Devendra Shivtarkar Project

A project Submitted to
University of Mumbai for partial fulfillment of the degree of

Master of Commerce
By
DEVENDRA SHIVTARKAR
College Seat No- 28 Year:2021-22

Exam Seat No:4979651 Year 2021-22
Under the Guidance of Prof

MadhuriMurbade.
COLLEGE NAME AND ADDRESS

ACHIEVERS COLLEGE OF COMMERCE & MANAGEMENT DEGREE
COLLEGE.
Add : Off New high School, Joshi Baug, Malhar Nagar,
Santoshi Mata Mandir Road, Kalyan (W)
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ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions in
the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me a chance to do this
project.
I would like to thank my Principal, Ms. Sophia Augustine D’souzafor providing the
necessary facilities required for completion of this project.
I take this opportunity to thank our Co-ordinatorMadhuriMurbade.

for his moral support and guidance.
I would also like to express my sincere gratitude towards my project guide OF XYZ whose
guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference books and
magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project, especially my parents and Peers who supported me throughout my
project.
.
Date; December,2021
STUDENT NAME – DEVENDRA ANIL SHIVTARKAR
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CERTIFICATE
This is certify that Ms/Mr DEVENDRA ANIL SHIVTARKAR has worked and duly
completed her / his project work for the degree of MASTERIN COMMERCE in the faculty
of commerce in the subject of ACCOUNTANCY on itle of project work to be written
“BUDGETARY CONTROL” under mysupervision. It is her / his own work and facts
reported by her/his personal findings and Investigation
Name & Signature of Guide
Date of submission
Name and signature of professor in charge/principal of the College
Stamp of the Institute with Date
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DECLARATION BY STUDENT
I, DEVENDRA ANIL SHIVTARKAR, here by, declare that the work embodied in this
project work titled “BUDGETARY CONTROL ”forms my own contribution to the
research work carried out under the guidance of Prof. PROF MadhuriMurbade is a result of
my own research work and has not been previously submitted to any other University for
any other Degree/Diploma to this or any other University.
Where ever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.
College Seat No 28 Year; 2021-22
Exam Seat No 4979651 Year 2021-22
DEVENDRA ANIL SHIVTARKAR
Name &Signature of lea

Researcher
Date; December,2021
Place;Mumbai
Scholar ;
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INDEX
Sr No. Particulars Page no.
1 INTRODUCTION 7 to 8
2 RESEARCH METHODOLOGY 9 to 31
3 LITRATURE REVIEW 32 to 46
4 DATA PRESENTATION & DATA ANALYSIS 47 to 102
5 CONCLUSION 103
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Abstract
The firm’s budgetary plans, though not comprehensively self-contained, encompass search
procedures for specific goal attainments by management, and thus are the reference base for
budgetary control. Budgetary control results from the calculation and evaluation of variances
which are derived from the comparison of the actual with the budgeted activities of the firm.
Budgetary control thus implies that managers are responsible for mistakes or deviations from
the budgetary plans; this is its corrective function. Within that context, budgetary control also
means the application of rules for monitoring and harmonising production, administration and
the general business and non-business activities of the firm in accordance with the firm’s
objectives.
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1 INTRODUCTION
Budgetary control is financial jargon for managing income and expenditure. In practice it means
regularly comparing actual income or expenditure to planned income or expenditure to identify
whether or not corrective action is required.
For example most University departments are given annual chest budgets for general equipment.
By regularly comparing actual expenditure on this budget to planned expenditure a department
will be aware of whether a particular item can be afforded. If the account is in deficit a
department will need to identify an alternative source of funds (e.g. departmental reserves or
charging to a research grant or contract). This process of monitoring expenditure and taking
appropriate action is known as budgetary control.
Meaning:
Budgetary control is the process of determining various actual results with budgeted figures for
the enterprise for the future period and standards set then comparing the budgeted figures with
the actual performance for calculating variances, if any. First of all, budgets are prepared and
then actual results are recorded.
The comparison of budgeted and actual figures will enable the management to find out
discrepancies and take remedial measures at a proper time. The budgetary control is a continuous
process which helps in planning and co-ordination. It provides a method of control too. A budget
is a means and budgetary control is the end-results
Definitions:
“According to Brown and Howard, “Budgetary control is a system of controlling costs which
includes the preparation of budgets, coordinating the departments and establishing
responsibilities, comparing actual performance with the budgeted and acting upon results to
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achieve maximum profitability.” Weldon characterizes budgetary control as planning in advance
of the various functions of a business so that the business as a whole is controlled.
(b) The business is divided into various responsibility centres for preparing various budgets.
(c) The actual figures are recorded.
(d) The budgeted and actual figures are compared for studying the performance of different cost
centres.
(e) If actual performance is less than the budgeted norms, a remedial action is taken immediately.
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2. RESEARCH METHODOLOGY
Objectives of Budgetary Control:

Budgetary control is essential for policy planning and control. It also acts an instrument of co-
ordination.
The main objectives of budgetary control are the follows:

1. To ensure planning for future by setting up various budgets, the requirements and expected
performance of the enterprise are anticipated.
3. To operate various cost centres and departments with efficiency and economy.
4. Elimination of wastes and increase in profitability.
5. To anticipate capital expenditure for future.
6. To centralise the control system.
7. Correction of deviations from the established standards.
8. Fixation of responsibility of various individuals in the organization.
Essentials of Budgetary Control:

There are certain steps which are necessary for the successful implementation budgetary control
system.
1. Organization for Budgetary Control:

The proper organization is essential for the successful preparation, maintenance and
administration of budgets. A Budgetary Committee is formed, which comprises the departmental
heads of various departments. All the functional heads are entrusted with the responsibility of
ensuring proper implementation of their respective departmental budgets.
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The Chief Executive is the overall in-charge of budgetary system. He constitutes a budget
committee for preparing realistic budgets A budget officer is the convener of the budget
committee who co-ordinates the budgets of different departments. The managers of different
departments are made responsible for their departmental budgets.
2. Budget Centres:
A budget centre is that part of the organization for which the budget is prepared. A budget centre
may be a department, section of a department or any other part of the department. The
establishment of budget centres is essential for covering all parts of the organization. The budget
centres are also necessary for cost control purposes. The appraisal performance of different parts
of the organization becomes easy when different centres are established.
3. Budget Manual:
A budget manual is a document which spells out the duties and also the responsibilities of
various executives concerned with the budgets. It specifies the relations amongst various
functionaries.
4. Budget Officer:
The Chief Executive, who is at the top of the organization, appoints some person as Budget
Officer. The budget officer is empowered to scrutinize the budgets prepared by different
functional heads and to make changes in them, if the situations so demand. The actual
performance of different departments is communicated to the Budget Officer. He determines the
deviations in the budgets and the actual performance and takes necessary steps to rectify the
deficiencies, if any.
He works as a coordinator among different departments and monitors the relevant information.
He also informs the top management about the performance of different departments. The budget
officer will be able to carry out his work fully well only if he is conversant with the working of
all the departments.
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5. Budget Committee:
In small-scale concerns the accountant is made responsible for preparation and implementation
of budgets. In large-scale concerns a committee known as Budget Committee is formed. The
heads of all the important departments are made members of this committee. The Committee is
responsible for preparation and execution of budgets. The members of this committee put up the
case of their respective departments and help the committee to take collective decisions if
necessary. The Budget Officer acts as convener of this committee.
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6. Budget Period:
A budget period is the length of time for which a budget is prepared and employed. The budget
period depends upon a number of factors. It may be different for different industries or even it
may be different in the same industry or business.
The budget period depends upon the following considerations:

(a) The type of budget i.e., sales budget, production budget, raw materials purchase budget,
capital expenditure budget. A capital expenditure budget may be for a longer period i.e. 3 to 5
years purchase, sale budgets may be for one year.
(b) The nature of demand for the products.
(c) The timings for the availability of the finances.
(d) The economic situation of the country.
(e) The length of trade cycles.
All the above-mentioned factors are taken into account while fixing period of budgets
7. Determination of Key Factor:

The budgets are prepared for all functional areas. These budgets are interdependent and inter-
related. A proper co-ordination among different budgets is necessary for making the budgetary
control a success. The constraints on some budgets may have an effect on other budgets too. A
factor which influences all other budgets is known as Key Factor or Principal Factor.
There may be a limitation on the quantity of goods a concern may sell. In this case, sales will be
a key factor and all other budgets will be prepared by keeping in view the amount of goods the
concern will be able to sell. The raw material supply may be limited, so production, sales and
cash budgets will be decided according to raw materials budget. Similarly, plant capacity may be
a key factor if the supply of other factors is easily available.
The key factor may not necessarily remain the same. The raw materials supply may be limited at
one time but it may be easily available at another time. The sales may be increased by adding
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more sales staff, etc. Similarly, other factors may also improve at different times. The key factor
also highlights the limitations of the enterprise. This will enable the management to improve the
working of those departments where scope for improvement exists.
Advantages of Budgetary Control:

The budgetary control system help in fixing the goals for the organization as whole and
concerted efforts are made for its achievements. It enables ‘economies in the enterprise.
Some of the advantages of budgetary control are:

1. Maximization of Profits:
The budgetary control aims at the maximization of profits of the enterprise. To achieve this aim,
a proper planning and co ordination of different functions is undertaken. There is a proper
control over various capital and revenue expenditures. The resources are put to the best possible
use.
2. Co-ordination:
The working of different departments and sectors is properly coordinated. The budgets of
different departments have a bearing on one another. The co-ordination of various executives and
subordinates is necessary for achieving budgeted targets.
3. Specific Aims:
The plans, policies and goals are decided by the top management. All efforts are put together to
reach the common goal, of the organization. Every department is given a target to be achieved.
The efforts are directed towards achieving some specific aims. If there is no definite aim then the
efforts will be wasted in pursuing different aims.
4. Tool for Measuring Performance:

By providing targets to various departments, budgetary control provides a tool for measuring
managerial performance. The budgeted targets are compared to actual results and deviations are
determined. The performance of each department is reported to the top management. This system
enables the introduction of management by exception.
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5. Economy:
The planning of expenditure will be systematic and there will be economy in spending. The
finances will be put to optimum use. The benefits derived for the concern will ultimately extend
to industry and then to national economy. The national resources will be used economically and
wastage will be eliminated.
6. Determining Weaknesses:
The deviations in budgeted and actual performance will enable the determination of weak spots.
Efforts are concentrated on those aspects where performance is less than the stipulated.
7. Corrective Action:
The management will be able to take corrective measures whenever there is a discrepancy in
performance. The deviations will be regularly reported so that necessary action is taken at the
earliest. In the absence of a budgetary control system the deviations can be determined only at
the end of the financial period.
8. Consciousness:
It creates budget consciousness among the employees. By fixing targets for the employees, they
are made conscious of their responsibility. Everybody knows what he is expected to do and he
continues with his work uninterrupted.
9. Reduces Costs:
In the present day competitive world budgetary control has a significant role to play. Every
businessman tries to reduce the cost of production for increasing sales. He tries to have those
combinations of products where profitability is more.
10. Introduction of Incentive Schemes:

