Performance Management And Budgetary Control Accounting Essay


Budgetary control is an important mechanism for the managers to ensure the accountability of the company's operation. Nowadays, budgetary control is widely used in various companies. We should change the stereotype that only big companies involved in substantial investment and large quantities of sales need budgetary control. Actually, every medium and small sized company needs budgetary control to help make plans and improve the overall performance. The use of budgetary control in performance management is nowadays becoming increasingly important.

In many organizations, budget preparation is often simplified as an on-off action based on the extrapolation and additional process. For the budget approval, it is even simpler. Without conducting a study or carrying out a research, arbitrary budget cuts are done by subjective judgement. This would make the budget control totally lose its effect, with its original purpose distorted. So we should try to prompt the use of budget control to help bring out a better performance of the companies.

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Budgetary control has an intricate relationship with performance management. Performance management includes activities to ensure that goals are consistently being met in an effective and efficient manner (definition from Wikipedia). Armstrong and baron (1998) defined performance management as "A strategic and integrated approach to increasing the effectiveness of organizations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors". Budgetary control is a key element in the performance management. With the help of budgetary control, which can translate managers' strategic plans into quantitative plans, the performance can be rated or measured. Based on the recorded results, managers can compare the actual results with budgeted plans and investigate the variations. Then after considering the feedback and changed conditions, managers may analyze the cause of these variations, get some tips for the performance management and make a new plan which can help improve the performance.

Budgetary control can improve the performance. The premise is that the budge should be properly made. If the budget is too high, then employees would always have an unattainable feeling which would be an adverse for the managers to motivate the employees to fight for the goal. On the other hand, if the budget is too low, employees would generally lose the morale to reach a higher level. So a proper budgetary control is very important for the managers to bring out the best performance of all the employees.

One positive effect of the budgetary control is that if the budget always stays at a level slightly higher than the actual results, it would constantly serve as a booster to give motivation to the employees. With a proper budgetary control and performance management, it is possible to get all the employees to reconcile personal goals with organisation goals. They can be motivated to turn around marginal business and increase productivity and profitability for the organisation (from Wikipedia).

Budget is primarily a means of control. The preparation of the budget control is actually the first step, which involves the drawing up of the standards. As budgetary control uses quantified ways to show the management standards, it has the property of easy assessment, and the effectiveness of the performance of the employees can also be evaluated by these standards. So it can serve as a way to motivate the employees to get a better performance for the individual consideration of career promotion. One step of the budgetary control is to find out the variance and adopt certain steps to adjust it. This kind of adjustment can help the performance to reach a higher level. The goal of finding out the variance is to correct or eliminate it. After several cycles of making budgetary control, the managers can learn to make the budgets more properly. There is no doubt that budgetary control can help to improve the plans including setting goals and making standards. However, the greatest value of budget lies in its contribution to the improvement of the coordination and control. When budgetary control is specifically made to cater to every department in one organization, then these departments can coordinate and carry out a better performance. At the same time, as the deviation from the expected results can be identified and assessed easily, the budgetary control also lays the foundation for the corrective measures in the controlling work. Therefore, budgetary control can help to make better planning and coordination, which are the basic purposes of the preparation of the budget.

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The most widely used control method in the management control is budgetary control. Budgetary control can clearly indicate the close ties between planning and control. The concept of budget in the Western world means a demonstration of the plan in the form of numbers, not just a reflection of the amount of money. The preparation process of the budgetary control is the beginning of the planning process, and the final outcome of the budget indicates the end of the planning process. A good budgetary control is a good plan that can integrate the human resources, capital and many other factors together. It also can serve as a way to increase motivation, productivity, growth, performance and profitability.

If you want to render the budgetary control the function of guiding and constraining the management personnel at every level of the company's structure, the budget must reflect the real conditions of the company.

Only when the budgetary control which also serves as a plan is set, coordinated and fulfilled according to the actual needs of the specific departments in the company, then it may be possible to carry out a better performance of the subordinary departments and to serve a role of better control.

Budgetary control is a way to abbreviate various plans to exact numbers, so that executives can clearly see who is going to use the funds, where will the funds be used, and can get to know the cost plans, spending plans, revenue plans, outcome plans as well as the plans of productivity. After the executives have identified these facts, then he can render the authorities to his subordinates in order to carry out the plans within the budget control.