The Control Mechanism of Budget Planning in a Company

One of the most effective tools for managing business finances is budget planning and control. The preparation of the budget and the control of its fulfillment and deviations help in the way to set the economic objectives (both in the aspect of income, expenses, and investments) and monitor that the actions designed for its achievement are adequate to achieve it.

Setting Objectives

Budgeting requires us to set objectives and assign the resources available to the organization to achieve them. Having data from previous years is usually relatively simple to prepare the budget depending on whether you choose a continuous line or decide to change the direction of the organization.  Budgets can be static or dynamic. The static ones are those that cannot be modified when deviations occur, while the dynamic ones are susceptible to this modification. Both can coexist within the same organization, for example, you can assign an item of general expenses that you are not willing to expand, while the investment chapter can vary depending on the results that are obtained during the year.

Budget Control

Every budget planning process requires a control mechanism to be effective. It is of little use to consider budget planning if you do not have mechanisms that allow you to see the evolution of your activity or actions and detect the deviations that are taking place on the projected. The control systems used must reveal the origin and cause of the deviations, in order to correct them and avoid repeating errors. It is important to feed your control systems with updated data. In this way, you can carry out this control in real-time and permanently. The success of a good control system not only depends on its effectiveness in detecting these deviations but also on doing it as soon as possible.

Carrying Out the Plan

Once the budget is set and begins to be applied, the activity must be controlled and the results of the activity verified to detect the degree to which the expectations are being met. For this, you must be clear about what information, you need to analyze to carry out these controls and how often you must apply these controls. Another important aspect is to establish the key activities that are especially relevant to achieve those objectives, either because they are more sensitive to deviations or even because there are other activities that depend on their execution.

Logically, the controls of these activities have to be carried out with greater rigor and the deviations that are detected in them are of greater importance, so you must put special vigilance into it. It is inevitable that deviations appear, and it is impossible for planning to be 100% fulfilled, and the fact of detecting them in time will allow you more effective management of your resources.

These deviations can be both positive and negative for the activity, and you must be able to reallocate those resources to transfer them from those activities where the deviations are in your favor to those in which deficiencies are detected.

Conclusion

Let us not lose sight of the fact that the budget is a way to capture strategic planning of your activity for that period, so it is important to detect where that planning is fulfilled and where it is not, with the ultimate objective of reaching the balance that serves to achieve the goals of the proposal. Planning and control are systems that feedback into each other, in such a way that the information coming out of one becomes the input of the other and so on. This bidirectionality is what serves to debug errors and adapt business strategies to achieve the objectives set. Without control, there is no management, and without management, there can be no company.

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