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4. Budget & Control

4. Budget & Control

A budget is a fundamental characteristic of a financial plan. A budget is merely a clear statement of all planned activities by a unit and the resources allocated to the execution of each.

These costs could be of any type, including actual monetary values expressed besides the various activities. Apart from stating the costs of the activities intended by the unit, it simultaneously works as a scale of preference. Allocation of resources in a budget is done preferentially and hence; there is a long-term angle to every budget. Some activities especially capital ones have to be executed in phases. If skill and accuracy are invested in the creation of a budget, then there is a strong possibility that financial planning and management by a particular unit will be sound and successful.

Some crucial issues when creating a budget include:

  • Goals and Objectives must be clearly stated: The goals and objectives of a unit are vital in the creation of the scale of preference angle of the budget. This is what determines the number of resources allocated to activities. Modifications of future budgets are dependent on the evolution of goals and objectives.

  • The responsibility of Personnel: For budgets to be correctly managed, key individuals must be responsible for different sectors. This way there will be proper monitoring of the indices that have been set by upper management.

  • Data and Accountability: Previous data generated from the past should form an excellent platform for predicting future trends. These trends also help recognise accountable personnel within a unit that can be key in enforcing financial plans.

Control

Control is an action that takes place during the progression of the financial plan. The actual results obtained during the execution of the financial plan are compared against the indices set by the organisation ensures that the plan is on track. Control ensures that the goals and objectives of the financial plan are met and understood precisely what is required to be achieved.

Control also becomes a security measure for the resources of the unit to ensure that they are disbursed in the planned directions. It also provides that the misappropriation of resources is limited or eliminated.

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