1.

INTRODUCTION
Budget and Budgeting are concepts traceable to the Bible days, precisely the days of Joseph in Egypt. It was reported that nothing was given out of the treasure without a written order. History has it that Joseph budgeted and stored grains which lasted the Egyptians throughout the seven years of famine. Budgets were first introduced in the 1920s as a tool to manage costs and cash flows in large industrial organizations. John (1996), states that it was during the 1960s that companies began to use budgets to dictate what people needed to do. In the 1970s performance improvement was based on meeting financial targets rather than effectiveness companies then faced problems in the 1980s and 1990s when they were not willing to spend money on innovations in order to stay with the rigid budgets, they were no longer concerned about how customers were being treated, only meeting sales targets became essential. It is a requirement as per Serena Group of Hotels Finance policy that each unit has got to prepare budgets from where financial statements prepared on a monthly basis can be compared with. However effective budgetary control has been a problem. What is forecasted monthly is not actually met. In business organizations, budgeting are formally associated with the advent of industrial capitalization for the revolution of the eighteenth century, which presented a challenge for industrial management.However, budgeting at the early state of its development was concerned with preparing and to permit correct performance evaluation and consequently rewards. Information that management accounting control system helps managers, by monitoring companys changing environmental

circumstances, to compare opportunities and threats in the market so that they can obtain added value against competitors because it is important in facilitating the preparation of budgets, since budgeting and accounting are closely related (Bromwish,1990).Budgets are known to have an important role to transmit the expectation of top management to lower levels. According to Bremser (1988) budgets are used to communicate top managements expectations to managers and employees. According to Lucey. (1993), it is a quantitative expression of plan of action prepared in advance of the period to which it relates, expressed in money terms approved prior to the period. Lucey (1993) further urges that performance is influenced by many factors which includes planning and coordination, clarification of authority and responsibility, effective communication both internal and external, control of resources available, both human and non human and motivation of both the lower and middle management. If the actual numbers delivered through the financial year turn to be close to the budget, this actually demonstrates that the organization management understand its business and has been successfully driving it in the direction they had planned. On the other hand, if the actual results diverge wide from the budget, this sends out an out of control signal. For this reason, budget based control means managers evaluation according to budgetary goals. In this context, budgeting benefits and its possible negative effects on attitudes and behaviors of managers on performance are still among the subjects of strategic management control systems that are being researched presently nearly all large businesses reforecast their forecast their activities, as months pass, the actual income achieved and expenses incurred can be compared to the budget and forecast.

2. Rationale of the study:

For the effective running of a business , management must know: Where it intends to go i.e. Organisational Objectives How it intends to accomplish its objectives i.e. Plans Whether individual plans fit in the overall Organisational Objectives i.e. Coordination Whether operations conform to the plan of operations relating to that period i.e. Control Budgetary control is the device that a company uses for all these purposes. The budgetary control helps the managers in many ways like reduction of cost, ensures maximization of profits through cost control and optimum utilization of resources, guides management in research and development, ensures economy in working, helps to adopt the principles of standard costing, inculates the feeling of cost consciousness among workers, a powerful instrument used by business houses for the control of their expenditure (infact it provides a yardstick for measuring and evaluating the performance of individuals and their departments). Due to the above stated reasons and as budgetary control is also a part of curriculum we have choosen to make a project in budgetary control.Overall the rationale behind choosing this topic is to analyze the ways of measuring the effectiveness and efficiency of the management to achieve the set goals.

