Budgetary Control

Budgetary control compares actual project expenditure with budgeted expenditure. Actions are taken to correct deviations.
  • Budget: A budget is a statement of future expenditures for planning and controlling project's financial resources. It focuses on input control. Activities are controlled before the operations start.
Types of Budgets
Project Budgets can be of three types:
  1. Operating Budgets: They consist of plans for the use of raw materials, goods and services. They specify quantity and costs.
    • A unit becomes a responsibility center if a single manager is responsible for its operations. Based on the concept of responsibility, operating budgets can be a cost center.
    • Cost center has its own budget and the unit manager is responsible for controlling costs. Cost centers are concerned with input costs.
  2. Financial Budgets: They consist of plans for spending and mobilizing financial resources. They ensure that project funds will be available when required. They can be :
    • Cash Budget: It estimates cash flow on a daily or weekly basis. Surpluses and shortfalls of cash can be managed by this budget.
    • Capital Expenditure Budget: It is a plan for investment in capital assets, such as building, equipment, etc. It involves sizable financial commitment over project period.
    • Master Budget: It integrates all operating and financial budgets of the project.
    • Programme Budget: (PPBS: Planning, Programming Budgeting System):
      • PPBS is Planning, Programming Budgeting System is also known as Programme Budgeting. In Economics, it is known as Output Budgeting.
      • PPBS was first introduced n US Department of Defence in 1961. In 1966, the US government adopted PPBS in all its departments and agencies. At present, PPBS is widely used by many countries and organization.
      •  PPBS allocates budget in terms of programmes and projects. Cost allocation is related to outputs rather than inputs. Traditional budgeting allocated costs according to line items, such as salaries, maintenance, equipment etc. PPBS allocates budget according to programmes which consist of a bundle of projects.
      • PPBS is based on system analysis.
It consists of four steps:
  1. Goals and priorities of each programme or project are clearly identified.
  2. Success of each programme or project in achieving its goals is reviewed.
  3. Costs of each programme or project till the end of its life.
  4. Each programme or project is selected for continuation or rejection on the basis of its effectiveness in achieving its objectives.
    • Projects make up the programme. PPBS approach is useful in project management. It is mainly needed for allocating resources to projects. It is an important tool for decision making regarding continuation or dropping of a project. It can also be used for project cost control.

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