Important steps of budgetary control
There are certain steps which are essential for the successful implementation of a budgetary control system. They are as follows:
1) Organization for budgetary control: per 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 execution of their respective departmental budgets.
2) Budget centers: it is a document which contains the guidelines for the preparation of various budgets and sets out the responsibilities of the persons engaged in the routine of the forms and records required for budgetary control. All departments refer to this manual for clarification regarding procedural details and formats to be used at every stage from preparing of budgets till reporting of actual and deviation from begets.
3) Budget officer: the chief executive who is at the top of the organization appoints some persons 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 situation so demands. The actual performance of different departments is communicated to the budget officer. He determines the deviation in the budgets and takes necessary steps to rectify the deficiencies if any. He works as a coordination among dissimilar departments and monitors the relevant information. He also informs the top management about the performance of different departments.
4) Budget committee: in small scale concerns a committee known as budget committee is formed. In large scale concerns a committee known as budget committee is formed. The heads of the entire import department are made members of this committee. The committee is responsible for preparation and execution of begets. The members of this committee put up the case of their respective departments and help the committee to take collective decision if necessary. The budget officer acts as coordinator of this committee.
5) Budget period: a budget period is the length of time for which a budget is prepared. 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:
The type of budget i.e., production budget, sales budget, raw material purchase budget period 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.
The natural of demand for the production.
The timing for the availability of the cycles
The economic situation of the cycles
The length of trade cycles
All the above mentioned factors are taken into account while fixing the period of budgets.
6) Determination of key factor: the budgets are prepared for all function areas. These budgets are inter-dependent and inter-relation. A proper co-ordination among different budgets is necessary for making the budgetary control a success. The constraint on some budgets may have an effect on other budgets too. A factor which influences all other budgets is called 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 budget will be prepared by keeping in view the quantity of goods the concern will be capable to sell. The raw material supply may be limited; so production sales and cash budgets will be decided according to raw materials budget. Similarity plant capacity may be a key factor if the supply of other factors is easily available.