Budgeting Basics and Beyond

2.18. Control and Analysis

Control is important in budgeting. Budget figures may be checked for reasonableness by looking at relationships. The budgeted costs must be directly tied to planned production output. The manager must be able to strongly defend the initial budget figure and to obtain needed facts. Budget comparisons may be made by current year month to last year month, current year quarter to last year quarter, and cumulative year to date. A comparison is therefore made to similar time periods.

Costs should be examined by responsibility. Cost reduction is different from cost control. Cost reduction attempts to lower costs by improving manufacturing methods and procedures, work assignments, and product or service quality. Cost control includes cost reduction. Cost control attempts to obtain cost objectives within the operational setting. Value analysis is an evaluation of cost components in an operation so as to minimize them to achieve higher profits.

Compare the company's segments to similar segments in competing companies. Variations from the plan should be studied and controlled. The integrated (consolidated) plan usually is prepared yearly. A change in one department's plan will likely affect another department's plan.