BUDGETARY CONTROL

Budgetary Control is the process by which budgets are prepared for the future period and
are compared with the actual performance for finding out variances, if any. A budget is
expressed in numerical terms . It helps in planning as ell as controlling various business
activities.
Various advantages of budgetary control are :
 It defines the goals, plans and policies of the enterprise. If there is no definite aim then
the efforts will be wasted in achieving some other aims.
 Budgetary control fixes targets. Each and every department is forced to work efficiently
to reach the target. Thus, it is an effective method of controlling the activities of various
departments of a business unit.
 It helps in reducing the cost of production by eliminating the wasteful expenditure.
 Budgetary control facilitates centralized control with decentralized activity.
BUDGETARY CONTROL
Various disadvantages of budgetary control are :
 It is really difficult to prepare the budgets accurately under inflationary
conditions.
 Budget involves a heavy expenditure which small business concerns cannot
afford.
 Budgets are prepared for the future period which is always uncertain. In
future, conditions may change which will upset the budgets.
 Budgetary control is only a management tool. It cannot replace management
in decision-making because it is not a substitute for management.
 The success of budgetary control depends upon the support of the top
management.
 A budgetary programme is a rigid one. The deviations are find out by
comparing actual performance with budgeted figures. The deviations are
accruing due to changed conditions.
 MANAGEMENT AUDIT
Management audit refers to the systematic evaluation of functioning ,
performance and effectiveness of management in an organization. It is a team of
experts. It collects relevant data from management, suppliers, customers, dealers.
Data collected is then analysed and then conclusions are drawn .
Various advantages of management audit are:
 Management audit helps in decision making areas such as make or buy, closing
down of an unit, acquisition of a business, etc.
 It also helps in assessing the efficiency of the executives. It serves as a moral
check on the executives.
 It suggests ways to utilize the resources of the organization effectively.
 Management audit helps in rehabilitation of sick units.
 The opinions and suggestions of a group of experts on the functioning of the
organization are possible only through management audit.
 To identify the weaknesses and inefficiencies of management in different
functional areas
MANAGEMENT AUDIT
 Various disadvantages of Management Audit are :
 Management audit involves high cost and it is suitable only to big
organizations.
 It may create a fear in the minds of the executives and may curb their
initiative and innovation.
 The management auditor may lack independence and may simply take
instructions from the top management.
 Management auditor cannot understand the practical problems. So,
the suggestions provided by them is theoretical but not practical.
BREAK EVEN ANALYSIS
 Break-even analysis is the relationship between cost volume and profits at
various levels of activity, with an emphasis placed on the break-even point.
This point is where the business receives neither a profit nor a loss, when total
money received from sales is equal to total money spent to produce the items
for sale.
Various advantages of break even analysis are:
 Measure profit and losses at different levels of production and sales.
 Predict the effect of changes in sales prices.
 Analyse the relationship between fixed and variable costs.
 Predict the effect of cost and efficiency changes on profitability.
 It is a desk-top tool for management with which it can plan, control,
pre-test, decide and co-ordinate all of its business activities.
BREAK EVEN ANALYSIS
Various disadvantages of break even analysis are:
 Break-even analysis is virtually useless for some firms—where materials that
fluctuate widely in price are a major cost, when product mix varies and profit
margins differ among, products, advertising or sales promotion efforts are
important or where product design or technology changes continuously over
short periods.
 Dependent on certain assumption,
 Arbitrary valuation and classification of cost,
 Guess on market conditions, and
 Less possibility in actual implementation
 it is also a drawback to assume that the size of the factory, process and
techniques of production remain constant.
RETURN ON INVESTMENT
Return on Investment (ROI) is a performance measure, used to evaluate
the efficiency of an investment or compare the efficiency of a number of different
investments. ROI measures the amount of return on an investment, relative to the
investment’s cost.
Various advantages of ROI are:
1. Focus management’s attention upon earning the best profit possible on the
capital (total assets) available.
2. Serve as a yardstick in measuring management’s efficiency and effectiveness in
managing the company as a whole and its major divisions or departments.
3. Tie together the many phases of financial planning, sales objectives, cost
control, and the profit goal.
4. Afford comparison of managerial results both internally and externally.
5. Develop a keener sense of responsibility and team effort in divisional and
departmental managers by enabling them to measure and evaluate their own
activities.
RETURN ON INVESTMENT
 Various disadvantages of break even analysis are:
1. Lack of agreement on the right or optimum rate of return might discourage
managers whose opinion is that the rate is set at an unfair level.
2. Proper allocation requires certain data regarding sales, costs, and assets. The
accounting and cost system might not give such needed details.
3. Values and valuations of assets, particularly with regard to jointly used assets,
might give rise to difficulties and misunderstandings.
4. Excessive preoccupation with financial factors due to constant attention to
ratios and trends might distract management’s interest from technical and other
responsibilities. Product research and development, managerial development
and good customer and public relations are just as important in earning a greater
profit and assuring continuous growth.
5.Managers may be influenced to make decisions that are not the best for the
long-run interests of the firm
MIS
Management information system (MIS) refers to the processing of information
through computers and other intelligent devices to manage and support
managerial decisions within an organization.
Various advantages of MIS are:
 MIS facilities integration of specialized activities by keeping each department
aware of the problem and requirements of other departments. It connects all
decision centres in the organization.
 Decentralization of authority is possibly when there is a system for monitoring
operations at lower levels.
 MIS change the larger amount of data in to summarize form and there by
avoids the confusion which may arise when managers are flooded with detailed
facts and serves as a link between managerial planning and control. It improves
the ability of management to evaluate and improve performance.
 MIS assembles, process, stores, Retrieves, evaluates and disseminates the
information.
