Budgets and

Budgetary Control

INTRODUCTION
A plan expressed in monetary terms,
prepared and approved prior to the budget
period and which shows income
expenditure and the capital employed. It
may be drawn showing incremental effects
on former budgeted figures or complied by
zero budgeting.
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 Budgets are therefore not prepared in isolation

and then filed away but are concrete
components of what is known as a budgetary
control system. Such a system essentially
ensures communication, coordination and
control within an organization. The basic
functions of management are allocation of
resources, planning and control.
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BUDGETARY CONTROL
This is the establishment of a budget relating
the responsibilities of executive management
to the requirement of a policy and continuos
comparison of actual and budgeted results.
Control should ensure that actions are
accordance with the objective of the policy in
question
Also provides a basis for its revision.
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ELEMENTS OF
BUDGETARY CONTROL
Setting up budgets i.e. planned targets on
revenue, expenses, assets and liabilities
relating to the activities concerned.
Measuring actual results against the budgets
on a continuous basis
Identifying and analyzing deviations from
budgets and modifying both actual operations
and subsequent budgets.
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MAIN AIMS OF
BUDGETARY CONTROL
To establish the degree of progress to the
achievement of short term plans
To allow delegation to occur without losing
overall control
To provide a measure for allowing flexibility
in operations
To establish short term plans and aid the
organizations planning process
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PURPOSE OF A BUDGET
Co-ordination- Important for the achievement
of organization goals e.g.
Coordinate inputs and outputs in order to
ensure balance of efforts and effects.
Coordinate budget lines within the
organization to ensure effective
implementation of plans and monitoring of
results.

 Coordinate responses to economic trends

and challenges posed by the environment
within which programmes and activities are
undertaken.

PREPARATION OF THE BUDGET

1. Identify objectives
2. Gather data about alternatives
3. Select alternative courses of action
4. Discuss the plans/activities and allocate
the budget.
5. Establish monitoring mechanisms.
6. Respond to problems encountered in the
previous budget.
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PURPOSE CONT.
Communication: The budget is used to
communicate plans and to control information.
Once formulated the aspects of the plan having a
bearing on a particular division of the organization
are communicated to that division.
Motivation: The budget seeks to motivate
managers to achieve objectives and thereby
establish control within the organization.
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PURPOSE CONT.
Performance Evaluation: a budget is used
to evaluate the capability of managers to
achieve targets.
Good performance is associated with
achieving better performance targets set on
costs of operations and benefits to the
organisation.
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PURPOSE CONT.
Authorization: The budget is used to
authorize expenditure or to pursue certain
initiatives once a budget is approved:
it becomes a permission to spend.
acceptance that either a project or activities
should commence.

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DATA FOR BUDGET PROCESS

Internal information
Production and operational information
Financial information
Research and development information
Personnel information
Sources of internal information-expected
outputs - performance targets, control and
monitoring and evaluation mechanisms.
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EXTERNAL INFORMATION

Market and competitors

Economic conditions
Industrial structure
Political factors
Technological change
Demographic trends and social factors
Government statistics, commercial data, banks.
Media coverage, business trips, conferences.
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BUDGET COMMITTEE FUNCTIONS

Co-ordinate the preparation of budgets
which includes the issue of the budget
manual
Issue timetables for the preparation of
functional budgets
Allocate responsibilities for the preparation
of functional budgets
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 Provide information to assist in the preparation of

budgets
Communicate final budgets to the appropriate
managers
Compare actual results with budget and the
investigate variances
Continuously assess the budgeting and planning
processes, in order to improve the planning and
control functions.

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CONTENTS OF BUDGET
MANUAL
Foreword
The purpose of budgetary planning and
control
The objectives of various stages of the
budgetary process
The importance of budgets in the long term
planning and administration of the enterprise
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 Organizational structures and responsibilities including:

an organizational chart and a list of individual holding
budget responsibilities.
Principal budgets and relationships between them:
explanation of key budgets and outline of main budgets
and their accounting relationship
Administrative details of the budget preparation:
membership and terms of reference of the budget
committee, the sequence in which budgets are to be
prepared and a time-table.

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 Accounting procedures: name and terms of

reference of the budget officer,
sample/specimen forms and instruction for
completing them, specimen reports and
account codes.
Timetable for accounting procedures:
production of reports and closing dates.

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