Budgetary Control Essay

Words: 1788
Pages: 8

Budgetary control is part of overall organisation control and is concerned primarily with the control of performance. The use of budgetary control in performance management has of late taken on greater importance especially as a more integrative control mechanism for the organisation. Discuss.

“It’s clearly a budget. It’s got a lot of numbers in it” (George W. Busch 2005). This definition of a budget can be supplemented using the Oxford dictionary, which states that a budget is an estimate of income and expenditures for a set period of time. Nowadays almost every business uses budgets and managers use them as a tool in order to set targets. In other words managers can, with the use of budgets, explain in a financial way what are the
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Thus the firm has to constantly renegotiate its position within the competitive environment. Recently, the capital market’s importance for a company has grown considerably. Thus the relation between shareholders and the business has become very linked. In other words organisations are not just looking at the product market anymore, they have to deal with the increasing importance of the capital market and so to shareholders themselves. They have indeed become major actors of organisation’s behaviour. Their main objective is business’ performance, as it would guarantee good share prices. Investors use budgets in order to be aware of the company’s health by looking at variances. They then decide whether to invest in the business or not, putting a great pressure on managers and thus on a performing corporation. The company is then dependent on shareholders as much as they depend on share prices and thus on the company’s health, despite the fact that no long-term loyalty towards a company is given by shareholders.
Nevertheless if too much importance is given to shareholders then managers tend to lose track of their long-term objectives by focusing only on the short-term. Indeed sometimes please investors is more importance for some managers than optimal performances, and as investors only care about the present value of the company’s shares they only focus on the sort run performances. This situation is dangerous for the company and thus shareholders’