3. Objectives OF THE STUDY

3.1 To know Meaning of Budget, Budgeting and Budgetary Control 3.2 To know Objectives of Budgetary Control 3.3 To know Advantages and Limitations of Budgetary Control 3.4 To know Scope and Techniques of Budgetary Control 3.5 To know Requisites for Effective Budgetary Control 3.6 To know Organization for Budgetary Control 3.7 To know Types of Budgets 3.8 To know Different Steps in Preparation of Budgets

3.1 MEANING OF BUDGET, BUDGETING AND BUDGETaRY CONTROL

Meaning of Budget:
The Chartered Institute of Management Accountants, England, defines a 'budget' as under: "A financial and/or quantitative statement, prepared and approved prior to define period of time, of the policy to be pursued during that period for the purpose of attaining a given objective." According to Brown and Howard of Management Accountant "a budget is a predetermined statement of managerial policy during the given period which provides a standard for comparison with the result actually achieved." An analysis of the above said definitions reveal the following essentials of a budget: (1) It is prepared for a definite future period. (2) It is a statement prepared prior to a defined period of time. (3) The Budget is monetary and I or quantitative statement of policy. (4) The Budget is a predetermined statement and its purpose is to attain a given objective.

Budgeting:

The act of preparing budgets is called budgeting. In the words of Batty, the entire process of preparing the budgets is known as budgeting.

Budgetary Control:
Budgetary Control is the process of establishment of budgets relating to various activities and comparing the budgeted figures with the actual performance for arriving at deviations, if any.

Accordingly, there cannot be budgetary control without budgets. Budgetary Control is a system which uses budgets as a means of planning and controlling. According to I.C.M.A. England: Budgetary control is defined by Terminology as the establishment of budgets relating to the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with the budgeted results, either to secure by individual actions the objectives of that policy or to provide a basis for its revision. Brown and Howard defines budgetary control is "a system of controlling costs which includes the preparation of budgets, coordinating the department and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability." The above definitions reveal the following essentials of budgetary control: (1) Establishment of objectives for each function and section of the organization. (2) Comparison of actual performance with budget. (3) Ascertainment of the causes for such deviations of actual from the budgeted performance. (4) Taking suitable corrective action from different available alternatives to achieve the desired objectives.

3.2 Objectives of Budgetary Control

The following are the objectives of a budgetary control system: 1. Planning: A budget provides a detailed plan of action for a business over definite period of time. Detailed plans relating to production, sales, raw material requirements, labour needs, advertising and sales promotion performance, research and development activities, capital additions etc., are drawn up. By planning many problems are anticipated long before they arise and solutions can be sought through careful study. Thus most business emergencies can be avoided by planning. In brief, budgeting forces the management to think ahead, to anticipate and prepare for the anticipated conditions. 2. Co-ordination: Budgeting aids managers in co-ordinating their efforts so that objectives of the organisation as a whole harmonise with the objectives of its divisions. Effective planning and organisation contributes a lot in achieving coordination. There should be coordination in the budgets of various departments. For example, the budget of sales should be in coordination with the budget of production. Similarly, production budget should be prepared in co-ordination with the purchase budget, and so on. 3. Communication: A budget is a communication device. The approved budget copies are distributed to all management personnel who provide not only adequate understanding and knowledge of the programmes and policies to be followed but also give knowledge about the restrictions to be adhered to. It is not the budget itself that facilitates communication, but the vital information is communicated in the act of preparing budgets and participation of all responsible individuals in this act. 4. Motivation: A budget is a useful device for motivating managers to perform in line with the company objectives. If

individuals have actively participated in the preparation of budgets, it acts as a strong motivating force to achieve the targets. 5. Control: Control is necessary to ensure that plans and objectives as laid down in the budgets are being achieved. Control, as applied to budgeting, is a systematized effort to keep the management informed of whether planned performance is being achieved or not. For this purpose, a comparison is made between plans and actual performance. The difference between the two is reported to the management for taking corrective action. 6. Performance Evaluation: A budget provides a useful means of informing managers how well they are performing in meeting targets they have previously helped to set. In many companies, there is a practice of rewarding employees on the basis of their achieving the budget targets or promotion of a manager may be linked to his budget achievement record.

3.3 Advantages AND LIMITATIONS of Budgetary Control

The advantages of budgetary control may be summarized as follows: (1) It facilitates reduction of cost. (2) Budgetary control guides the management in planning and formulation of policies. (3) Budgetary control facilitates effective co-ordination of activities of the various departments and functions by setting their limits and goals. (4) It ensures maximization of profits through cost control and optimum utilization of resources. (5) It evaluates for the continuous review of performance of different budget centers.

