Budgetary control is the process of developing a spending plan and periodically comparing actual expenditures against that plan to determine if it or the spending patterns need adjustment to stay on track. This process is necessary to control spending and meet various financial goals. Governments rely heavily on budgetary control to manage their spending activities, and this technique is also used by companies as well as private individuals, such as heads of household who want to make sure they live within their means.
The first step in budgetary control involves defining the scope of the project or program and developing detailed cost estimates. A government might need to 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 detailing how much money can be dedicated to different aspects of the project, based on projected expenses and income. The budget is a financial road map.
Using the budget as a baseline, work can begin. Periodically, accountants compare the budget with actual expenditures, and take note of any discrepancies. In bridge construction, materials costs might rise beyond the inflation accounted for in the original budget, creating a cost overrun. Conversely, a company might be able to save money on part of a project because it costs less than originally expected. All variations are noted and discussed. If they become extreme, budgetary control measures may come into play.
One option is to change spending habits to make actual expenses mesh with the budget. For a household budget, for instance, a household might decide to drop television services to keep entertainment expenses within the amount allotted under the budget. This budgetary control uses austerities to meet financial goals and keep spending on track 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 drives prices up so high that it is not possible to stay within the original budget, requiring a revision to more accurately forecast financial performance. Revisions may reveal the need for additional funding, forcing parties in charge of budgetary control to figure out where that money will come from. This could include taking on debt, cutting the scope of a project, or moving funds over from another project or program to keep it going. A company, for example, could partially remove funds from a department to push through completion of an important product.