ABSTRACT
This
study examined the relationship between budgetary control measures and
managerial effectiveness in business organisations in Port Harcourt. In order
to achieve the objectives of the study, one hypothesis was formulated and data
collected through the issue of 72 questionnaires out of which 60 were correctly
completed and returned. The data collected was analysed using Pearson
Correlation and Statistical Package for Social Sciences (SPSS). Following the
data analyses, the following findings were made: there is a significant and
positive relationship between budgetary control measures and management
effectiveness. The implication of this finding is that as the firm introduces
budgetary control measures, management becomes more effective, budgetary control
system is an important tool for planning, controlling and coordination the
activities in an organization thereby contributing to achieve a higher standard
of performance. We concluded that: it is
quite necessary for organisations to introduce stringent budgetary control
measures in their organisation. We also conclude that management effectiveness
will be better achieved when organisations implement good budgetary control
measures. Finally, we recommend that: Budgetary control should be the main
concern in organizations amongst other control techniques as this will help the
organisation in achieving set objectives. The researcher recommends that
organizations that desire higher performance must implement and adhere to
budgets and budgetary control.
89 Pages
Project
Reference Code: C032
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Wants
are numerous while resources are limited but there is every tendency to waste
or under-utilise the limited resources by the human factor involved in the production
of goods and services. With various companies competing with one another, only
few that are able to produce at least possible cost will survive the growing
competition in the market. Therefore, it is paramount for every serious
business undertaken to produce at that possible minimum cost so as to remain in
business and also achieve the corporate objectives of profitability and
stability.
In
view of this, there is every need to do a realistic planning of the activities
of the firm taking into consideration the limiting factors and the long term
objectives of the firm. In order to achieve this, budgeting – a tool of
planning and control becomes indispensable. Budgeting is ubiquitous and has
long been considered as a necessary tool in managing a company.
A
budget has been defined by Chartered Institute of Management Accountants
(CIMA), as “a financial or qualitative statement prepared and approved prior to
a defined period of time for the purpose of attaining a given objective. It may
include income, expenditure and the employment of capital”. CIMA also defined
budgetary control as “the establishment of budgets relating the
responsibilities of executives to the requirements of a policy and the continuous
comparisons of actual with budgeted results, either to secure by individual
action the objectives of that policy or to provide a basis for its revision.
Horngreen
(1982) defined a budget as “a quantitative expression of a plan of action and
an aid to coordination and implementation”. The Oxford Advanced Learners‟
dictionary defined budget as an estimate or plan of the money available to
somebody and how it will be spent over a period of time.
Both
Horngreen and the dictionary emphasised the word plan, but planning itself is
found in all aspect of human endeavour, hence planning is a blue print of
business growth and a road map for development that helps in deciding
objectives, quantitatively and qualitatively.
It
involves setting a goal on the premise of the objectives and keeping of the
resources. The process of planning requires that managers of business to act as
if they are fortune tellers and attempt to predict the future course of action
to be adopted. Such prediction of the so-called fortune tellers will determine
whether or not the objectives of the firm will be met.
Adams
(2001), views budget as a future plan of action for the whole organisation or a
sector thereof. Budgets are plans that deal with future allocations and
utilisation of resources to different activities over a given period of time.
For any organisation to make progress or achieve its goals, it needs capital
and to be able to make profit, it requires planning of its resources, which can
only be achieved through budgeting, hence budgeting serves as a tool for
financial planning.
Batty
(1982), defined budgetary control as a system which uses budgets as a means of
planning and control-ling all aspects of producing and or selling commodities
or services. This is true as we tend to prepare revenue and expenditure
variance analysis to be able to deduce areas of divergences for which the
management needs to watch to avoid embarrassment as any adverse variance will
translate into inability to meet the corporate objec-tive which will eventually
lead to disagreement with stakeholders.
Pandy
(1985) has observed that although many people will complain about budget and
its process, budgets are indispensable in a large modern organisation as the
ben-efit that occurs from budgets and its control is much greater than the cost
involved. In view of this, the fact that resources are scarce, coupled with
high competition that permeate most businesses, budgets when rightly applied,
would be an effective tool for planning and control, especially in large corporation.
Lucey
(2010), in support of the CIMA‟s definition defined budget to be a plan
quantified in monetary terms, prepared and approved prior to a defined period
of time, usually showing planned income to be generated or ex-penditure to be
incurred during the period and the capital to be employed to maintain the given
objective.
