Advantages of Budgetary Control
Some of the important advantage of budgetary control are as follows:
(1) The various functional budgets state clearly the limits for expenses and also the results expected in a given period. By this, the uncertainties that may have to be faced by the enterprise are eliminated. Further, it should be possible for the enterprise to adopt a planned approach to various activities of the enterprise.
(2) As limits and authority of each manager are laid down in the budget, the management should delegate authority and responsibilities without sacrificing the overall control of the enterprise.
(3) Generally, the budgets are prepared by committee consisting of important executives of the enterprise and this provides to the enterprise the fruits of combined wisdom.
(4) Budgetary control tries to keep the expenditure within control and also to achieve the targets laid down. This keeps everybody always alert and encourages the optimum use of the enterprise resources.
(5) Budgetary. Control helps in finding out the deviations from the predetermined standards and by this, the management is enable to take suitable corrective action promptly. It means wastages and losses of the business concern are reduced to the minimum.
(6) Budgetary control is concerned with the activities of various departments which are inter-related or inter-connected. This may help in promoting co-operation and team sprit among the employees of the different departments.
(7) Budgetary control involves the communication of management's policy and objectives to all the managers. Again, the reports of actual performance against the budget, how each manager has fared, what actions are necessary etc., are communicated to the managers. Thus, Budgetary control ensures proper communication in the enterprise.
(8) Budgetary control involves two function viz., (a) planning for its own future performance and (b) control to ensure adherence to the plans laid down. Thus, budgetary control ensures proper performance of the above two managerial functions.
Limitations of Budgetary Control
Budgetary control is not a fool-proof tool and it has some limitations. They are:
(1) Since an effective budgetary programme reveals the performance of employees, there may not be wholehearted co-operation from inefficient employees for budgetary programmes.
(2) Budgets are based on estimates and hence the effectiveness of budgetary control depends on the accuracy with which the estimates are made about the future.
(3) Conditions and circumstances under which an enterprise functions are not static and hence, budgetary control to be effective must be so flexible as to suit the requirements of any change in the circumstances. But it is very difficult to attain flexibility in budget making.
(4) Budgetary control will not be effective if no arrangements are made for proper supervision and administration.
(5) Budgeting is only one of the tolls of management. But often budgeting is taken as a substitute for management rather than as a tool of management. This may íesult in harmful consequences for the business.
(6) Budgetary control programme is very cumbersome and time consuming process.
(7) The manager is discouraged from undertaking activities for which provision was not been made in the budget, but which are otherwise useful for the enterprise. Thus, the managers are discouraged from taking initiative.
We may conclude that in spite of these limitations, budgetary control confers many benefits on modern management. The benefits are such that the management cannot afford to disregard budgetary programme and control. Moreover, by planning and operating budgetary programmes carefully and wisely, some of the limitations can be overcome. Prof.C.T.Horngreen has rightly said that " if budgets are administered wisely, they compel management planning, provide definite expectations forejudging subsequent performance and promote communication and co-ordination among the various segments of the business".
