What is budget control?

Budget control is the process of developing a spending plan and periodically comparing actual spending against that plan to determine whether it or 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 businesses and individuals such as householders who want to ensure that they live within their means.

The first step in budget control is defining the scope of the project or program and developing detailed cost estimates. A government may 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 spent on 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 can increase beyond the inflation accounted for in the original budget, creating cost overruns. On the other hand, a company may 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 spending habits so that actual expenses fit within the budget. For a family budget, for example, a family may decide to ditch television services to keep entertainment expenses within the budget allotted amount. 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 needed. This can happen when inflation pushes prices so high that it is not possible to stay within the original budget, requiring revision to more accurately predict financial performance. Revisions can reveal the need for additional resources, forcing those in charge of budget control to determine where that money will come from. This can include taking on debt, reducing the scope of a project, or shifting funds from another project or program to keep it running. A company, for example, may partially withdraw funds from a department to drive completion of an important product.