Merits and Demerits of Budgetary Control

Budgetary control, in the simplest terms people could say, is making sure the company’s budget is well-planned and handled, and that’s pretty much what it is all about. All in all, you don’t need to confuse it way too much, it’s just a plan that sets out a list of expected revenues and expenses for a certain period of time. Then, the actual cash flow process is validated against the budget, and any deviations from the target are highlighted so that corrective actions are put in place, you know? So yes, the end goal should always be the assurance of the company’s necessary and sufficient use of resources for good financial performance. Now let’s discuss the pros  and cons of Budgetary Control:

Merits of Budgetary Control

1. Making the Most Out of Your Business

Budgetary control is the thing that helps the company make maximum profit through the proper use of all the resources they have in hand and also by cutting down on things that are a complete waste of effort and time. See, if the budget is prepared properly, the company can control the expenditure better and reduce its costs by focusing on the expenditure that will bring in the maximum return, right? So why not give it a shot?

2. Getting All Departments on the Same Page

Budgetary control ensures that all departments within a business work together toward the same goals no matter what, and this is one of the key benefits that you don’t even realize how important it is. How’s that though? Well, it’s simple actually, if a company has all departments on the same page, it will ensure that there is no duplication of efforts and misunderstanding which are major factors that will make business inefficient.

3. Clear Goals = Clear Path to Success

Let’s say there are multiple departments in a company or a business, and if all those departments or teams have specific goals to achieve, they’ll surely do better. The significance of goals is made clear to each department, which provides team members with a clear direction for their specific target and they just do that no matter what, which is how a company or business grows.

4. Your Built-In Performance Tracker

By budgetary control, the company is also measuring its performance in a way, and how’s that? Well, the comparison of the actual results with what was planned in the budget enables the managers to identify where the good performance of the company and its areas of development. They can, thus, take corrective actions rapidly if things are not going as planned, you know, in this case, a business can be saved from failure.

5. Cutting Costs Without Cutting Corners

One if not the best benefits or bits about budgetary control is that it really helps cut down on unnecessary costs, that’s for sure. Well, it is simple how they are able to do this with budget control, they can simply analyze the impact of their investment on various things within the company or business, and then see which is more effective. The one with less ROI, or less impact can be eliminated or shut down if possible. That’s how costs are cut down.

6. Spotting Trouble Before It Escalates

See, with the help of budgetary control, the speed of financial reporting can be increased significantly, and when you have actual data in your hands much faster, you can see the trends and possibly predict what’s coming next, even if it is something bad or some kind of risk that can negatively impact the company.

Demerits of Budgetary Control

1. The Unpredictability of the Future

One of the primary difficulties with budgetary control is that the approach leans heavily toward future predictions, which to be honest are often not accurate. Even with the best estimates, unanticipated events such as market or economic dynamics may occur. Such occurrences can make the budget a useless one because the assumptions on which it is based may not be valid, you know?

2. Constantly Tweaking the Budget

Due to the uncertainties of the future, it’s very common for budgets to need constant changes if they have to reflect new circumstances. And sure, this can very well be very time-consuming and costly. Not just that though, continuous renewal of budgets can also generate uncertainty and ensure that the employees are distracted from the key targets as they have to keep changing their arrangements regularly.

3. Discouragement of Initiative Among Employees

Sometimes, budgetary control may scare employees from doing even more than they are supposed to, you know? When rigidly structured budgets are implemented, employees might give their fixation on doing only the assigned work and forget about innovation or creative things, and they don’t do that because they know they will not be paid for that.

4. The Coordination Challenge

In order for the budgetary control system to be effective, it is super important that all departments work together as a team. But let’s say there are a few teams and departments, in that case, businesses or companies can pull this off, but if the organization is a big one, they’ll sure have a hard time with that.

5. The Need for Strong Leadership

Another thing is that if there is no strong leadership at the top, the operations of budgetary controls will not be as effective as you think. See, finances are no child’s play, especially when the stakes are high and it is all about the growth of the company and business, that’s why we say that there has to be strong leadership at the top, or it’ll all be for nothing.

Comparison Table for Merits And Demerits of Budgetary Control