MIS
Various disadvantages of MIS are:
 Though information technology may have made communication quicker,
easier and more convenient, it has also bought along privacy issues. From
cell phone signal interceptions to email hacking people are worried of their
private information becoming public.
 Industry experts believe that the internet has made job security a big issue as
since technology keeps on changing with each day. This means that one has
to be in a constant learning mode, if he or she wishes for their job to be secure.
 Inadequate analysis:
problems, needs and constraints aren’t understood in the early stages.
 Lack of management involved in the design:
wrong expectations of a new system /no-one understands the system
RATIO ANALYSIS
The term ‘Analysis’ refers to rearrangement and simplification of data given in the
financial statement. Financial analysis refers to an assessment of the viability,
stability and profitability of a business, or Company. It is a process of examining
and comparing financial data.
Various advantages of Ratio Analysis are:
 Ratio analysis is an extremely device for analysing the financial statements. It
helps the bankers, creditors, investors, shareholders etc. in acquiring enough
knowledge about the profitability and financial health of the business.
 Accounting ratio simplifies and summarises a long array of accounting data
and makes them understandable.
 Accounting ratios are very helpful in forecasting and the plans for the future.
 Current year’s ratios are compared with those of the previous years and if some
weak spots are thus located, remedial measures are taken to correct them
 With the help of ratio analysis comparison of profitability and financial
soundness can be made between one firm and another in the same industry.
RATIO ANALYSIS
Various disadvantages of ratio analysis :
 Accounting ratios are calculated on the basis of given data given in profit and
loss account and balance sheet. Therefore, they will be only as correct as the
accounting data on which they are based. For example, if the closing stock is
over-valued, not only the profitability will be overstated but also the financial
position will appear to be better.
 Circumstances differ from firm to firm hence no single standard ratio can be
fixed for all the firms against which the actual ratio may be compared.
 There may be different accounting policies adopted by different firms with
regard to providing depreciation, creation of provision for doubtful debts so
ratio analysis is not useful here too
 Price level over the year goes on changing, therefore, the ratios of various years
can not be compared.
 Ratio Analysis is subjected to bias of the expert and may not be reliable too.
PERT & CPM
PERT is a method of analysing the tasks involved in completing a given project,
especially the time needed to complete each task, and to identify the minimum
time needed to complete the total project. CPM was developed for the purpose of
scheduling.
Various advantages of PERT & CPM are:
• Simple to understand and use
• Show whether the project is on schedule; or behind/ ahead of the schedule
• Identify the activities that need closer attention (critical)
• Determine the flexibility available with activities
• Show potential risk with activities (PERT)
• Provide good documentation of the project activities
• Help to set priorities among activities and resource allocation as per priority
PERT & CPM
Various disadvantages of PERT & CPM are:
• Demand clearly defined and stable activities
• Precedence relationship should be known in advance
• Overemphasis on Critical path
• Activity time estimates are subjective
• Cost of crashing an activity may not be linear
 Complicated projects involving many activities and suppliers can make this
prediction difficult
 charts can be complicated and confusing, with hundreds or even thousands of
tasks and dependency relationships. Diagrams can be expensive to develop,
update and maintain.
SELF CONTROL
Self-control is a cognitive process that is necessary for regulating one's behaviour
in order to achieve specific goals. Self-control, an aspect of inhibitory control , is
the ability to regulate one's emotions, thoughts, and behaviour in the face of
temptations and impulses.
Various advantages of self control are :
 When we practice self-control first, it becomes easier to make decisions
because our minds switch to simpler processes.
 When self-control was measured against talent over time the ones that
practiced grit rather than relying on talent came out as more successful.
 Self-control allows us to focus our energies on the task at hand and tune out
distractions which make sure we perform to the best of our abilities. It also
allows us to kick those negative thoughts out of our head.
SELF CONTROL
Various Disadvantages of Self Control are :
 There is strict control exercised by the managers on the employees so
employees may nit be motivated to complete the work in proper span of time
 No proper self control means no proper authority granted to employees which
will not allow to enhance the decision making process
 Shifting of responsibility leads to problem of blame game here between
employer and employees
 Not under the direct authority of the superior
MBO
Management by objectives (MBO) is a management model that aims to improve
performance of an organization by clearly defining objectives that are agreed to by
both management and employees. Having a say in goal setting and action plans
should ensure better participation and commitment among employees.
Various Advantages of MBO are:
 The need to clarify objectives is stressed and suggestion for improvement is
obtained from all levels of management.
 All managers have a clear idea of the important areas of their work and of the
standards required.
 The performance of staff can be assumed and their needs for improvement
highlighted.
 Greater participation may improve morale and communication.
 It makes individuals more aware of organisational goal.
 It helps to focus on KRA’s
 It helps in planning and optimum use of resources
MBO
Various Disadvantages of MBO are :
 It takes a few years to be effective.
 Some companies always tend to raise goals. If these are too high, employees
become frustrated.
 Appraisals are sometimes made on personality traits rather than on
performance.
 Some employees do not want to be held responsible and goals forced upon
them may lead to ill-feeling.
 There is considerable paperwork involved and it takes too much of the
manager’s time.
 The emphasis is more on short-term goals. Since the goals are mostly
quantitative in nature, it is difficult to do long-range planning
 MBO can only succeed if it has the complete support of the top management.
DIRECT OBSERVATION &
SUPERVISION
It is the oldest technique of controlling the superior himself observes the
employees and their work . It helps to be in direct contact with his workers. Here
the supervisors get first hand information and he has better understanding with
the workers . It is more useful for a small scale business . It injects a certain
amount of discipline and commitment on the part of the subordinates .
THANK YOU