- It is a system which uses budgets as a means for controlling entire aspect of organisational activities or parts of the same. Budgets are usually prepared for the whole organisation, for projects, for procuring new machinery etc.
- Based on these budgets the performance standards are set against which the actual performance is compared.
- It there are variations between the two necessary corrective actions can be taken.
- They are prepared for allocating resources in various departments and controlling the same.
- Every organisation operates in scarcity of resources and through budgetary control the organisation tries to optimise the same.
- It generates the inflexibility in the organisation due to rigid prescription about how resources should be allocated unless flexibility is provided the whole exercise of budgetary control becomes useless particularly in the dynamic business environment.
- Sometimes people tend to be emphasising on budget figures rather than the results to be achieved. This often hampers the organisational efficiency.