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What Is Budgetary Control?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 14 March 2014
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Budgetary control is the process of developing a spending plan and periodically comparing actual expenditures against that plan to determine if it or the spending patterns need adjustment to stay on track. This process is necessary to control spending and meet various financial goals. Governments rely heavily on budgetary control to manage their spending activities, and this technique is also used by companies as well as private individuals, such as heads of household who want to make sure they live within their means.

The first step in budgetary control involves defining the scope of the project or program and developing detailed cost estimates. A government might need to budget to build a new bridge, while something like a household budget covers household expenses for an indefinite period of time. This results in the creation of a budget, a document detailing how much money can be dedicated to different aspects of the project, based on projected expenses and income. The budget is a financial road map.

Using the budget as a baseline, work can begin. Periodically, accountants compare the budget with actual expenditures, and take note of any discrepancies. In bridge construction, materials costs might rise beyond the inflation accounted for in the original budget, creating a cost overrun. Conversely, a company might be able to save money on part of a project because it costs less than originally expected. All variations are noted and discussed. If they become extreme, budgetary control measures may come into play.

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One option is to change spending habits to make actual expenses mesh with the budget. For a household budget, for instance, a household might decide to drop television services to keep entertainment expenses within the amount allotted under the budget. This budgetary control uses austerities to meet financial goals and keep spending on track with the original budget.

In other cases, adjustments to spending behavior may not be possible. Instead, a revised budget is necessary. This can happen when inflation drives prices up so high that it is not possible to stay within the original budget, requiring a revision to more accurately forecast financial performance. Revisions may reveal the need for additional funding, forcing parties in charge of budgetary control to figure out where that money will come from. This could include taking on debt, cutting the scope of a project, or moving funds over from another project or program to keep it going. A company, for example, could partially remove funds from a department to push through completion of an important product.

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Discuss this Article

KoiwiGal
Post 3

@irontoenail - Short vs. long term is a good thing to keep in mind for every budget actually. Because it's just like a diet. You can't expect to keep up an unrealistic budget indefinitely, even if it seems great initially.

This is one thing that successful businesses are great at, and (within reason) it's worth looking at what they do if you're trying out some budgetary management at home.

irontoenail
Post 2

@MrsPramm - I think that's what's wrong with the government's budget as well, sometimes. They pull money from something small, which seems like it's non-essential, or even wasteful, like providing literacy programs for struggling teens, in order to provide for something new that seems pretty urgent, like building more prisons.

When, if they had paid attention to how cause and effect works in reality, they would have realized that spending money on something like the literacy program actually helps to keep the other parts of the budget under control and reduces the need for more prisons.

To be honest, I think the real problem is that the budget is made by people who are trying to win your vote in the short term, rather than people who are looking after you for the long term.

MrsPramm
Post 1

Really, if you are planning on implementing budgetary control system for your household, you need to be realistic for it to work. In my experience, what often happens is that someone will make the budget way too tight and unrealistic and when they can't keep to it, they just give up completely rather than adjusting.

For example, you need to remember that you're human and you will need to have entertainment and relaxation time and money. You can't just hope that your habit of paying for online video games is going to disappear as soon as you start following your new budget. You have to either work them in, or make a real commitment to stop spending money on them, with an alternative ready that you can do instead.

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