Budgetary control system also enables the introduction of incentive schemes of remuneration.
The comparison of budgeted and actual performance will enable the use of such schemes.
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Limitations of Budgetary Control:
Despite of many good points of budgetary control there are some limitations of this system.
Some of the limitations are discussed as follows:

1. Uncertain Future:
The budgets are prepared for the future period. Despite best estimates made for the future, the
predictions may not always come true. The future is always uncertain and the situation which is
presumed to prevail in future may change. The change in future conditions upsets the budgets
which have to be prepared on the basis of certain assumptions. The future uncertainties reduce
the utility of budgetary control system.
2. Budgetary Revision Required:

Budgets arc prepared on the assumptions that certain conditions will prevail. Because of future
uncertainties, assumed conditions may not prevail necessitating the revision of budgetary targets.
The frequent revision of targets will reduce the value of budgets and revisions involve huge
expenditures too.
3. Discourage Efficient Persons:

Under budgetary control system the targets are given to every person in the organization. The
common tendency of people is to achieve the targets only. There may be some efficient persons
who can exceed the targets but they will also feel contented by reaching the targets. So budgets
may serve as constraints on managerial initiatives.
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4. Problem of Co-ordination:
The success of budgetary control depends upon the co-ordination among different departments.
The performance of one department affects the results of other departments. To overcome the
problem of coordination a Budgetary Officer is needed. Every concern cannot afford to appoint a
Budgetary Officer. The lack of co-ordination among different departments results in poor
performance.
5. Conflict Among Different Departments:

Budgetary control may lead to conflicts among functional departments. Every departmental head
worries for his department goals without thinking of business goal. Every department tries to get
maximum allocation of funds and this raises a conflict among different departments.
6. Depends Upon Support of Top Management:

Budgetary control system depends upon the support of top management. The management
should be enthusiastic for the success of this system and should give full support for it. If at any
time there is a lack of support from top management then this system will collapse
Budgetary control is a system whereby the budgets are used as a means of planning and
controlling costs. Budgeting lays down as to what is to be attained and how it is to be attained
while control ensures that the objectives are realised and actual results do not deviate from the
planned course more than necessary.
CIMA has defined budgetary control as “the establishment of budgets relating to the
responsibilities of executives to the requirement of a policy, and the continuous comparison of
actual with budgeted results either to secure by individual action the objective of that policy or
to provide a basis for its revision”.
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What is Budgetary Control: Definitions, Features, Objectives, Types, Preliminaries,
Functions, Differences, Advantages, Limitations, MCQ and More…
Introduction to Budget and Budgetary Control
Budgets are one of the most important aspects of any system – be it domestic life, a corporate
house or a nation. At home, we often make yearly, monthly, weekly or even daily budgets that
would influence our expenses and savings. Budget of any organisation will tell you about it’s
growth and expansion plans.
Union Government Budget not only allocates resources for various programmes that decide our
nation’s progress, it even affects you and me, as it determines the rate of income tax and other
taxes which will affect everybody directly or indirectly.
At personal level, almost everybody make budgets for future plannings. Most people, rich or
poor, make estimates of their income and plan expenditure for food, education, entertainment,
savings, housing, clothing and so on. As a result of this exercise, people restrict their spendings
to some predetermined, allowable amount. Knowingly or unknowingly most of us go through a
budgeting process.
Budget of a business firm serve much the same purpose as the budget prepared by an individual.
The business budgets are, however, prepared in detail and involve more work unlike personal
budgets
Success of a business does not come by accident. That is why all commercial and service
organisations need budgeting
A budget is a formal expression of the management’s plans for the future and how these plans
are to be accomplished. The act of preparing a budget is called Budgeting. An organisation may
attain certain degree of success without budget, but it cannot reach that height that could have
been reached with a well coordinated budgeting system.
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Modern business world is full of competition, uncertainty and exposed to different types of risks.
This complexity of managerial problems has led to the development of various managerial tools,
techniques and procedures useful for the management in managing the business successfully.
Budgeting is the most common, useful and widely used standard device of planning and control.
The budgetary control has now become an essential tool of the management for controlling costs
and maximising profit. Costs can be reduced, wastage can be prevented and proper relationship
between costs and incomes can be established only when the various factors of production are
combined in profitable way.
The resources of a business can be effectively utilised by efficient conduct of its operations. This
requires careful working out of proper plans in advance, coordination and control of activities on
the part of management.
A proper planning and control are essential for an efficient management. A good number of tools
and devices are available. Of all these, the most important device used is budget. Cost accounting
aims not only at cost ascertainment, but also greatly at cost control and cost reduction. Thus the
management aims at the proper and maximum utilisation of resources available.
It is possible when there is a pre-planning. Modern management aims that all types of operations
should be predetermined in advance, so that the cost can be controlled at every step. The more
important point is that the actual programme is compared with the pre-planned programme and
the variances are analysed and investigated. All are familiar with the idea of budget, at every
walk of life—state, firm, business etc.
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Definitions of Budget
CIMA has defined budget as – “a plan quantified in monetary terms prepared and approved prior
to a defined period of time usually showing planned income to be generated and/or expenditure
to be incurred during that period and the capital to be employed to attain a given objective.”
A budget may be expressed in monetary as well as non-monetary terms, e.g., units of time, units
of products, no. of employees, etc. A budget relates to a definite future period and is prepared in
advance of the period during which it will operate. The purpose of the budget is to implement the
policies formulated by the management to achieve a specified objective.
A budget is a detailed plan of operations for some specific future period. Many of us are familiar
with the term ‘Budget’.
For instance, if we want to have a holiday trip to Kashmir, we are to estimate the cost of
travelling, boarding, lodging etc. so as to have sufficient amount for the trip. On return from the
trip, we may like to compare the actual amount spent with the estimated or budgeted figures.
Similarly we can know the importance of budgets even from the household management.
The word ‘budget’ is derived from a French term “Bougette” which denotes a leather pouch in
which funds are appropriated for meeting anticipated expenses. The same meaning applies to the
business management.
A budget is a numerical statement expressing the plans, policies and goals of the enterprise for a
definite period in the future. It is a plan laying down the targets to be achieved within a specified
period. It is a final and approved share of a forecast. When forecasts are approved by the
management as a tentative plan for the future they become budget.
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The following are some of the important definitions:
1. “Budget is an estimate of future needs arranged according to an orderly basis, covering some
or all of the activities of an enterprise for definite period of time”. —George R. Terry
2. “A Budget is a comprehensive and coordinated plan, expressed in financial terms, for the
operations and resources of an enterprise for some specific period in the future.” —James
3. “A budget is a predetermined statement of management policy during a given period which

provides a standard for comparison with the results actually achieved.” —Brown and Howard
4. “A financial and/or quantitative statement, prepared prior to a defined period of time, of the
policy to be pursued during that period for the purpose of a given objective.” —ICMA, England
Budgetary Control – Some More Definitions
Budgetary control is a system whereby the budgets are used as a means of planning and
controlling costs. Budgeting lays down as to what is to be attained and how it is to be attained
while control ensures that the objectives are realised and actual results do not deviate from the
planned course more than necessary.
According to J.L. Brown and L.R. Howard – “Budgetary control system is a system of
controlling costs which includes the preparation of budgets, coordinating the departments and
establishing responsibilities, comparing actual performance with the budgeted and acting upon
results to achieve maximum profitability.”
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 or services.”
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From these definitions, it is clear that budgetary control operates through different budgets. It
aims at laying down a policy, coordinating the different activities of the business and exercising
necessary control so that the individual targets set by different budgets can be achieved.
The targets set up under the system are such that they can be directly compared with the actual
performances, and the difference, if any, can be traced to an individual who is responsible for the
same. This building up of a sense of responsibility in accounting is the main feature of budgetary
control.
CIMA has defined budgetary control as “the establishment of budgets relating to the
responsibilities of executives to the requirement of a policy, and the continuous comparison of
actual with budgeted results either to secure by individual action the objective of that policy or to
provide a basis for its revision”.
Budgeting is the whole process of planning, implementing and operating budgets.
Budgetary Control – Main Features

The main features of budgetary control are:
(i) Establishing budgets for each functional area e.g., sales, production, purchase, etc., the
policies and various activities which might be adopted for achieving them.
(ii) Recording actual performance of each functional area.
(iii) Analysing the reasons of variances and identifying the persons responsible.
A budget may be expressed in relation to:

(a) Time – Short-term and Long-term Budget;
(b) Behaviour – Fixed and Flexible Budget; and
(c) Functions – Sales Budget, Production Budget, Cash Budget, etc.
Some of the other features are:
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(i) Targets/Objectives –
To determine the targets / objectives to be achieved during the budget period, and the policy or
policies that might be adopted for the achievement of these objectives.
(ii) Activities –
To determine the various activities that should be undertaken for achieving the objectives.
(iii) Plan for each activity –

To draw a plan or a scheme of operation for each class of activity in physical as well as monetary
terms for the full budget period and its parts. The budgets prepared for various departments/
activities are consolidated to prepare a master budget consisting of the budgeted profit and loss
account and the balance sheet.
(iv) Comparison / ascertain causes –

To lay a system of comparison of actual performance of each person, section or department with
the relevant budget and to ascertain the causes for the variations / discrepancies, if any.
(v) Remedial action –

