Question

It is said that a budget helps in the delegation of authority and effective control. Explain this statement.

Answer 1

1. Delegation of Authority: Budgets enable the transfer of authority without sacrificing control. All employees are allowed to participate. Koontz and O’Donnell state that “reduction of plans to definite numbers forces a kind of orderliness that permits the managers to see clearly what capital will be spent by whom, where, and at what expense, revenue, or units of physical input or output his plans will involve.” After determining this, the management can more freely assign authority to carry out the plan within the budgetary constraints. In some ways, budgeting is a democratic approach to management.
2. Effective Control: One crucial managerial control instrument is the budget. “Budgetary control” refers to the use of budgets for performance assessment and management. By concentrating attention on departures from budgeted targets, budgetary management enables “control by exception.” Budgets provide precise criteria for analysing differences between actual performance and budgetary targets, as well as for evaluating actual results.