Budgetary control and marketing

Abstract

Effective budgeting is the key to maximum profitability in the port industry, which in turn helps attract the investment that is vital to the long-term future of the port authority. There are several ways in which the existence of a budget can be advantageous:

• (a) The forecast of revenue and expenditure expressed in the budget enables management to predict the cash flow during the year and hence to make the best use of monthly cash surpluses or to meet any expected deficits. Knowledge about the pattern of income makes it possible to finance the company’s investment programme efficiently and to make optimum use of the port authority resources. The budget should also reveal the profit centres within the port’s activities and thus help avoid non-productive expenditure.

• (b) The budget acts as a yardstick against which to judge performance at regular intervals and hence allows management to adapt their policies to changing events. For instance, a fall in revenue below the forecast level may give early warning of the need to reduce expenditure in the face of a decline in business. The achievement of management and staff may also be gauged objectively against the budget.

• (c) The targets that a budget necessarily implies encourage the development of an esprit de corps among managers, who are then better able to win the support of their staff. having such targets also encourages cost consciousness, especially among senior and middle managers, who are most deeply committed to realization of the budget.

• (d) The budget facilitates the formulation of tariff increases in line with predicted rises in expenditure and ensures that the company’s profitability remains adequate.