To ensure that corrective action is taken where the plan is not being achieved and, if that be not
possible, the plan will be revised.
In brief, budgetary control system assists the management in the allocation of responsibility,
authority and planning for the future. It facilitates the analysis of the variation between budgeted
targets and actual performance.
The budgetary control system develops a proper basis of measurement or standards for
evaluating the efficiency of operations. It enjoys equal prominence in both non-profit and profit
seeking organisations.
For effectiveness of budgetary control, an organisation should also have standard costing system
in operation. The whole organisation should be so integrated that all lines of authority and
responsibility are laid, allocated and defined.
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This is essential since the system of budgetary control assumes a separation of various functions
and a division of responsibilities. It presupposes that the organisation shall be so planned that
everyone, from the managing director down to the shop foreman, will have his duties properly
defined.
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3 LITRATURE REVIEW
In an uncertain economy, departmental heads and other budget owners go through the budgeting
process focused on securing a sufficient share of scarce resources in order to meet their
respective goals. They often come into conflict with the accounting department and their focus
on enforcing an effective budgetary control process that aligns the various departments’
operating budgets with the actual results of their spend activity.
Bridging this gap between budget owners and the finance team begins with effective processes
and transparent, comprehensive access to spend data in real time. With the right tools and
practices, it’s possible to turn conflict into collaboration, reducing wastage and maximizing
actual performance. Working together, team members in every department and business unit can
meet their goals while giving accounting the oversight needed to ensure budgets are both
sufficient and efficient.
What Is the Budgetary Control Process?
The finance team is responsible for regularly monitoring the different types of budgets created
for a given financial period and ensuring spend activity hews to the budgeted figures as closely
as possible—taking corrective action when necessary.
The budgetary control process helps accounting professionals:
 Prepare and monitor budgets.
 Prevent wastage and minimize cost overruns.
 Enhance the utility and availability of accurate financial reporting.
 Manage everyday operations while also providing financial guidance required to support long-
term organizational goals.
For budget holders, the budgetary control process can be broken down into a sequence of four
steps:
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1. Establishing actual budgetary positions. Drawing from one or more sources, budget holders
examine available financial statements to determine their current budgetary credits, debits, and
committed spend.
2. Comparing Actual Results to Budgeted Figures. The budget holder compares their data to the
figures set during the budgeting period. Deviations in income and expenditures from budgeted
results are known as variances, and must be analyzed in order to identify the underlying issues
and help prevent them from recurring in future periods.
3. Performing Variance Calculations and Analysis. Having calculated all variances, the budget
holder seeks to identify the underlying causes for the variance. Some of the most common
reasons include:
 Human error, such as data entry errors, delays in entering essential information into the
accounting system, or failure to collect all relevant spend data.
 Ineffective or inaccurate budget profiling (or a lack of existing historical data to create a useful
budget profile).
 Increased efficiency in workflows, creating a positive variance by reducing costs and resource
demand.
 Unexpected external changes beyond the budget holder’s control (e.g., legislative reform, rapid
increases or decreases in consumer demand due to changing market conditions, supply chain
disruptions created by natural disasters, war, etc.).
4. Taking Corrective Action. Depending on the nature of the variance, the budget holder will
work with the master budget committee to make changes that will bring the budget back under
control. Some of the possible solutions include:
 Increasing income.
 Reducing spend.
 Lowering costs.
 Transfer money from one budget to another (i.e., virements)
 Clarify objectives and adjust planning for future spend based on likely outcomes (e.g., adjusting
to accommodate for seasonal shifts in demand, or postponing the development of a new product
to the next fiscal year).
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 Tap into contingency funding.
 Modify, reduce, or eliminate services.
Advantages of Budgetary Control
Implementing a budgetary control process provides several important advantages to an

organization, including:
1. Functional budgets limit expenses and clearly define the spend and performance results for a
given budget period. This reduces risk exposure and provides important financial intelligence
companies can use to improve both financial planning for future periods and overall decision
making.
2. Budgetary control systems help establish both authority and accountability for department heads
and other budget owners. In turn, these individuals are empowered to delegate responsibilities
and tasks to meet their respective goals while adhering to the budget and supporting enterprise-
level goals.
3. Budget committees are generally staffed by seasoned executives from top management who
understand not only their specific areas of expertise, but the enterprise and its goals, ambitions,
and limitations.
The support of top management is crucial to securing organization-wide buy-in and compliance
for budgetary control. They can provide clear and effective guidance in making corrections and
adjustments to budget plans, and help create a culture of open communication and shared success
through cross-functional team leadership to achieve smart, strategic spending.
4. An effective and transparent budgetary control system prioritizes meeting benchmarks set by key
performance indicators (KPIs) while keeping expenditures in line with budgeted figures.
Examples of important KPIs include sales growth (expressed as a percentage, including
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acceptable deviation), percentage of inventory to be held to cover customer demand, gross
profits (expressed as a percentage, including acceptable deviation), etc.
It also encourages all team members to practice mindfulness during the preparation of budgets
and spend with an eye toward using sometimes scarce resources efficiently and strategically,
with minimal waste.
5. Properly deployed, budgetary control processes make it easier for finance teams to identify
budgetary deviations and take corrective action in a swift and strategic manner.
6. By providing an over-arching management and monitoring framework, budgetary control aims to

improve transparency and strategic decision making while simultaneously improving
communication and collaboration between different departments. Budget owners can coordinate
their efforts with both top management and one another to more effectively make use of
resources and cooperate, rather than compete, in supporting organizational goals.
Common Obstacles to Effective Budgetary Control
Financial professionals, working in and with budgeting committees, spend a lot of time, talent,
and resources on the establishment of budgets they intend to help their organizations grow,
innovate, and thrive. The primary objectives of budgetary control are compliance, performance,
and ensuring a strategic and plentiful allocation of resources without creating needless costs,
waste, or redundancies.
Departmental heads and other budget owners spend a lot of time, talent, and resources executing
the business processes supported by budgets that were painstakingly assembled and confidently
submitted during the budget period. But over the course of the financial month, quarter, year,
etc., those budgets must be updated to reflect how actual events and business needs differ from
the budgeted performance and spend values.
When a company doesn’t have the technology and internal controls in place to help budget
owners communicate and collaborate effectively with finance, financial molehills can quickly
become mountains that stifle cash flow, interrupt production, or hamper decision making.
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These difficulties are particularly apparent at companies still relying on manual workflows and
paper-based documents, but can occur at any organization that hasn’t taken measures to
standardize, automate, and optimize their budgeting and budgetary control processes.
Some of the most common roadblocks to successful budgetary control include:
 Lack of real-time access to budget data for managers. Having to wait for data from finance in
order to make time-sensitive spending decisions can create additional costs through delayed
production, wasted time and materials, and damaged supplier relationships, threatening not just
the bottom line but overall business continuity.
 Lack of real-time visibility into actual results for finance teams and budget
committees. Waiting until a department or project team has a budget overrun to correct it is no
way to stay ahead of the competition—or protect an organization’s cash flow and profitability.
 Siloed data collection, management, and analysis. Working in separate accounting systems
and having to share data electronically in different formats (or worse yet, manually via paper
documents that require data entry before they can be accessed and analyzed) can make it next to
impossible to correct variances or find solutions to cash flow challenges in a timely and effective
fashion.
Implementing Budgetary Control for Your Organization
1. Invest in a Comprehensive Procure-to-Pay (P2P) Solution.
Strategically useful budgets rely on accurate and complete data. Choosing a cloud-based,
comprehensive P2P software solution like Planergy gives organizations a considerable advantage
in both creating budgets and performing budgetary control by:
 Centralizing all spend data, integrating the existing software environment, and standardizing
information exchange to eliminate silos, enhance communication, and improve the speed and
efficiency with which information is accessed, shared, and analyzed.
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 Ensuring complete, clear, and transparent spend data for easy and accurate review and
comparison of budgets vs. actual spend on the balance sheet.
 Providing process automation and optimization to ensure compliance with spending protocols
and help keep spend within budget by eliminating rogue spend, invoice fraud, etc.
 Providing customizable review and approval workflows for variances, ensuring all spend is
captured, approved, and assigned to the proper stakeholder, project, and department.
2. Establish Budget Responsibility
Designate a budget officer to lead a master budget committee made up of experienced top
management (including departmental heads). This committee is responsible for defining the
overall approach to budgeting, the establishment of budgets, and performing variance analysis in
order to compare budgeted figures with actual results.
The budget officer in particular is responsible for acting as a liaison between the CEO and
departmental heads on matters related to budgeting, and communicating budget information at
all levels of the organization.
3. Define and Implement Budgetary Control Parameters
The budget committee sets goals for implementation of budgetary control, setting benchmarks
and using key performance indicators to ensure engagement and compliance. Make sure your
implementation strategy allows you to introduce budgetary control across the organization
incrementally and with an eye toward flexibility, as you may need to both educate all team
members (including top management) on the importance of budgetary control and compliance
and/or overcome some measure of resistance to changes in corporate culture.
4. Define the Budgeting Period
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The budgeting period is designated based on the business needs of the organization and the type
of business. Firms with substantial capital expenditure budgets, for example, will likely require
strategic long-term budgeting compared to those without such expenditures.
Regardless, prepare your budgets based on the shortest possible period of time that allows for
maximum utility, flexibility, and accuracy in the financial forecast.
5. Define Budgetary Limits
Have the committee identify the principal budget factor, i.e. the factor that limits the capacity of
the organization and could conceivably prevent it from reaching its goals for expansion,
development, competitive strength, or profitability. This factor helps determine the order in
which budgets should be prepared.
For example, a manufacturing firm will likely prioritize production budgets to ensure they have
the power, raw materials, and labor required to produce goods for sale, and then proceed to other
budgets such as the sales budget, the cash budget, etc.
6. Create Strategic, Control-Guided Budgets
Budget holders, guided by and collaborating with the master budget committee, create their
budget estimates based on sales forecasting, limiting factors, etc. Once the committee approves,
the budget holders can further refine their budgets, assemble a master budget based on the best
available intelligence, and then submit it for approval.
7. Monitor and Manage Budgets
Approved budgets are regularly monitored by the master budget committee, both to ensure
benchmarks for compliance and performance are being met and to identify any potential
variances so they can be dealt with proactively rather than reactively.
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For budget holders, this monitoring also provides opportunities to identify patterns that can be
used to further refine future budgets (e.g., changing consumer buying habits during a pandemic),
processes in need of optimization (improving efficiency and freeing cash for other uses),
and cost centres that need special attention to ensure an optimal ROI and minimal waste.
Over time (and, ideally, using data management, budgeting, and analysis tools), budgets will
continue to improve in both accuracy and efficiency, reducing risk, securing maximum
profitability, and ensuring resources are being directed where they’re needed most to support
success at the department, business unit, and enterprise levels.
Spend Smarter and More Strategically with Effective Budgetary Control
You have to spend money to make money, but without a clear and effective budgetary control
system, it’s hard to get the best possible return on your dollar.
Develop and implement effective budgetary control processes. Invest in technology that provides
clean, reliable data in real time, along with automation and analysis capabilities. Ensure your
team is educated about and engaged with the budgeting and budgetary control processes that
support their departmental and organizational goals.
When you do, you’ll have the flexibility and strategic insights required to create, monitor, and
manage all your budgets successfully—and ensure every dollar spent goes toward building a
successful busine
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40
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successful business.
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Activity-based budgeting (ABB) is a method of budgeting in which activities that incur costs in
each function of an organisation are established and relationships are defined between
the activities. Thus, for example, procurement could be one activity, production another as could
be marketing and after sales service. This information is then used to decide how much resource
needs to be allocated to each activity for a given volume of sales. In other words, ABB is
budgeting by activities rather than by individual cost elements. ABB augments, rather than
replaces, existing budgeting processes.
Budgeting is a process by which governments allocate financial resources to bureaucracies and

client groups. Although the method of preparing budgets, the actual distribution of resources to
specific recipients, and the economic effects of budgeting are significant, political scientists look
at budgeting as a guide to a broader analysis of politics, institutions and public policies. Political
scientists have either employed or attempted to clarify and refute two principal theories in their
understanding of budgeting: incrementalism and rational choice, which are based on competiting
notions of human nature. Incrementalism views humans as limited by cognitive, time, and
resource constraints, where rational choice views political actors as preference maximizers. Both
theories provide explanations for the behavior of budgetary actors, political institutions,
budgetary outcomes and the development of public policies.
The Study of Budgeting