(6) It helps to the management efficient and economic production control. (7) It facilitates corrective actions, whenever there is inefficiencies and weaknesses comparing actual performance with budget. (8) It guides management in research and development. (9) It ensures economy in working. (10) It helps to adopt the principles of standard costing. Limitations of Budgetary Control: Budgetary Control is an effective tool for management control. However, it has certain important limitations which are identified below: (1) The budget plan is based on estimates and forecasting. Forecasting cannot be considered to be an exact science. If the budget plans are made on the basis of inaccurate forecasts then the budget programme may not be accurate and ineffective. (2) For reasons of uncertainty about future, and changing circumstances which may develop late on, budget may prove short or excess of actual requirements. (3) Effective implementation of budgetary control depends upon willingness, co-operation and understanding among people reasonable for execution. Lack of co-operation leads to inefficient performance. (4) The system does not substitute for management. It is mere like a management tool. (5) Budgeting may be cumbersome and time consuming process.

3.4 Scope and Techniques of Budgetary Control

Scope:
(1) Budgets are prepared for different functions of business such as production, sales etc. Actual results are compared with the budgets and control is exercised. (2) Budgets have a wide range of coverage of the entire organization. (3) Budgetary control is concerned with origin of expenditure at functional levels. (4) Budget is a projection of financial accounts.

Technique:

(1) Budgetary control is exercised by putting budgets and actual side by side. Variances are not normally revealed in the accounts. (2) Budgetary control system can be operated in parts. For example, Advertisement Budgets, Research and Development Budgets, etc. (3) Budgetary control of expenses is broad in.

3.5 Requisites for Effective Budgetary Control

The following are the requisites for effective budgetary control: (1) Clear cut objectives and goals should be well defined. (2) The ultimate objective of realising maximum benefits should always be kept uppermost. (3) There should be a budget manual which contains all details regarding plan and procedures for its execution. It should also specify the time table for budget preparation for approval, details about responsibility, cost centers etc. (4) Budget committee should be set up for budget preparation and efficient execution of the plan. (5) A budget should always be related to a specified time period. (6) Support of top management is necessary in order to get the full support and co-operation of the system of budgetary control. (7) To make budgetary control successful, there should be a proper delegation of authority and responsibility. (8) Adequate accounting system is essential to make the budgeting successful. (9) The employees should be properly educated about the benefits of budgeting system. (10) The budgeting system should not cost more to operate than it is worth. (11) Key factor or limiting factor, if any, should consider before preparation of budget. (12) For budgetary control to be effective, proper periodic reporting system should be introduced.

3.6 Organization for Budgetary Control

In order to introduce budgetary control system, the following are essential to be considered for a sound and efficient organization. The important aspects to be considered are: 1. Organisation Chart 2. Budget Center 3. Budget Officer 4. Budget Committee 5. Budget Manual 6. Budget Period 7. Key Factor

3.7 Types of Budgets

As budgets serve different purposes, different types of budgets have been developed. The following are the different classification of budgets developed on the basis of time, functions, and flexibility or capacity. (A) Classification on the basis of Time: 1. Long-Term Budgets 2. Short-Term Budgets 3. Current Budgets (B) Classification according to Functions: 1. Functional or Subsidiary Budgets 2. Master Budgets (C) Classification on the basis of Capacity: 1. Fixed Budgets 2. Flexible Budgets

(A) Classification on the Basis of Time 1. Long-Term Budgets: Long-term budgets are prepared for a longer period varies between five to ten years. It is usually developed by the top level management. These budgets summarise the general plan of operations and its expected consequences. Long-Term Budgets are prepared for important activities like composition of its capital expenditure, new product development and research, long-term finance etc. 2. Short-Term Budgets: These budgets are usually prepared for a period of one year. Sometimes they may be prepared for shorter period as for quarterly or half yearly. The scope of budgeting activity may vary considerably among different organization. 3. Current Budgets: Current budgets are prepared for the current operations of the business. The planning period of a budget generally in months or weeks. As per ICMA London, "Current budget is a budget which is established for use over a short period of time and related to current conditions." (B) Classification on the Basis of Function 1. Functional Budget: The functional budget is one which relates to any of the functions of an organization. The number of functional budgets depends upon the size and nature of business. The following are the commonly used: (1) Sales Budget (2) Purchase Budget (3) Production Budget (4) Selling and Distribution Cost Budget (5) Labour Cost Budget (6) Cash Budget (7) Capital Expenditure Budget 2. Master Budget: The Master Budget is a summary budget. This budget encompasses all the functional activities into one harmonious unit. The ICMA England defines a Master Budget as the summary budget incorporating its functional budgets, which is finally approved, adopted and employed.

