2. Budgetary System
• Budgetary system comprises of two components:
budget planning and budgetary control.
• Budgetary Planning Definition: process of
preparing detailed, short term plans known as
Budget for the functions, activities, and
departments of the organisation thus converting
the long term corporate plan into action.
3. What is a budget?
A financial plan that sets goals and allocate
resources for the coming period.
“A financial and or quantitative statement
prepared and approved prior to a defined
period of time, of the policy to be pursued
during that period for the purpose of attaining
a given objective”
- Chartered Institute of Management Accountants (CIMA)
4. Corporate Planning
A comprehensive and systematic process of
strategic long-term planning incorporating the
resources and capability of an organization
taking the environment into consideration.
C. P. involves series of steps which is
itemized as follows:
1) SWOT Analysis
2) Planning
3) Implementation
5. SWOT Analysis:
• Identification of key internal strength and
weaknesses, Opportunities and Threats
• Critical examination of the company’s external
environment in terms of current trends.
• Forecast of alternative consequences to the
company of pursuing its current policies in the
light of external situations.
• These alternatives can be seen in terms of
risk, trends and opportunities.
6. C. P. Steps contd.
• The company’s objective is reviewed and revised
in the light of and thereby capitalizing on the
strengths and overcoming weaknesses.
• Agreement and implementation of the revised
plans for the achievement of the objectives set
and consolidation into a corporate plan.
Comparing CP and Budgetary System
C.P. is long term in nature while budgetary system
is short term in nature.
C.P. deals primarily with planning while budgetary
system relates to both planning and control.
7. Why budget?
• It compels management to plan properly the activities of an
organization by looking ahead, setting targets and
anticipating problems.
• To communicate plan of action to those affected by the
budget.
• Development of budgets help in coordinating the efforts
and activities of the different segments of the organization
so as to ensure that the objective of the organization as a
whole is in line with the objectives of the subunits, thereby
reducing sub-optimality to the barest minimum.
• It makes possible the comparison of actual result with plan
by establishing a system of budgetary control.
• It motivates employees to put in their best to ensure that
the set target is achieved.
8. Budgetary Control
• Control or plans by comparing actual result
against targeted plans to identify variances upon
which corrective measures could be taken.
• “the establishment of budgets relating the
responsibilities of executives to the requirements
of a policy, and the continuous comparison of
actual with budgeted results, either to secure by
individual action the objectives of that policy or
to provide a firm basis for its revision”.
– Chartered Institute of Management Accountants
9. Budgetary Control Principles
• Establishment of a target of performance, which
coordinates all the activities of the business.
• Accumulation of actual cost as soon as they
become historic.
• Comparison of actual performance with target.
• Calculation of variances, that is, the differences
between the actual performance and the target
and analyzing the reasons for them.
• Taking remedial action where necessary to rectify
the situation.