Budgeting may be studied from several perspectives. From the vantage point of professional
schools of public administration, the practical elements of budgeting include the drafting and
formatting of budget documents, the application of cost–benefit and other tools of program
analysis, the projection of revenues and expenditures, the division of spending into its
operational and capital components, and the management and implementation of programs
funded through the budget. Economists principally focus on the macroeconomic consequences of
budgeting, such as the effects of deficit spending on interest rates, inflation, the ‘crowding out’
or ‘crowding in’ of private investment, foreign exchange rates, and national debt management.
At the microeconomic level, economists may also consider the effectiveness of specific
programs funded in the budget, such as determining the influence of public jobs programs on the
labor market. These questions may also be of interest to and addressed by political scientists.
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Yet, the centrality of political science research looks at budgeting as a guide to a broader
theoretical analysis of politics, the examination of institutional arrangements, an understanding
of the behavior of political actors within those institutions, and an exploration of specific public
policies.
Planning results in a design used to reach objectives. It is better to know where one is going and
how to get there than to adhere to a philosophy of “we’ll cross that bridge when we get there.” A
serious consequence of poor planning is the panic atmosphere that develops when serious losses
occur; emotional decisions are made when quickly acquiring needed services and systems. This
sets up an organization to be a target for unscrupulous salespeople who prey on the panic.
Budgeting is closely related to planning because it pertains to the money required to fulfill plans.
Businesses use many different types of budgets to plan, set goals, forecast revenues and
expenditures, and evaluate performance. Because budgets are estimates, adjustments occur over
time. Budgets common to businesses are explained next.
•
Cash flow budget: serves as an estimate of future cash receipts and expenditures for a
period. It aids management in deciding whether outside financing is needed.
•
Sales budget: an estimate of future sales. It helps to set sales goals.
•
Production budget: the number of units a business must manufacture to meet sales
objectives. It includes the costs of manufacturing the units, such as raw materials and
labor.
•
Project budget: costs of a specific company project. The costs include materials and
labor, among many other costs.
•
Capital budget: planned outlays for such investments as a manufacturing plant,
equipment, and product development.
•
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Master budget: financial plans for subunits of a company, showing such items as income
and expenses.
The budgeting procedure depends on the type of administration in use. In a functional

organization of the kind used in large integrated plants, e.g. an alumina refinery
(see Figure 3.3)
, the strategic maintenance budget is set up by the chief engineer with contributions from the
maintenance manager, services manager and the refinery manager. A typical major work
schedule for an alumina refinery is shown in
Figure 3.4.
* Such a schedule extends for at least 10 years and is used to identify the large, low-frequency,
high-cost, maintenance jobs and the capital replacement work. This information is used to set up
the strategic maintenance budget.
Budgeting is a deliberate act of anticipatory interactive coordination of the use of an

organization's resources. It involves several actors in a business process in identifying alternative
action plans leading to the achievement of the goal, selecting one, and documenting it. An action
plan allows a balancing of resources required and available or to be created. The ‘best’ plan (the
one retained) has high probability of achieving success and has a compatible resource
requirement. A budget defines financial and non-financial measures of both outcome and
intermediate milestones describing the path to success. Deviations from the milestones are
sources of learning and are frequently used to help adapt the budget to new conditions so that the
revised action plan will remain coherent with the intention or the goal in the changing
competitive environment. Traditional confusion between anticipation (action plan selection and
forecasting outcome and resources) and the use of milestones of achievement as bases of reward
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systems often leads to dysfunctional behavior such as budget slack or inability to exploit new
opportunities. The budgeting process serves to focus the persons in any organization on both the
‘performance gap’ (more and better effectiveness and efficiency) and the ‘opportunity gap’
(preparing the organization to handle future opportunities).
The author has observed that most large process plants use some form of strategic maintenance
budgeting which matches their long-term preventive schedule (e.g. see the power station
workload of Figure 3.2(a)). He has also noticed that some food processing plants/breweries do
not use strategic maintenance budgets. This is because their maintenance strategies are based on
simple routines and inspections (a ‘wait and see’ maintenance policy) – they do not schedule
long-term major maintenance or, in some cases, the replacement of capital equipment. To say the
least, the author is surprised.
The major work schedule of Figure 3.4 also includes some of the shorter frequency maintenance
work which, in conjunction with the maintenance routines and services, is also covered in the
annual maintenance expenditure budget. The annual budget is built up from the budget for each
plant and workshop. For example, the mechanical maintenance for the digestion area can be
estimated, from the expected area workload, by the digestion mechanical superintendent,
translated into resources needed, and added to similar estimates from other plant areas and
disciplines (see Figure 3.5).
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4. DATA PRESENTATION & DATA ANALYSIS
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Figure 3.5 . Build up of refinery expenditure budget
Budgeting for the preventive work (Categories 3 and 5) is relatively straightforward. Corrective
work (Categories 1, 2, 4 and 6) presents a more difficult problem. Nevertheless, if a history
record is available it is often possible to estimate, with acceptable accuracy, the level of
corrective work to be expected for a given level of preventive effort (see Figure 3.1). Without
such experience little confidence can be placed in the estimate and this must be made clear in the
budget statement.
The workshops and services areas needed to be tackled differently, in as much as their workload
originates from each of the plant areas.
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This approach is sometimes called zero-based budgeting (ZBB) in as much as the maintenance
budget is built up from scratch each year in the light of the maintenance schedule for that year.
Exercise
E3.1
Carry out a brief Internet search for literature on ZBB.
Review Question
R3.2
Use information found in Exercise E3.1 in conjunction with Figure 3.1 to explain the
concept of ZBB applied to maintenance work.
The above budgeting procedures need modification for an administrative structure based on
manufacturing units (see Figure 3.6). Each manufacturing unit becomes a ‘profit center’, and a
combined production/maintenance budget is required at operations manager level. The
centralized maintenance functions become cost centers and budgets for the service they provide
to the manufacturing units. These centralized maintenance functions are concerned with
efficiency of resource usage rather than plant availability, they act like internal contractors and
the costing system is designed to reflect this situation.
Figure 3.6 . Administrative structure based on manufacturing units
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Review Question
R3.3
Discuss the advantages of the ‘manufacturing unit’ administrative structure of Figure 2.6
in terms of maintenance budgeting.
In practice, maintenance budgeting is rarely as rational as above. Senior management see

maintenance only as a cost. The linkage between maintenance expenditure and production output
indicated in Figure 3.1 is often ignored. Maintenance budgeting then becomes an exercise based
on last year’s costs plus an allowance for inflation (at best low-frequency major work may be
included). This is a poor form of budgeting, it is an attempt to forecast what is likely to be spent
in the absence of any management intention to deviate from what has gone before.
Exercise
E3.2
Establish the maintenance budgeting procedure in use in your company and compare it
against the key concepts and ideas presented in this section.
Review Questions Guidelines

R3.1
One of the main problems is that the budgeted expenditure may not reflect the changes in
the maintenance workload.
The approach can be justified where a company is in a stable operating situation and the
maintenance workload is also relatively stable.
R3.2
Company objectives and plans change with time to suit market demand and other
external factors. This affects the production requirements and objectives, which in turn
affects the equipment life plans, preventive maintenance schedule and therefore
the maintenance workload. A ZBB is built up from scratch based on this forecasted
workload.
R3.3
The digestion operation manager is responsible for production and maintenance and
budgets for both. He is far more likely to appreciate the relationship between
maintenance expenditure and the plant output factors that affect digestion plant
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performance. In other words he will be concerned about maintenance organizational
efficiency but he will also appreciate that more effective maintenance (and thus perhaps
more maintenance expenditure) might improve availability, output and net profit.
View chapter
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Participatory Budgeting
Participatory budgeting is a process in which a wide range of stakeholders debate, analyse,

prioritise, and monitor decisions about public expenditures and investments. Stakeholders can
include the general public, poor and vulnerable groups including women, organised civil society,
the private sector, representative assemblies or parliaments, and donors.
Participatory budgeting can occur in three different stages of public expenditure management:
1.
Budget formulation and analysis. Citizens participate in allocating budgets according to
priorities they have identified in participatory poverty diagnostics; formulate alternate
budgets; or assess proposed allocations in relation to a government’s policy
commitments, stated concerns, and objectives.
2.
Expenditure monitoring and tracking. Citizens track whether public spending is
consistent with allocations made in the budget and track the flow of funds to the agencies
responsible for the delivery of goods and services.
3.
Monitoring of public-service delivery. Citizens monitor the quality of goods and services
provided by the government in relation to the expenditures made for these goods and
services, a process similar to citizen report cards or scorecards.
Increased participation in budgeting can lead to the formulation of, and investment in, pro-poor
policies, greater societal consensus, and support for difficult policy reforms. Experiences with
participatory budgeting have shown positive links between participation, sound macroeconomic
policies, and more effective government. In fact, participatory budgeting is an important means
of validating decisions on resource allocation. Even more importantly, it can assist in moving
from passive forms of representative democracy to more active forms of participatory
democracy. The approach has been utilised in a number of different countries, including Ireland,
Canada, India, Uganda, Brazil, and South Africa
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Budget Entry Method, Budgetary Control, and Funds Check
This chapter describes the budget entry method, budgetary control, and funds check.
This chapter covers the following topics:
 Definition
 Overview
 Budget Entry Method Parameter Combinations
 Compatibility of Budget Entry Method Parameters with Budgetary Control Settings
 Budget Rollup for Funds Check
 Compatibility of Budget Entry Method Time Phase with Budgetary Control Time
Intervals
 Funds Check Calculations Based Upon Amount Type/Boundary Code Parameters
Definition
The budget entry method is a combination of three budgeting parameters that users set to
determine how to enter a cost budget. The budget entry method parameters include specifying
the level at which users want to budget, whether to budget by resource, and the time period used
for budgeting.
Budgetary control is the process of applying actual and encumbrance transactions against a
funding budget to determine funds available to control spending on an award budget.
Funds check is a feature of budgetary control that verifies if sufficient funds are available in a
budget to cover an expenditure and determines whether spending is allowed.
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Overview
To ensure that funds check operates properly in Oracle Grants Accounting, users must specify
budgetary control settings that are compatible with the defined budget entry method. Mismatches
in budgetary control settings and budget entry methods result in the negation of the funds check
feature.
Grants Accounting recommends that users consult the tables in this section before performing
the following procedures that require specification of budget entry method parameters or
budgetary control settings:
 defining budget entry methods when setting up Oracle Projects

 creating a project type when setting up Grants Accounting
 setting up award templates when setting up Grants Accounting
 managing awards
 managing award budgets
This section includes the following topics:
 Budget Entry Method

