengthens the bonds of interdependence among various sub-systems. It promotes cohesiveness in the functioning of the enterprise.
(b) It brings out about co-ordination between activities because of the preparation of functional budgets and master budget. It inspires team spirit and promotes co-operation.
(c) It establishes a clear relation and balance between the inputs such as assets, labour, funds, time, and the output, production, performance and profits. The balanced performance of activities is ensured. Thus it promotes co-ordination.
So budgetary control is an important device for planning, controlling and coordinating the activities in all organisations to achieve higher standards of efficiency.
Term Paper # 5. Limitations or Problems of Budgetary Control:
Budgetary control is an important device for planning, controlling and coordinating various activities in an organisation but it is not from limitations. A manager must be conversant with the problems so that he can take precautionary measures.
The problems can be classified into two types known as planning limitations and control limitations:
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The planning limitations are:
(1) Inaccuracy:
Budgets are based on forecasts or projections and historical trends prepared for the future. The future is uncertain and the standards set by the budget may go wrong due to change in situations and they do not remain reliable and meaningful. Further budget estimates are based on price level at particular point of time which may be meaningless either due to inflation or deflation.
(2) Consistency:
In preparing budgets the previous year is taken as the base for the future. The data for the future is estimated by adjusting the figures for the future. Every year budgets are not prepared afresh. The budgets do not reflect any important events of the past. This problem can be rectified by making periodic review and the importance of various activities. Zero base budgeting serves this purpose.
(3) Inflexibility:
Budgets create a sense of inflexibility among employees due to the fact that deviations from standards are looked down with contempt. So employees take efforts to maintain standards only. They will always try to maintain standards. This leads to the creation of a negative attitude in the minds of employees to stick on to standards and nothing else. So a sort of inflexible attitude sets in course of time which is to be avoided.
Operational Problems:
The operational problems that affect effective budgetary control system are:
(a) Guess work
(b) Hiding inefficiencies
(c) Over-budgeting
(d) Costly and time consuming
(a) Guess Work:
Normally, budget is regarded as a sophisticated guesswork as it involves a marginal percentage of guess work. This raises the question about its usefulness as a standard for measuring the efficiency of various activities.
Deviations from standard may have serious repercussions on personnel whose performance is evaluated based guess work standards. This results in inaccurate measurement which in turn affects the morale of employees. Adding insulting to injury is caused by ineffective implementation of budgetary control.
(b) Hiding Inefficiencies:
Budgetary control may be used as a shield to hide inefficiencies. When unavoidable deviations are brought to the knowledge of departmental heads they may take a defensive attitude rather than applying themselves properly. Either they blame the reliability of standards or blame the performance of other departments.
This creates conflicts in the organisation. Further a department’s functioning may be ineffective, though its cost may be well within limits. Expenditure incurred in the past may become the base for the future, uneven though it may be productive.
(c) Over-Budgeting:
Budgets prepared in greater detail may become cumbersome, meaningless and unduly expensive. Budgeting over done may result in meager delegation of authority whereby limited real authority is left delegated to managers. So over-budgeting is to be avoided so as to derive full benefits of budgetary control.
(d) Costly and Time Consuming:
It is a Costly and Time Consuming One. It involves lot of time, money and efforts for its establishment. To start with there must be a body to prepare the blue print, educate employees, train them regarding the fundamentals, methods and purpose. It takes lot of time in achieving results. So it is a costly and time-consuming exercise.
It also over burdens the work of employees by keeping them busy in its preparation and consumes most of their valuable managerial time.
In spite of these limitations and problems budgets are the important tools of planning and controlling. So it is the duty of the management to take precautionary measures to make the system of budgetary control more effective.