Budgetary control is a process used by organisations to manage their financial resources and ensure that they are operating within their means. It involves creating and managing budgets to ensure that expenses are controlled, and revenues are maximised. Budgetary control can significantly impact organisational performance in terms of financial performance and overall business outcomes.
Improved Financial Performance
Organisations implementing effective budgetary control systems can better manage their finances, reduce costs, and increase efficiency. One of the primary benefits of budgetary control is improved financial performance. For example, a study published in the Journal of Applied Accounting Research found that budgetary control was positively related to profitability, productivity, and overall performance in Nigerian manufacturing firms. This suggests that budgetary control can help organisations to achieve better financial outcomes by managing expenses, increasing revenues, and improving overall financial performance.
Better Decision Making
Budgetary control can also help organisations to make better decisions by providing managers with accurate and timely financial information. This information can identify areas where the organisation is overspending or underperforming and make informed decisions about where to allocate resources. For example, a study published in the International Journal of Business and Social Science found that budgetary control significantly impacted the financial performance of small and medium-sized enterprises (SMEs) in Malaysia. The study found that SMEs with better budgetary control systems were more likely to make informed decisions about where to invest their resources, leading to better financial outcomes.
Increased Accountability
Budgetary control can also increase organisation accountability by assigning responsibility for meeting budget targets to managers and employees. When managers are responsible for meeting budget targets, they are more likely to take ownership of their decisions and actions and to be more accountable for their performance. This can help create a culture of accountability within the organisation here. Employees are more likely to take responsibility for their actions and work towards achieving their goals. For example, a study published in the European Journal of Accounting, Auditing and Finance Research found that budgetary control was positively related to accountability in public sector organisations in Tanzania. The study found that organisations with better budgetary control systems were likelier to have a culture of accountability, where employees took responsibility for their actions and worked towards achieving their goals.
Resource Allocation
Budgetary control can also help organisations to allocate their resources effectively by prioritising spending on activities that contribute to their overall performance and growth. By analysing the organisation’s financial performance and identifying areas where resources can be allocated more effectively, managers can make informed decisions about where to invest resources to achieve the organisation’s goals. For example, a study published in the International Journal of Business and Social Science found that budgetary control positively impacted the sales growth, profitability, and return on investment of small and medium-sized enterprises (SMEs) in Malaysia. The study found that SMEs with better budgetary control systems were more likely to invest their resources in areas that contributed to their growth and success.
Performance Measurement
Finally, budgetary control can provide a framework for measuring performance against targets, which can help managers identify improvement areas and take corrective action when necessary. By monitoring the organisation’s performance against its budget, managers can identify areas where performance lags and take steps to improve it. For example, a study published in the Journal of Applied Accounting Research found that budgetary control was positively related to productivity in Nigerian manufacturing firms. The study found that firms with better budgetary control systems were more likely to monitor their performance against targets and take corrective action when necessary, leading to increased productivity.
“Budgetary control can significantly impact organizational performance regarding financial performance and overall business outcomes by improving financial performance, enabling better decision-making, increasing accountability & facilitating effective resource allocation” said Dr Ajay Desai
This Abstract is a part of EIU-Paris weekly expert quotes on various trending topics.
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