 Budgetary Control
 Funds Check
 Budgetary Control Settings and Time Intervals
 Default Budgetary Control Settings
 Budgeting
 Multifunding
 References
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Budget Entry Method
At the project level, users define default budget entry methods and assign them to project types.
Project types are assigned to projects.
Users define a budget entry method as a setup step when setting up Projects. The budget entry
method is defined in the Budget Entry Methods window. Users select the following parameters
in this window:
 budget level
 whether to budget by resource
 budget time period
Project types are created by users as a setup step when setting up Grants Accounting. Users
assign a budget entry method to the project type. To use funds check, users must assign the
Burden Cost budget entry method to the project type. This occurs in the Budget Control tab of
the Project Types window. The budget entry method assigned to the project type is the default
budget entry method for award budgets and project budgets.
Budget entry methods can be changed in the Award Budgets window. To change budget entry
methods, see Budget Entry Procedures.
Budgetary Control
Budgetary control is the process of applying actual and encumbrance transactions against a
funding budget to determine funds available in order to control spending on an award budget.
Funds Check
Funds check is a feature of budgetary control that is used to verify available funds against a
budget before processing a transaction. Funds check immediately updates funds available for
approved transactions.
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The funds available amount is calculated by subtracting actual expenditures and encumbrances
from the budget amount. Funds check operation is based on the specified budgetary control
settings and designated beginning and ending periods known as the amount type and boundary
code.
Budgetary Control Settings and Time Intervals
Budgetary control settings determine spending limits at the award, task, resource group, and
resource levels in a project. In Grants Accounting, budgetary control settings are based on the
following parameters:
 Time Intervals
 Budgetary Control Settings
Time Intervals
Time interval settings are specified in the Budgetary Control tab of the Award Management or
Award Template Management windows when entering an award or an award template. Time
interval settings specify a beginning period, which is known as an amount type, and an ending
period, which is known as a boundary code. The amount type and boundary code in Grants
Accounting enable funds check to calculate the available budget.
Budgetary Control Settings
Budgetary control settings regulate how funds are reserved for transactions. Default budgetary
control settings are entered in the Budgetary Control tab of the Award Template Management
window when creating a template or in the Award Management window when creating an
award.
The options for budgetary control settings are as follows:
 Absolute
 Advisory
 None
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Absolute
If Absolute is entered, the transaction is rejected unless funds are available.
Advisory
If Advisory is entered, the transaction is approved even when no funds or insufficient funds are
available.
None
If None is entered, all transactions are approved and there is no funds check.
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Default Budgetary Control Settings
Default budgetary control settings are automatically created the first time a budget is baselined in
Grants Accounting. When users enter budgetary control settings in the Award Template
Management or Award Management windows, they are defined as temporary default settings
only and are not set.
Grants Accounting supports more than one budgetary control setting. For example, users can
select the Absolute setting at the award level and the Advisory setting at the resource level. Users
define budgetary control settings for each award. Budgetary control settings can vary between
awards.
If a resource list changes after the first time the award budget is baselined, then the award budget
must be rebaselined to reflect those changes. Rebaselining a budget due to resource list changes
does not update data in the budgetary control tab.
Budgetary control settings can be changed from their original defaults.
To change default budgetary settings or resources and resource groups, see Changing Budgetary
Control Settings Procedure, page 25-1.
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Budgeting
At the budget level, users can change the default budget entry method initially assigned to the
project type at the project level. For award budgets and project budgets, the budget entry method
that defaults into the Award Budgets and Project Budgets windows, respectively, is the one
assigned to the project type for that project.
Multifunding
When multiple awards fund a single project, you can select any budget entry method for an
award. If you previously funded your project with another award and created an award budget,
and you select a different budget entry method for another award budget, then the award budget
baseline process may summarize the project budget at a higher level than the award budget.
If the award budgets have distinct budget entry methods but use the same resource list, or if the
award budgets have the same budget entry method and resource list and are time phased by date
rate, then Oracle Grants Accounting uses the budget entry method specified in the profile option
GMS: Project Budget Entry Method - Categorized by Resource.
If the award budgets have distinct budget entry methods and distinct resource lists, or if the
award budgets use any budget entry method with different resource lists and are time phased by
date range, then Oracle Grants Accounting uses the budget entry method specified in the profile
option GMS: Project Budget Entry Method - Uncategorized.
References
For information on defining budget entry methods, see Oracle Grants Accounting Setup
Overview.
For information on creating a project type, see Project Types Setup.
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For information on entering default budgetary control settings, see Award Template Entry
Procedures.
For information on setting budgetary control time interval parameters, see Award Template
Entry Procedures.
For information on entering an award, see Award Entry Procedures.
For information on entering an original award budget, see Budget Entry Procedures.
For information on changing the budgetary control settings in the Budgetary Control window,
see Changing Budgetary Control Settings Procedures.
Budget Entry Method Parameter Combinations
Budget Entry Method Parameter Combinations
Level Categorized by Resources
Project Categorized by Resources
Categorized by Resources
Not Categorized by Resources
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Top Task Categorized by Resources
Lowest Task Categorized by Resources
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Top and Lowest Task Categorized by Resources
Compatibility of Budget Entry Method Parameters with Budgetary Control Settings
The budget entry method parameter combinations portion of the table below consolidates data in
the Budget Entry Method Parameter Combinations table. The table below shows the budget entry
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method parameters of level and resource that are compatible with the budgetary control settings
of Absolute or Advisory at the award, task, resource group, and resource levels.
Important: At the resource group or resource level, users must budget for burden costs, such as
overhead or fringe benefits, in addition to raw costs. Burden costs must be budgeted for because
funds check accounts for the total cost of a transaction by deriving and including the burden
cost(s) associated with a raw cost transaction.
Note: When allowed by the existing budget entry method, budgetary control settings are
available at the award, task, resource group, or resource level only if users have budgeted at that
level.
Compatibility of Budget Entry Method Parameters with Budgetary Contr
BEM Parameter BEM Parameter BCS of Absolute or BCS of Absolute or B

Combinations for Level Combinations for Advisory for Award Advisory for Task Ad
Resources
Project Categorized by Resources Available Unavailable Ava
Not Categorized by Available Unavailable Una

Resources
Top Task Categorized by Resources Available Available Ava
Not Categorized by Available Available Una

Resources
Lowest Task Categorized by Resources Available Available Ava
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Resources
Top and Lowest Task Categorized by Resources Available Available Ava

