1. What is Budgetary control? What are the advantages and limitations of budgetary control?

Budgetary control is a systematic process used by organizations to plan, monitor, and control their
financial and operational activities.It involves creating budgets, which are thorough plans that specify
anticipated income, costs, and other financial factors. By using budgetary control, goals of the
organisation can be attained by comparing actual performance to budgeted figures and taking
corrective action.

Advantages of Budgetary Control:

● Goal Setting and Planning:gives organisations a structure for establishing precise
operational and financial goals, assisting them in coordinating their efforts to meet these
targets.
● Improved cost control: Budgetary control aids in the identification and management of
expenses. Organisations can find areas for cost savings by tracking actual spending and
setting cost targets.
● Better performance measurement: A framework for measuring performance is provided
by budgetary control. Organisations can determine where they are doing well and where
they need to improve by comparing actual results to budgeted targets.
● Enhanced accountability and motivation: By laying out clear guidelines and offering
constructive criticism, budgetary control helps encourage high performance from staff
members. By holding managers accountable for hitting their allocated goals, it can also
improve accountability.
● Strategic Planning: Facilitates the development of coherent business strategies by
coordinating budgetary goals with long-term organisational objectives.
● Decision-Making: enables better choices by providing information about the financial
ramifications of different options and thereby providing a foundation for informed decision-
making.
● Resource Allocation:Assists in the efficient allocation of resources by outlining where funds
and efforts should be directed to optimize performance.
Limitations of budgetary control :
● Time-consuming: Creating and maintaining a budget may require a lot of time and
resources. For smaller organisations with fewer resources, this could be a hardship.
● Rigidity: Budgets have the potential to be inflexible and unable to change as
conditions do. Because of this, organisations may find it challenging to react to
unforeseen circumstances or opportunities.
● Based on Assumptions: Budgets are frequently based on predictions about the state of the
world, and if these predictions turn out to be false, the budget might not be trustworthy.
● Overemphasis on Short-Term Goals: Excessive focus on short-term goals at the
expense of long-term strategic objectives can result from budgetary control.
● Conflict and Resistance: The implementation of budgetary targets may give rise to
disputes between departments or opposition from staff members who consider the targets
to be unjust or unrealistic.
● Limited Scope: Financial budgets may not be sufficient to capture certain aspects of
organisational performance, such as employee morale or innovation, which would limit the
evaluation's reach.