Budget as a fundamental axis in financial control

From 1820 the budget as an axis in financial control, when the public administration felt the need for an element that controlled public spending and guaranteed the efficient functioning of government activities. It was after the First World War that the private sector tested the benefits of using of the budget to obtain profit margins in operations, especially in the control of Expenses and destination resources.

Currently, the budget is considered an important part of the managerial and administrative process, the to plan, act and control. So it is never seen as an isolated element, it is usually linked to financial planning, so it is necessary to have a clear idea of ​​its role and its relationship with the management process.

It is an integrating and coordinating plan oriented towards the future, regarding the operations and resources of a company in A specific period is expressed in financial terms, in order to achieve the objectives set by management. Whose main objectives are:

• Establish an action guide.
• Allow to compare the real results with what was planned.
• Evaluate the performance and performance of the company.
• Optimize the use of economic resources.
• Work in advance in order to prevent events.

According to these objectives, the function of the budgets with the financial control of the organization. In this sense, there is a process called budgetary control that allows discovering the results of the that is done and compared with the corresponding budgeted data, to measure the achievements and differences.

Budget action items

• Integrator: It takes into account all areas of the company and the activities carried out in them.
• Coordinator: Plans are prepared and coordinated together for the entire company.
• Operations: Determines the course of operations, especially the income that is intended to be obtained with full knowledge of the expenses that will be incurred.
• Resources: Know future income and expenses to plan your allocation.

The budget planning process

It is a process that varies depending on the type of organization, however, it can be said that it consists of a sequential process of future actions and plans to achieve economic goals and objectives. It consists of the following phases:

• Definition of the general guidelines: objectives and general instructions are transmitted to each area so that they can design their plans and budgets.
• Preparation of plans, budgets and programs: Based on the guidelines received, each person in charge will prepare an action plan that must be followed in order to meet the general objectives. It is important that several alternatives be considered, considering possible variations that may occur in the environment.
• Negotiation: It is a process that goes from the lowest areas of the company to the highest, in order to consolidate these plans through interaction with the different hierarchical levels in the chain of command.
• Coordination: Process by means of which the coherence of the plans and programs is verified, in order to adjust the changes that were necessary and achieve a balance between the areas.
• Approval of budgets: Corresponds to the general management, in addition to taking into account establishing the necessary forecasts.
• Follow-up: Once the actions have been approved and launched, it is necessary to carry out a control of the evolution and compare it with what is planned. This will allow correcting in unfavorable situations.

Budget Control

It is the process that allows monitoring and evaluating the performance and performance obtained, establishing comparisons between what has been done and the objectives set out in the budgets.

Therefore, budgeting and control are considered to be complementary processes, the first one defines the objectives, which will have value when a plan is activated that facilitates its achievement, while the budget control is methodically comparing the programming and the execution.

The fundamental axis of budget control it focuses on the information of the desired performance level, the actual level and the deviation. But also through action, it sets plans in motion and modifies the activities to be performed.

The implementation of any control mechanism through the budget ensures the financial success of the project, since when analyzing and comparing the results with the programs, it allows to see the non-coincidences, find the causes and propose the corrections.

To effectively exercise this control, the following considerations must be taken into account:

• Everything that has been programmed must be controlled.
• Any deviation between what is programmed and what is executed has a reason which must be analyzed to detect if it is due to a programming failure, poor execution or both.
• Any deviation requires a careful analysis, preferably carried out by the specific manager.
• Any deviation warrants correction measures, the purpose of control is to convey confidence to managers, make them see the deficiencies and suggest corrective actions.

Importance of the budget

Organizations are part of an economic environment where uncertainty reigns, the greater the uncertainty, the greater the risks to assume, to stay in the competitive market, organizations must plan their activities and monitor their behaviour.

Budgets are a modern tool used in the approach and control, can reflect the economic, administrative and financial behavior of the company. Being of great help and importance due to:

• They minimize the risk in the organization's operations.
• They maintain a plan of operations with reasonable limits.
• They serve as a mechanism for analyzing policies and strategies, allowing them to be redirected if necessary.
• They quantify and present financial terms of the action plan.
• They serve as control guides during the execution of programs, once the plans are completed they serve as a point of comparison for future plans and programs.
• They induce management to think about the total needs of the company.
• They function as a means of communication between the different hierarchical levels of the company. By exerting a little pressure for top management to define the objectives appropriately.
• They promote the definition of an adequate organizational structure, delegating and determining responsibility and authority to the different areas that make up the organization.
• Maintains a reasonable history of accounting data.
• They help the optimal use of inputs.
• They are a tool that puts creativity and professional judgment into practice, in order to improve the company.