Budgetary Control in Performance Management Essay

Budgetary Control in Performance Management - Essay Example A budget is a formal statement of financial resources that have been set aside to finance specific activities over a given time period. Through a budget, managers can be able to coordinate organizational activities with it being a point of reference. Integrative Budgetary Control Integrative organizational budgetary control is a technique in which actual results of activities are compared to those specified in a budget and corrective actions undertaken. Differences that exist between actual and planned activities in the budget result in budgetary control measures where responsibility centers are charged with the responsibility of exercising organizational control action or revising the specific budget plans. Through responsibility centers, organization managers can monitor functions of the organizations and make necessary corrections to deviation from plans (Singla, 2009, p.117). A responsibility centre is basically a functional unit in an organization being headed by a hierarchical manager charged unit performance. Responsibility centers may include expense centers, revenue centers and investments centers. Budgetary control with regards to revenue centers involves comparison of actual outputs with budget outputs to ascertain necessary control measures. ... Basically, there is no planning system that can be used successfully in performance management without having an efficient and effective control system. Budget formulation is closely attached to control aspects where executives exercise organization control through budgetary control. Integrated organizational budgetary control involves preparation of a broad variety of budgets, continuous comparison of performance plans with actual performance and budget revision in the light of existing variances. Budget revision requires that a budgetary control system should be able to provide enough flexibility scope for particular initiative and revision measures. Performance management budgetary control is therefore an important device used by executives to control organization in achieving goals and controlling costs more efficiently Budgetary control compels the management of a particular organization to think about the ideal expectations for the future and what measures should be put in plac e with regards to existing shortcomings. The control process forces individuals charged with managerial responsibility to look ahead and manage the organization towards a purpose and direction be setting out detailed plans to achieving the relevant targets. Through this, the management is able to promote communication and coordination within the organization. The process also defines clearly the areas of responsibility, as it requires managers of responsibility centers to be accountable to deviations or underachievement of budget targets. Integrative budgetary control uses a budget as a basis for appraising organizational performance at a departmental level. Organizational performance variance from planned