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Unit 9: Budgetary Control

According to ICMA, England, a budget is as follows “a financial and or quantitative statement Notes
prepared and approved prior to a defined period of time, of the policy to be pursed during the
period for the purpose of attaining a given objective.”
It is in other words as “detailed plan of action of the business for a definite period of time.” It is
a statement of financial affairs/quantitative terms of an activity for a defined period, to achieve
the enlisted objectives.
Budgeting is the course involved in the preparation of budget of an activity.

9.1 Meaning of Budgetary Control

Budgetary control contains two different processes one is the preparation of the budget and
another one is the control of the prepared budget.
According to J. Batty, “Budgetary control is a system which uses budgets as a means of planning
and controlling all aspects of producing and/or selling commodities and services.”
According to ICMA, England, a budgetary control is, “the establishment of budgets relating to
the responsibilities of executives to the requirements of a policy and the continuous comparison
of actual with budgeted results, either to secure by individual action the objectives of that policy
or to provide a basis for its revision”.

Figure 9.1

Preparation of the Budget for definite future

Actual performance has to be recorded

Comparison in between the actual and budget figures

Corrective steps Deviations in between Actual & Budget

Revision of the budget

9.2 Limitations of Budgetary Control

The limitations stated below are merely point to the need of maintaining the budgetary control
system on a realistic and dynamic basis, rather than as a routine.
1. The preparation of a budget under inflationary conditions and changing government
policies is really difficult. Thus, the accurate position of the business cannot be estimated.

2. Accuracy in budgeting comes through experience. Hence, it should not be relied on too
much in the initial stages.
3. Budget is only a management tool. It is not a substitute for management in decision-
making.
4. Budgetary control begins with the formulation of budgets, which are mere estimates.
Therefore, the adequacy or otherwise of budgetary control system, to a very large extent,
depends upon the adequacy or accuracy with which estimates are made.

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