Q:

What are the benefits of budgetary control?

A:

Quick Answer

Benefits of budgetary control include encouraging management to think about the future, improving coordination and communication, defining areas of responsibility and finding ways to allocate scarce resources. Budgetary control is a good way to give a business purpose and direction.

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Full Answer

The main benefits of budgetary control are:

  • It forces management to think ahead in terms of finances and organization. This means each manager can set targets that give their department purpose and direction.
  • Organizations that stick to a budget have purpose and coordination.
  • When managers have budgets, they can clearly define their areas of responsibility.
  • Once a budget is set, there are ways for managers to assess performance. This allows them to analyze factors that are within and outside of their control and work around them accordingly.
  • When variances arise, it is possible to take remedial action.
  • It is a way to motivate employees, as they participate in maintaining budgets.
  • Budgets allow organizations to allocate scarce resources.
  • It is a way to economize on management time via the exception principle.

However, there are disadvantages of using budgetary control too:

  • Some managers may see budgetary control as too pressured.
  • It can result in departmental conflict when it comes to matters like allocation.
  • Budgetary control may restrict individual goals.
  • It may encourage departments to spend money when there is room left in the budget, even if it is not necessary to do so.
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