Resources
Note: Following is the interpretation for the first row of the table above: If users budget at the
project level by resource, then funds check is available at the award level, unavailable at the task
level, and available at the resource group and resource levels.
If the budgetary control setting is at Absolute or Advisory, with no budget amount entered for a
particular resource or resource group, Oracle Grants Accounting treats this as an entered budget
of zero for that particular resource or resource group. This causes the transaction to fail funds
check at an Absolute setting and pass funds check with an advisory notice at an Advisory setting.
If the budgetary control setting for all resources is Absolute, but the budget includes only raw
cost resources and not burden cost resources, then the transaction will fail funds check because
Oracle Grants Accounting considers the budget amount for burden cost resources to be zero.
You need to coordinate the entry of budget amounts with the budgetary control settings.
Consider the following examples that demonstrate this coordination:
 If you budget for a resource group and assign a budgetary control setting of Absolute to a
resource that is a member of the resource group, then all transactions for that resource
will fail funds check. Oracle Grants Accounting considers the budget amount for the
resource to be zero.
 If you budget for a top task and assign a budgetary control setting of Absolute to a lowest
task that is subordinate to the top task, then all transactions for that lowest task will fail
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funds check. Oracle Grants Accounting considers the budget amount for the lowest task
to be zero.
 If you budget for only raw cost resources, and not for burden cost resources, and assign a
budgetary control setting of Absolute for all resources, then transactions with burden cost
will fail funds check. Oracle Grants Accounting considers the budget amount for burden
cost resources to be zero.
Budget Rollup for Funds Check
When budgetary control settings are at either Absolute or Advisory, funds check examines the
lowest budget level to determine the availability of funds. If funds are available for a transaction
at the lowest level, funds check rolls up to the next level in the budgetary control hierarchy and
continues rolling up until the transaction passes all levels successfully or fails at any one level. If
a transaction fails funds check at any level, the process is discontinued.
The hierarchal succession of rollup levels, from lowest to highest level, is as follows:
1. Resource
2. Resource Group
3. Lowest Task
4. Top Task
5. Award
Note: Middle level tasks are not included in the rollup succession.
The figure on the following page shows a diagram of funds check rollup levels for a sample
award.
Funds Check Rollup Levels
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At the Resource level, the available budgets for resources are rolled up into the available budget
for the Resource Group level. The available budgets for the resource groups roll up into the
available budget for the Lowest Task level. The available budgets for the lowest tasks then roll
up into the available budget for the Top Task level. Finally, the available budgets for the top
tasks roll up into the available budget for the Award level.
For example, as illustrated for Top Task 1 in the diagram above, Resource A1 and Resource A2
each have a total available budget of $10. Combined, the total budgets of Resource A1 and A2
roll up into the available budget of $20 at the Resource Group A level. The total available
budgets of Resource Group A and Resource Group B roll up into the available budget of Lowest
Task 1.1, which equals $40. The total available budgets of Lowest Task 1.1 plus Lowest Task
1.2 roll up into the available budget of Top Task 1, which equals $80. The total available budget
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of Top Task 1, $80, plus the total available budget of Top Task 2, $40, roll up into the available
budget of Award 1, which equals $120.
Resource Level Rollup Example
The Funds Check Rollup Example shows two examples of resource level rollups.
Transaction 1 for $15, charged against Resource A1 with a total budget of $10, is funds checked
with a budgetary control setting of Advisory. The transaction passes with an advisory notice and
is then rolled up to Resource Group A. At the Resource Group A level, with a budgetary control
setting of Absolute, and a total budget of $20, Transaction 1 passes funds check without an
advisory notice.
Since Transaction 1 passes funds check, the available budget for Resource A1 is updated to $ -5.
The available budget for Resource A2 remains $10. The rolled up available budget for Resource
Group A is updated to $5.
Transaction 2 for $10, charged against Resource A2 with a total budget of $10, is funds checked
with a budgetary control setting of Advisory. Transaction 2 passes funds check without an
advisory notice. However, Transaction 2 fails funds check when it is rolled up to the Resource
Group A level because the available budget, after Transaction 1 passed, of $5 is insufficient to
cover the $10 transaction.
Due to the budgetary control settings, Transaction 1 used a portion of the available Resource A2
budget at the Resource Group A level.
Funds Check Rollup Example, Resource Level
Resource A1 Resource A2 Resource Funds Check Result Resource Gr
Budgetary Control Setting Advisory Advisory Absolute
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Total Budget $10 $10 $20
Transaction 1 $15 Passed at Advisory level $15
Available Budget $ -5 $10 $5
Transaction 2 $10 Passed $10
Task Level Rollup Example
The following table shows two examples of Task Level rollups.
Transaction 1 for $45, charged against Lowest Task 1.1 with a total budget of $40, is funds
checked with a budgetary control setting of Advisory. The transaction passes with an advisory
notice and is then rolled up to Top Task 1. At the Top Task 1 level, with a budgetary control
setting of Absolute, and a total budget of $80, Transaction 1 passes funds check without an
advisory notice.
Since Transaction 1 passes funds check, the available budget for Lowest Task 1.1 is updated to $
-5. The available budget for Lowest Task 1.2 remains $40. The rolled up available budget for
Top Task 1 is updated to $35.
Transaction 2 for $40, charged against Lowest Task 1.1 with a total budget of $40, is then funds
checked with a budgetary control setting of Advisory. Transaction 2 passes funds check without
an advisory notice. However, Transaction 2 fails funds check when it is rolled up to the Top
Task 1 level because the available budget of $35, after Transaction 1 passed, is insufficient to
cover the $40 cost.
Due to the budgetary control settings, Transaction 1 used a portion of the available Lowest Task
1.2 budget at the Top Task 1 level.
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Funds Check Rollup Example, Task Level
Lowest Task 1.1 Lowest Task 1.2 Task Funds Check Result T
Budgetary Control Setting Advisory Advisory Ab
Total Budget $40 $40 $8
Transaction 1 $45 Passed at Advisory level $4
Available Budget $ -5 $40 $3
Transaction 2 $40 Passed $4
Compatibility of Budget Entry Method Time Phase with Budgetary Control Time Intervals
The table below shows the compatibility of the budget entry method parameter of time phase
with the budgetary control time interval combinations of amount type/boundary code. Amount
type is the beginning period that Grants Accounting uses for funds check, and boundary code is
the ending period that Grants Accounting uses for funds check.
Note: Following is the interpretation for the fourth row of the table: If users select No Time
Phase as the time phase option in the budget entry method, then funds check is available for the
amount type/boundary code combination of Project-to-Date/Project, but unavailable for the
amount type/boundary code combinations of Project-to-Date/Year, Project-to-Date/Period, Year-
to-Date/Year, Year-to-Date/Period, and Period-to-Date/Period.
Compatibility of Budget Entry Method Time Phase with Budgetary Control Time Intervals
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Time Phase Project - to - Date / Project - to - Date / Project - to - Date / Year - to - Date / Year - to
Project Year Period Year Peri
GL Period Available Available Available Available Available
PA Period Available Available Available Available Available
Date Range Available Available* Available Available* Available*
No Time Available Unavailable Unavailable Unavailable Unavailable

Phase
Important: * If users select Date Range as the time period used for budgeting when defining the
budget entry method, and users select amount type/boundary code combinations of Project-to-
Date/Year, Year-to-Date/Year, or Year-to-Date/Period, and if the date range period crosses a
fiscal year, then funds check ignores the amount budgeted for that date range period, and it is not
included in the cumulative budget. Grants Accounting does not support the amount
type/boundary code combinations of Project-to-Date/Year, Year-to-Date/Year, or Year-to-
Date/Period when Date Range periods cross fiscal years. Grants Accounting recommends that
users define date ranges so the beginning date of a date range is the same as the beginning date
of the fiscal year, and the ending date of the same or a different date range is the same as the
ending date of the fiscal year.
Important: Date Range is a user-defined budgeting period. When users define a budget entry
method, they specify the level at which they want to budget, whether to budget by resource, and
the budgeting time period. The time periods that users select from when defining the budget
entry method include Date Range, General Ledger Period, Projects Period, and None. Grants
Accounting recommends users adopt the following guidelines when entering budgets in the
Budget Lines window that are time phased by Date Range:
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 Do not overlap beginning and ending budgeting time periods.
 Plan budgeting time periods and test to confirm that the system accepts the specified date
ranges.
The following is an example of acceptable date ranges:
 Resource 1 is budgeted for date range 01/01/99 - 06/30/99
The following is an example of unacceptable date ranges:
Funds Check Calculations Based Upon Amount Type/Boundary Code Parameters
Funds check calculations are based upon the following variables:
 beginning time period called amount type

 ending time period called boundary code
 expenditure item date
Funds check calculations are not based upon the system date, which is the current date. They are
based upon the expenditure item date. The funds check process determines the available budget
by summing budget periods based on the time interval parameters of amount type and boundary
code and then subtracting actual and encumbrance amounts.
The following figures show funds check calculations based on the following conditions:
 two year award with 24 periods
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 periods are GL, PA, or date range
 one dollar is budgeted per period for the duration of the award
 cumulative budget varies depending upon whether the amount type is project-to-date,
year-to-date, or period-to-date
 last row of the each figure shows the expenditure item amount for the example
Figures also include asterisks before the beginning time period, representing the amount type,
and asterisks after the ending time period, representing the boundary code.
Y1 represents year one in the tables and Y2 represents year two.
The example below shows a failed example of funds check based upon an amount type/boundary
code of Project-to-Date/Project. Funds check failed because the sum of the budget, $24, from the
project start to the project end, is less than the expenditure of $25.
Example of Funds Check Failed Using Amount Type/Boundary Code Parameters of

Project-to-Date/Project
The example below shows a passed example of funds check based upon an amount
type/boundary code of Project-to-Date/Project. Funds check passed because the sum of the
budget, $24, from the project start to the project end, is equal to or greater than the expenditure
of $24.
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Example of Funds Check Passed Using Amount Type/Boundary Code Parameters of
Project-to-Date/Project
code of Project-to-Date/Year. Funds check failed because the sum of the budget, $12, from the
project start to the fiscal year end in which the expenditure item occurs, is less than the
expenditure of $24.

Project-to-Date/Year
type/boundary code of Project-to-Date/Year. Funds check passed because the sum of the budget,
$24, from the project start to the fiscal year end in which the expenditure item occurs, is equal to
or greater than the expenditure of $24.

Project-to-Date/Year
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code of Project-to-Date/Period. Funds check failed because the sum of the budget, $23, from the
project start to the period end in which the expenditure item occurs, is less than the expenditure
of $24.

Project-to-Date/Period
type/boundary code of Project-to-Date/Period. Funds check passed because the sum of the
budget, $24, from the project start to the period end in which the expenditure item occurs, is
equal to or greater than the expenditure of $24.

Project-to-Date/Period
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code of Year-to-Date/Year. Funds check failed because the sum of the budget, $12, from the
fiscal year start to the fiscal year end in which the expenditure item occurs, is less than the
expenditure of $13.
Example of Funds Check Failed Using Amount Type/Boundary Code Parameters of Year-
to-Date/Year
type/boundary code of Year-to-Date/Year. Funds check passed because the sum of the budget,
$12, from the fiscal year start to the fiscal year end in which the expenditure item occurs, is equal
to or greater than the expenditure of $12.
Example of Funds Check Passed Using Amount Type/Boundary Code Parameters of Year-
to-Date/Year
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code of Year-to-Date/Period. Funds check failed because the sum of the budget, $11, from the
fiscal year start to the period end in which the expenditure item occurs, is less than the
expenditure of $12.
Example of Funds Check Failed Using Amount Type/Boundary Code Parameters of Year-
to-Date/Period
type/boundary code of Year-to-Date/Period. Funds check passed because the sum of the budget,
$11, from the fiscal year start to the period end in which the expenditure item occurs, is equal to
or greater than the expenditure of $10.
Example of Funds Check Passed Using Amount Type/Boundary Code Parameters of Year-
to-Date/Period
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code of Period-to-Date/Period. Funds check failed because the sum of the budget, $1, from the
period start to the period end in which the expenditure item occurs, is less than the expenditure of
$2.

Period-to-Date/Period
type/boundary code of Period-to-Date/Period. Funds check passed because the sum of the
budget, $1, from the period start to the period end in which the expenditure item occurs, is equal
to or greater than the expenditure of $1.