(C) Classification on the Basis of Capacity 1. Fixed Budget: A fixed budget is designed to remain unchanged irrespective of the level of activity actually attained. 2. Flexible Budget: A flexible budget is a budget which is designed to change in accordance with the various level of activity actually attained. The flexible budget also called as Variable Budget or Sliding Scale Budget, takes both fixed, variable and semi fixed manufacturing costs into account.

3.8 Different steps in preparation of budgets

1. Definition of objectives A budget being a plan for the achievement of certain operational objectives, it is desirable that the same are defined precisely. The objectives should be written out The areas of control demarcated And items of revenue and expenditure to be covered by the budget stated. This will give a clear understanding of the plan and its scope to all those who must cooperate to make it a success. 2. Location of the key (or budget) factor There is usually one factor (sometimes there may be more than one) which sets a limit to the total activity. For instance, in India today sometimes Non availability of power does not allow production to increase inspite of heavy demand. Similarly, lack of demand may limit production. Such a factor is known as key factor. For proper budgeting, it must be located and estimated properly. 3. Appointment of controller Formulation of a budget usually required whole time services of a senior executive he must be assisted in this work by a Budget Committee, consisting of all the heads of department along with the Managing Director as the

Chairman. The Controller is responsible for coordinating and development of budget programmes and preparing the manual of instruction, known as Budget manual. The Budget manual is a schedule, document or booklet which shows, in written forms the budgeting organization and procedures. The manual should be well written and indexed so that a copy thereof may be given to each departmental head for guidance. 4. Budget Period The period covered by a budget is known as budget period. There is no general rule governing the selection of the budget period. In practice the budget committee determines the length of the budget period suitable for the business. Normally, a calendar year or a period coterminous with the financial year is adopted. The budget period is then subdivided into shorter periods it may be months or quarters or such periods as coincide with period of trading activity. 5. Standard of activity or output For preparing budgets for the future, past statistics cannot be completely relied upon, for the past usually represents as combination of good and bad factors. Therefore, though results of the past should be studied but these should only be applied when there is a likelihood of similar conditions repeating in the future. Also, while setting the targets for the future, it must be remembered that in a progressive business, the achievement of a year must exceed those of earlier years. Therefore what was good in the past is only fair for the current year.

4. Conclusion
Budgetary control is a technique of managerial control in which all operations are planned in advance in the form budgets and actual results are compared with budgetary standards. An effective system of budgetary control manages to plan and control the use of resource in a systematic and logical manner. Financial objectives and constraints should be communicated to managers of budget centres and regular monitoring keeps management informed of progress towards objectives. Every company should do budgetary control to determine the targets of performance for each departments of the business as with known targets the management will work more effectively and which will ultimately leads to achievement of standard organizational goals. Also as budgetary control forms the bases for comparison , it naturally helps in adopting corrective measures. Since, budget cant be properly drawn up without considering all aspects ,there is usually good coordination when a system of budgetary control operates. Hence, each and every company should prepare a statement of budgets and have an effective system of budgetary control.

5. LIMITATIONS OF PROJECT:

No study is generally full proof; this report suffers from certain limitation with respect to information and analysis. Some of the limitations are:

Since the project had to be completed within one month and within this time period its very difficult to depend on large study. The main source of this project is relevant books, newspapers and internet. Relied on the secondary information available. Could not obtain primary information for my project which could be more authentic due to time constraint.