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executives in charge of major functions of business and includes the sales manager, the production manager, the treasurer and the controller, etc.work together to prepare and supervise budgets in the organisation. This is called budget committee.
Establishment of a system of management in an organisation by which the company can have proper control on its working through budgets is called budgetary control system. It has many essential components like : 1. budget manual, 2. responsibilities, 3. budget key factor and budget time 4. clear organisation chart 5. proper work system regarding working of the organisation.
It is a system of budgeting, where all activities are re-evaluated each time a budget is set. It is superior to traditional method, as we are evaluating each iterm and finding its rationale. As against zero base budgeting, in traditional budgeting, a budget is prepared just on the basis of last year's data. We try to add a little bit in the last year's figures as per this year's projections in traditional budget.
In this system, there is a budget, which is linked to performance. It involves evaluation of performance of an organization in the context of both specific as well as overall objectives of the organization.
It is a consolidated budget prepared by combining the summaries of all the functional budgets
What are the dangers of budgeting ? It creates inflexibility There is a possibility of over or under budgeting (both the situation create problems) budget creates rigidity Budgets takes away attention from main objectives People give more importance to budget (not to the ultimate goals of the organisation ).
Effective budgeting ? The budget should be related to the goals of the organisation. Budget should be able to link the performance to the mission and vision of the organisation There should be flexible budgeting budget should be formulated by employee participation Budget should be actually implemented Budget limiting factors must be specified
How else can control be maintained ? Personal observation Guidance Feedback Statistical Data analysis Ratio analysis Break Even Analysis Analysis of financial data