Period-to-Date/Period
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Incremental budgeting
Incremental budgeting is the easiest, but most-abused, form of business budgeting, and is
probably what you imagine when you think of a traditional budget. With incremental budgeting,
you simply adjust the existing budget by increments to reflect the overall growth or decline of
the company. For example, projecting 10% growth might mean you increase budgets by 10%, or
if it’s time for your business to cut back you may call for a 30% budget reduction across the
board.
Incremental budgeting is very quick to calculate, and can facilitate company-wide budget
adjustments. However, there are many issues with incremental budgeting. You may be
increasing an unnecessary budget, or you may have budget owners requesting a larger increase
so that they can show how they come under budget. It’s also harder to factor in more complex
data like inflation or market trends into your operational budget.
Activity-based budgeting
The activity-based budgeting method is focused on the results you wish to achieve. For example,
if your company is seeking a certain valuation or to do $100M in sales, you would work
backward to determine which activities will create that desired effect, and then fund them
accordingly.
Activity-based budgeting can be highly effective when you have a clear end zone and focus on a
goal-oriented operation. However, it is important to carefully weigh all company efforts, even
those that don’t contribute directly, to a financial goal but keep your operation running smoothly.
Activity-based budgeting methods work especially well in the short-term to meet a specific
financial goal, but can be limited when used for long-term application.
Set spending and saving goals that you can actually enforce with Divvy.
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Value proposition budgeting
Value proposition budgeting is all about, well, value. Each and every budget line item is
analyzed to determine the value it provides to the business, customer, staff, and stakeholders—as
well as the cost. Budgets need to be itemized and justified to prove value for the business,
eliminating cost that ultimately does not bring value and maximizing the budget in areas that
deliver strong results.
Value proposition budgeting can be used in conjunction with other methods, such as activity-
based budgeting, on a small or large scale. You may require that your largest budgets within the
company conduct value proposition budgeting to justify their spending plan, or you may conduct
value proposition budgeting company-wide. Remember that value is sometimes difficult to
quantify, and the value offered by different departments or initiatives can change rapidly.
Zero-based budgeting
Zero-based budgeting is a flexible budgeting method that requires line-by-line justification of
budgets and purchasing. However, zero-based budgeting is used to economize and trim budgets
of excess spending. Whereas incremental budgeting just increases or decreases lump sums across
the board, zero-based budgeting begins with the assumption that each and every department is
starting off at zero. Each department needs to plan and price out and justify each penny, building
their budget from the ground up.
Zero-based budgeting is the best method for eliminating extra spending, but is a much more
exhaustive process. Complete control and visibility into budgets allows for conscious spending
and saving. Zero-based budgeting can be the most effective for finding ways to meet savings
goals, which are important for the safety of a small business.
Flexible budgeting methods
What happens when your budget is off target? The market can be unpredictable, and as a
business owner you need to be prepared for the moment when your budget is out of balance.
There are some budgeting strategies you can employ to help you through moments when the
numbers don’t add up.
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Cash flow budgeting
When you run out of money due to lack of revenue to your business or increased spend, what can
you do? There are ways to increase the cash flow to your business, but hopefully your budgeting
method accounts for a safety net, such as a strong savings account or potential lines of credit.
Surplus budgeting
The best budgeting surprise is when you discover a surplus. What is your plan when you bring in
more revenue than expected, or when your teams come in under budget? Will you reward teams
for returning surplus funds? How will you utilize the extra cash? Savings or debt repayment are
smart choices, but you may also create a plan for reinvesting the money back into the business
with purchase of equipment or beneficial training.
Regardless of which budgeting method you choose, without expense management you won’t
achieve anything. Assigning, documenting, tracking, and analyzing your business expenses is
key for true and effective budgeting. It’s time to assess your expense management needs with
Divvy.
Budget involvement
Within the budgeting methods there are also ways to implement the budgeting within your
company. You can adjust each budgeting method for the needs of your company by adjusting the
involvement of your employees in the budgeting process. Of course, an enormous international
corporation is unable to involve local managers in the budgeting process, but small businesses
may find that a collaborative effort with managers and employees creates more buy-in and
effective execution.
Imposed budgeting
The most traditional method of budget involvement is an imposed budget. Imposed budgets are
created and executed from the top down. The corporate or finance teams make decisions about
budgets for departments and overall spending, then communicate the budgets unilaterally.
Imposed budgets are often called top-down budgets. While often necessary, imposed budgets can
leave employees feeling unheard by out-of-touch executives.
Negotiated budgeting
A more flexible and functional form of budget involvement is negotiated budgeting. In
negotiated budgeting, suggestions come from the top-down and the bottom-up and are met in the
middle with communication and negotiation. For example, you may be utilizing value
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proposition budgeting and want to involve more managers and employees in the process. You
might have executives meet with managers, both coming prepared with their projections of value
within departments to construct the budgets together.
Empower your employees with collaborative budgets and corporate cards for everyone.
Participative
When your business requires a lot of decision-making on the front lines, smart business owners
learn to trust in participative budgeting. As the most bottom-up approach, participative budgeting
works well for small businesses with high levels of trust and communication. Managers and
employees can recommend budget targets and be given freedom within their budgets.
Incremental budgeting can be highly participative if increases or reductions are made and then
the budgets are handed off to managers to be used at their discretion.
Are you ready to build your business budget? We hope this empowers you to create budgets that
work for your business and your future goals. A budget is your roadmap to success, so draw it up
with care. And remember—your budget is nothing but a wish list if you aren’t able to carefully
track business expenses and conduct meticulous expense management.
ABOUT THIS NONPROFIT BUDGETING COURSE
What does your organization want to accomplish? Whether your goal is to combat deforestation
or to provide sustainable livelihoods, your team needs to know which financial resources are
available to them. In other words, your team needs an accurate and effective operating budget.
This course introduces the fundamental skills that you will need to prepare an operating budget
for a nonprofit organization or social enterprise. You will learn about the different types of
budgets, explore operational budget components, compare different processes for generating
financial estimates, and design inclusive processes to develop an operational budget with your
team.
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COURSE TOPICS:
 Module 1: Introduction to Budgeting

Understand the language and basic concepts of budgeting
 Module 2: Types of Budgets
Compare the different types of budgets and decide which formats will be most useful for
your organization
 Module 3: Budgeting Methods
Choose the budgeting method most effective for your programs
 Module 4: Budgeting Processes
Design a budgeting process for your organization
WHO SHOULD TAKE THIS COURSE?
This course is designed for a wide-range of professionals working in the development, nonprofit,
social enterprise, or humanitarian sectors. Project managers, department managers, or anyone
involved with the financial management of their organization will find this course helpful.
No prior experience or training in accounting is necessary.
CERTIFICATION
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The University is a non-degree, diploma or credit granting initiative. Philanthropy U, Inc. is the
concept developer and sponsor of the initiative. Learners are not entitled to earn college or other
academic credit.
To earn a Certificate of Achievement for this course, you need to earn more than 50% of possible
points on quizzes and assignments to obtain a passing grade. Quizzes are worth 15% of your
total score, while assignments are worth 85%.
You are also able to adjust components relating specifically to the financial plan type’s
budgetary control settings, such as Control Budget, Control Level, Default Rate Type, and
Tolerance Percentage. These components are listed below:
 Control budget: This attribute allows you to choose where in the project hierarchy you
can enter Budgetary Control amounts. You can either input these amounts at the project
level or the top resource level. The system then uses these amounts to create the budget
account segments. There must be at least one financial plan type that allows for
budgetary controls before you can create a control budget.
 Control level: This attribute allows you to choose at what level expenditures can impact
funds reservation. The following four levels are outlined below:

o Absolute: The system stops a transaction from occurring. It does not record the
transaction, process it, or allow any additional funds to be reserved until a budget
manager decides how to settle the insufficient funds.
o Advisory: The user who enters a transaction type receives a warning while the
system processes the transaction. However, the process will continue, and the
transaction will affect the budget. This level of control allows you to reserve
funds, even if they are not available in the budget.
o Track: The system processes the transaction, and the transaction affects the
budget. This level of control allows you to reserve funds (even if they are not
available in the budget) but without the warning that the system sends under the
advisory control level.
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o None: You use this for transactions you do not want to count towards the budget.
The system does not track or record this transaction in the budget.
 Default rate type: This attribute allows you to choose the rate type for the application to
use to convert transaction amounts to currency in the control budget, which happens
before the funds check.
 Tolerance percentage: This attribute allows you to set the percentage that a transaction
can go beyond the amount allowed before a warning is triggered or the funds reservation
is restricted.
Difference between Budgetary Control and Encumbrance Accounting
An encumbrance refers to funds that are put in reserve after a requisition has been finalized. The
purpose of encumbrance accounting is to avoid spending over your budgeted amount.
You are able to implement Budgetary Control and Encumbrance Accounting individually or
collectively. The two differ in the fact that Encumbrance Accounting functions according to the
General Ledger and Subledger Accounting. Also, while Encumbrance Accounting draws from
the accounting calendar and chart of accounts, Budgetary Control draws from the account
structure and budget calendar. These separate features allow users to manage spending at
different levels.
 For example, you would choose to use Budgetary Control over Encumbrance Accounting
if you wanted all transaction amounts to undergo budget validation while the system
processes the transaction in real time.
 On the other hand, you would select to use Encumbrance Accounting, rather than
Budgetary Control, if you wanted to report balances that account for the General
Ledger’s requisition and purchase order responsibilities.
 If you only require budget vs. actual expenditures reports intermittently, this will not call
for implementing either Budgetary Control or Encumbrance Accounting.
 If you want to implement Encumbrance Accounting, you will need to allow
Encumbrance Accounting and Budgetary Control for your ledger and business units.
However, this does not require you to establish the control budgets.
 Only implementing Budgetary Control benefits the following users:
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
 Users who need real-time spending management capabilities

 Users who report to internal audiences rather than those outside of their organization
 Users who report on available fund balances, budgets, commitments, expenditures and
obligations
 Users in Education and/or Nonprofit industries
Considerations for Implementing Budgetary Control
If you are thinking about implementing Budgetary Control, it may help to consider the following
questions:
 How tightly should your funds be controlled? This helps you figure out which of the four
levels of control you should set.
 Which funds are accessible and okay to use?
 Which level of detail needs to occur for budget vs. consumption reporting?

In an uncertain economy, departmental heads and other budget owners go through the budgeting
process focused on securing a sufficient share of scarce resources in order to meet their
respective goals. They often come into conflict with the accounting department and their focus
on enforcing an effective budgetary control process that aligns the various departments’
operating budgets with the actual results of their spend activity.
Bridging this gap between budget owners and the finance team begins with effective processes
and transparent, comprehensive access to spend data in real time. With the right tools and
practices, it’s possible to turn conflict into collaboration, reducing wastage and maximizing
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actual performance. Working together, team members in every department and business unit can
meet their goals while giving accounting the oversight needed to ensure budgets are both
sufficient and efficient.
What Is the Budgetary Control Process?
The budgetary control process helps accounting professionals:
 Prepare and monitor budgets.
 Prevent wastage and minimize cost overruns.
 Enhance the utility and availability of accurate financial reporting.
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 Manage everyday operations while also providing financial guidance required to support long-
term organizational goals.
For budget holders, the budgetary control process can be broken down into a sequence of four
steps:
1. Establishing actual budgetary positions. Drawing from one or more sources, budget holders
examine available financial statements to determine their current budgetary credits, debits, and
committed spend.
2. Comparing Actual Results to Budgeted Figures. The budget holder compares their data to the
figures set during the budgeting period. Deviations in income and expenditures from budgeted
results are known as variances, and must be analyzed in order to identify the underlying issues
and help prevent them from recurring in future periods.
3. Performing Variance Calculations and Analysis. Having calculated all variances, the budget
holder seeks to identify the underlying causes for the variance. Some of the most common
reasons include:
 Human error, such as data entry errors, delays in entering essential information into the
accounting system, or failure to collect all relevant spend data.
 Ineffective or inaccurate budget profiling (or a lack of existing historical data to create a useful
budget profile).
 Increased efficiency in workflows, creating a positive variance by reducing costs and resource
demand.
 Unexpected external changes beyond the budget holder’s control (e.g., legislative reform, rapid
increases or decreases in consumer demand due to changing market conditions, supply chain
disruptions created by natural disasters, war, etc.).
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Taking Corrective Action.
Depending on the nature of the variance, the budget holder will work with the master budget
committee to make changes that will bring the budget back under control. Some of the possible
solutions include:
 Increasing income.
 Reducing spend.
 Lowering costs.
 Transfer money from one budget to another (i.e., virements)
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 Clarify objectives and adjust planning for future spend based on likely outcomes (e.g., adjusting
to accommodate for seasonal shifts in demand, or postponing the development of a new product
to the next fiscal year).
 Tap into contingency funding.
 Modify, reduce, or eliminate services.
Advantages of Budgetary Control
Implementing a budgetary control process provides several important advantages to an

