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.
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.