Budget, The need to Monitor and Control a

Monitoring and controlling a budget is an essential activity if effective and efficient financial decisions are to be made. The need for this activity can include the following:
• To improve financial decision making because suitable data is available on which to make those decisions.
• Understanding financial performance, especially the current position of the budget (income and expenditure) in relation to a planned budget. By keeping a good track of the budget over time this provides a measure of if the budget is on course, ahead of budget or below budget. Better informed decisions can be made where data and information are accurate and timely.
• Identify if there is any significant variation in the different budget lines and the overall budget. A small variation is typically to be expected during any part of a year, however, if there is a trend developing and there appears to be any significant variation, such as excessive expenditure, within a budgeted area then the timeliness of monitoring a budget might allow for adjustments to be made, for example, by addressing inefficiencies or curtailing some activities to reduce expenditure, to reduce the variation before a serious issue arises. Where unforeseen additional income has been generated then this would also allow for a review to take place to better understand why the (pleasant) variation has occurred and to investigate whether further gains can be made.
• Carrying out a planned and regular review of the budget can help to reduce the likelihood of overspending, or underspending if there is an investment requirement. A review will be able to consider whether working practices could be made more efficient with improved productivity, as well as taking the opportunity to reduce, and avoid unnecessary, expenditure. Reinforcing good financial discipline can eb an outcome of a regular review, helping to rescue complacency in budgetary control.
• Achieve performance targets: Each department, or budget line, will typically have an expenditure and income target, so regular monitoring of these will help identify if they are on course to achieve the desired performance measure. By consistently monitoring and tracking financial progress through the year this can help to stay focused on outcomes and allows for active and considered adjustments to be made. Ideally this will eliminate any panic situation towards the end of a financial year if ineffective or no monitoring and budget control has previously taken place.
• An improvement in financial performance may occur through regular monitoring and control of a budget. Being proactive can encourage managers and individuals to make the most of what they have at all times. This can lead to unforeseen cost savings, innovations for growth and efficiencies, as well as increasing a revenue stream. All of these can help grow a business and improve overall finances.
• Planning for future activities and growth can result from good budget monitoring and control. Having a well-informed understanding of the financial situation will contribute towards providing a more focused vision for the future. This can provide more confidence in developing a longer-term strategic plan and its likely success.
• Having a successful, sustainable and viable organisation relies on many factors, but effective monitoring and control of a budget is a key factor in achieving these.