3.1 Controlling budgets
Controlling the budget involves the regular and continued comparison of actual performance against that of the standard set in the budget. This ensures that the business is aware of its financial goals, whether it is meeting those goals, and, if not, where to look to find the problem area.
When reviewing the budget performance of a business any significant variances between budgeted figures and actual figures need to be identified. This will, hopefully, enable the cause of variance to be ascertained and corrective action to be taken. In order to achieve budgetary objectives it is critical that the early detection of variances is a priority. It is often the case that small variances become large headaches quickly, as the problem compounds over the budget period.
Figure 2 The process for budgetary control
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