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Budget control involves creating a spending plan and periodically comparing actual spending with the plan to make necessary adjustments. Governments, businesses, and individuals use this technique to manage spending and meet financial goals. A budget is developed based on projected expenses and income, and accountants periodically compare it with actual expenses. Adjustments to spending habits or a revised budget may be necessary to stay on track.
Budget control is the process of developing a spending plan and periodically comparing actual spending with that plan to determine if it or spending patterns need adjustments to stay on track. This process is necessary to control spending and meet various financial goals. Governments rely heavily on budget control to manage their spending activities, and this technique is also used by businesses and individuals, such as heads of households who want to ensure they live within their means.
The first step in budget control is to define the scope of the project or program and develop detailed cost estimates. A government might need a budget to build a new bridge, while something like a household budget covers household expenses for an indefinite period of time. This results in the creation of a budget, a document that details how much money can be devoted to different aspects of the project, based on projected expenses and income. The budget is a financial roadmap.
Using the budget as a baseline, the work can begin. Periodically, accountants compare the budget with actual expenses and note any discrepancies. In bridge construction, material costs could increase beyond the inflation accounted for in the original budget, creating a cost overrun. Conversely, a company might save money on part of a project because it costs less than originally expected. All variations are noted and discussed. If they become extreme, budget control measures may come into play.
One option is to change your spending habits so that your actual expenses fit into your budget. For a family budget, for example, a household might decide to drop television services in order to keep entertainment expenses within the allotted amount under the budget. This budget control uses austerities to meet financial targets and keep spending in line with the original budget.
In other cases, adjustments to spending behavior may not be possible. Instead, a revised budget is necessary. This can happen when inflation raises prices so high that it is not possible to stay within the original budget, requiring a revision to more accurately forecast financial performance. Reviews may reveal the need for additional funds, forcing budget control parties to determine where that money will come from. This could include taking on debt, reducing the scope of a project, or transferring funds from another project or program to keep it running. A company, for example, might partially defund a department to push the completion of a major product.
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