organization, including:
1. Functional budgets limit expenses and clearly define the spend and performance results for a
given budget period. This reduces risk exposure and provides important financial intelligence
companies can use to improve both financial planning for future periods and overall decision
making.
2. Budgetary control systems help establish both authority and accountability for department heads
and other budget owners. In turn, these individuals are empowered to delegate responsibilities
and tasks to meet their respective goals while adhering to the budget and supporting enterprise-
level goals.
3. Budget committees are generally staffed by seasoned executives from top management who
understand not only their specific areas of expertise, but the enterprise and its goals, ambitions,
and limitations.
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The support of top management is crucial to securing organization-wide buy-in and compliance
for budgetary control. They can provide clear and effective guidance in making corrections and
adjustments to budget plans, and help create a culture of open communication and shared success
through cross-functional team leadership to achieve smart, strategic spending.
4. An effective and transparent budgetary control system prioritizes meeting benchmarks set by key
performance indicators (KPIs) while keeping expenditures in line with budgeted figures.
Examples of important KPIs include sales growth (expressed as a percentage, including
acceptable deviation), percentage of inventory to be held to cover customer demand, gross
profits (expressed as a percentage, including acceptable deviation), etc.
It also encourages all team members to practice mindfulness during the preparation of budgets
and spend with an eye toward using sometimes scarce resources efficiently and strategically,
with minimal waste.
5. Properly deployed, budgetary control processes make it easier for finance teams to identify
budgetary deviations and take corrective action in a swift and strategic manner.
6. By providing an over-arching management and monitoring framework, budgetary control aims to

improve transparency and strategic decision making while simultaneously improving
communication and collaboration between different departments. Budget owners can coordinate
their efforts with both top management and one another to more effectively make use of
resources and cooperate, rather than compete, in supporting organizational goals.
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Common Obstacles to Effective Budgetary Control
Financial professionals, working in and with budgeting committees, spend a lot of time, talent,
and resources on the establishment of budgets they intend to help their organizations grow,
innovate, and thrive. The primary objectives of budgetary control are compliance, performance,
and ensuring a strategic and plentiful allocation of resources without creating needless costs,
waste, or redundancies.
Departmental heads and other budget owners spend a lot of time, talent, and resources executing
the business processes supported by budgets that were painstakingly assembled and confidently
submitted during the budget period. But over the course of the financial month, quarter, year,
etc., those budgets must be updated to reflect how actual events and business needs differ from
the budgeted performance and spend values.
When a company doesn’t have the technology and internal controls in place to help budget
owners communicate and collaborate effectively with finance, financial molehills can quickly
become mountains that stifle cash flow, interrupt production, or hamper decision making.
These difficulties are particularly apparent at companies still relying on manual workflows and
paper-based documents, but can occur at any organization that hasn’t taken measures to
standardize, automate, and optimize their budgeting and budgetary control processes.
Some of the most common roadblocks to successful budgetary control include:
 Lack of real-time access to budget data for managers
 . Having to wait for data from finance in order to make time-sensitive spending decisions can
create additional costs through delayed production, wasted time and materials, and damaged
supplier relationships, threatening not just the bottom line but overall business continuity.
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 Lack of real-time visibility into actual results for finance teams and budget
committees. Waiting until a department or project team has a budget overrun to correct it is no
way to stay ahead of the competition—or protect an organization’s cash flow and profitability.
 Siloed data collection, management, and analysis. Working in separate accounting systems
and having to share data electronically in different formats (or worse yet, manually via paper
documents that require data entry before they can be accessed and analyzed) can make it next to
impossible to correct variances or find solutions to cash flow challenges in a timely and effective
fashion.
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successful business.
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What’s your goal today
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We’ve helped save billions of dollars for our clients through better spend management, process
automation in purchasing and finance, and reducing financial risks. To discover how we can help
grow your business:
 Read our case studies, client success stories, and testimonials.
 Visit our “Solutions” page to see the areas of your business we can help improve to see if we’re a
good fit for each other.
 Learn about us, and our long history of helping companies just like yours.
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Problems in budgeting
Whilst budgets may be an essential part of any marketing activity they do have a number of
disadvantages, particularly in perception terms.
· Budgets can be seen as pressure devices imposed by management, thus resulting in:
a) bad labour relations
b) inaccurate record-keeping.
· Departmental conflict arises due to:
a) disputes over resource allocation

b) departments blaming each other if targets are not attained.
· It is difficult to reconcile personal/individual and corporate goals.
· Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is
often coupled with "empire building" in order to enhance the prestige of a department.
Responsibility versus controlling, i.e. some costs are under the influence of more than one
person, e.g. power costs.
· Managers may overestimate costs so that they will not be blamed in the future should they
overspend.
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Characteristics of a budget
A good budget is characterised by the following:
· Participation: involve as many people as possible in drawing up a budget.

· Comprehensiveness: embrace the whole organisation.
· Standards: base it on established standards of performance.
· Flexibility: allow for changing circumstances.
· Feedback: constantly monitor performance.
Budget organisation and administration:
In organising and administering a budget system the following characteristics may apply:
a) Budget centres: Units responsible for the preparation of budgets. A budget centre may
encompass several cost centres.
b) Budget committee: This may consist of senior members of the organisation, e.g. departmental
heads and executives (with the managing director as chairman). Every part of the organisation
should be represented on the committee, so there should be a representative from sales,
production, marketing and so on. Functions of the budget committee include:
· Coordination of the preparation of budgets, including the issue of a manual

· Issuing of timetables for preparation of budgets
· Provision of information to assist budget preparations
· Comparison of actual results with budget and investigation of variances.
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c) Budget Officer: Controls the budget administration The job involves:
· liaising between the budget committee and managers responsible for budget preparation
· dealing with budgetary control problems
· ensuring that deadlines are met
· educating people about budgetary control.
d) Budget manual:
This document:
· charts the organisation

· details the budget procedures
· contains account codes for items of expenditure and revenue
· timetables the process
· clearly defines the responsibility of persons involved in the budgeting system.
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Budget preparation
Firstly, determine the principal budget factor. This is also known as the key budget factor or
limiting budget factor and is the factor which will limit the activities of an undertaking. This
limits output, e.g. sales, material or labour.
a) Sales budget: this involves a realistic sales forecast. This is prepared in units of each product
and also in sales value. Methods of sales forecasting include:
· sales force opinions

· market research
· statistical methods (correlation analysis and examination of trends)
· mathematical models.
In using these techniques consider:
· company's pricing policy

· general economic and political conditions
· changes in the population
· competition
· consumers' income and tastes
· advertising and other sales promotion techniques
· after sales service
· credit terms offered.
b) Production budget: expressed in quantitative terms only and is geared to the sales budget. The
production manager's duties include:
· analysis of plant utilisation

· work-in-progress budgets.
If requirements exceed capacity he may:
102
5 .Conclusion
This chapter has emphasized manufacturing budgets. The process involves developing a sales
forecast and, based on its magnitude, generating production and manufacturing expense budgets
needed by a specific firm. Once developed, the budgeting system provides management with a
means of controlling its activities and of monitoring actual performance and comparing it to
budget goals.
A comprehensive profit planning and control program involves budgeting the materials and parts
used in the production process. The budget process involving manufacturing expenses includes
the material usage and purchase budgets, direct labor budgets, and factory overhead budgets.
103

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A project Submitted to

University of Mumbai for partial fulfillment of the degree of

College Seat No- 28 Year:2021-22

Under the Guidance of Prof

COLLEGE NAME AND ADDRESS

I take this opportunity to thank our Co-ordinatorMadhuriMurbade.

STUDENT NAME – DEVENDRA ANIL SHIVTARKAR

of commerce in the subject of ACCOUNTANCY on itle of project work to be written

reported by her/his personal findings and Investigation

Name & Signature of Guide

Name and signature of professor in charge/principal of the College

Stamp of the Institute with Date

College Seat No 28 Year; 2021-22

Exam Seat No 4979651 Year 2021-22

DEVENDRA ANIL SHIVTARKAR

Name &Signature of lea

Sr No. Particulars Page no.

4 DATA PRESENTATION & DATA ANALYSIS 47 to 102

(c) The actual figures are recorded.

Objectives of Budgetary Control:

The main objectives of budgetary control are the follows:

4. Elimination of wastes and increase in profitability.

5. To anticipate capital expenditure for future.

6. To centralise the control system.

7. Correction of deviations from the established standards.

8. Fixation of responsibility of various individuals in the organization.

Essentials of Budgetary Control:

1. Organization for Budgetary Control:

The budget period depends upon the following considerations:

(b) The nature of demand for the products.

(c) The timings for the availability of the finances.

(d) The economic situation of the country.

(e) The length of trade cycles.

7. Determination of Key Factor:

Advantages of Budgetary Control:

Some of the advantages of budgetary control are:

4. Tool for Measuring Performance:

10. Introduction of Incentive Schemes:

Some of the limitations are discussed as follows:

2. Budgetary Revision Required:

3. Discourage Efficient Persons:

5. Conflict Among Different Departments:

6. Depends Upon Support of Top Management:

3. “A budget is a predetermined statement of management policy during a given period which

Budgetary Control – Some More Definitions

According to J. Batty-“Budgetary Control is a system which uses budgets as a means of planning

Budgeting is the whole process of planning, implementing and operating budgets.

Budgetary Control – Main Features

(ii) Recording actual performance of each functional area.

A budget may be expressed in relation to:

(b) Behaviour – Fixed and Flexible Budget; and

(c) Functions – Sales Budget, Production Budget, Cash Budget, etc.

Some of the other features are:

(iii) Plan for each activity –

(iv) Comparison / ascertain causes –

(v) Remedial action –

What Is the Budgetary Control Process?

The budgetary control process helps accounting professionals:

 Prepare and monitor budgets.

 Prevent wastage and minimize cost overruns.

 Enhance the utility and availability of accurate financial reporting.

 Transfer money from one budget to another (i.e., virements)

 Modify, reduce, or eliminate services.

Advantages of Budgetary Control