From
this definition, we can as well state that budget is an aid to making and
coordinating short range plan; a device for communicating plan and objectives
to various responsibility centres and a basic evaluation of performance.
Therefore, it can be said that budget is a parameter which measures the actual
achievement of people, departments, ministries and business firms, while
budgetary control ensures that actual results are positively or negatively in
accordance with the overall financial and policy objectives of the
establishment.
1.2 STATEMENT
OF THE PROBLEM
Many business firms recognize the need
to have a developed and comprehensive budgetary control system in order to
minimize budget variances, costs and maximize efficiency. Budgetary control is
as crucial as cash itself and any theft, waste, excessive use or stock out
could lead to the business’s poor performance.
Failure to plan, either formally or
informally, can lead to financial disaster. The primary motive of any business
venture, manufacturing inclusive is profit making. Profitability depends on
many factors among which is the efficient use and management of budgets and budgetary
control techniques.
It is the researchers belief that some
of the failures observable in the manufacturing sector of the private sector
could be attributed to the neglect of this very important aspect of their
operations hence, the need to investigate what the effects of a sound and well
articulated budgetary control system (or lack of it) will have on management
effectiveness.
1.3 PURPOSE OF THE STUDY
1.4
RESEARCH QUESTIONS
1.5
RESEARCH HYPOTHESES
1.6
SIGNIFICANCE OF THE STUDY
1.7
SCOPE OF THE STUDY
1.8
LIMITATION OF THE STUDY
1.9
DEFINITION OF TERMS
1.10
ORGANIZATION OF THE STUDY
REFERENCES
CHAPTER
TWO
LITERATURE
REVIEW
2.0
INTRODUCTION
This chapter reviews the earlier
studies related to budgetary and management control, formulation and
implementation in particular types of budget, preparation of budget and budget
controls, budget being a tool for measuring financial performance, benefits and
challenges of budget and criteria for measuring budget performance.
2.1
CONCEPT OF MANAGEMENT CONTROL
The
literature holds a large number of definitions of management control. The
modern management control system originated with the influential work of Robert
Anthony (1965) who drew boundaries between management control, strategic
planning and operation control. He recognizes accounting language as the base
for commonalities in the system.
Anthony
(1965) defines management control as the processes by which managers assure
that resources are obtained and used efficiently in the accomplishment of the
organisation’s objectives” Garrison and Noreen (2000) suggest a different
definition of management control as follows: “those steps taken by management
that attempt to increase the likelihood that the objectives set down at the
planning stage are attained and to ensure that all parts of the organisation
function in a manner consistent with organizational policies.
In
this project, the term management control is defined as those sets of
organizational activities that include planning, coordination, communication,
evaluation and decision-making as well as informal processes aimed at enhancing
the efficient and effective use of the organizational resources towards the
achievement of the organizational objectives. Budgeting is the tool used by
management to facilitate those management activities.
Anthony
and Govindarajan (2004) identify several aspects or activities of management
control namely, planning, coordinating, communication, evaluation,
decision-making and influencing.
1.
Planning what the organisation should
do. Planning could be viewed as budget preparation.
2.
Coordinating the activities of several
parts of the organisation to assure alignments goals.
3.
Communicating information such as
strategy and specific performance objectives. Communication could be done
formally (by means of budgets and other official documents) and informal
through conversations.
4.
Evaluating actual performance relative
to the standard and making inferences as to how well the manager has performed.
5. Deciding
what, if any action should be taken.
2.2
THE BUDGET
2.2.1
Characteristics of a Budget.
2.2.2
Types of Budget
2.3
PREPARATION OF BUDGET AND BUDGETARY CONTROLS
2.3.1
The Budget Cycle
2.3.2
The Budget Period
2.3.3
Purposes of Budget Preparation
2.4
THE BUDGET AS A TOOL FOR MEASURING FINANCIAL PERFORMANCE
2.4.1
Reasons for measuring financial performance
2.5.1
BENEFITS OF A BUDGET
2.5.2
CHALLENGES OF A BUDGET
2.6
CRITERIA FOR MEASURING BUDGET PERFORMANCE
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1 INTRODUCTION
This
chapter represents the methodology adopted in this study. Research methodology
is concerned with the structuring of an investigation for the purpose of
identifying the relevant variables and their relationship to one another. The
discussion covers the following topics and sub-topics: research design, types
and sources of data, instrument of data collection, actual field work, method
of data presentation and method of data analysis employed.
3.2 RESEARCH DESIGN
The research method that will be used for this
project is the survey research method.
This is because it is a research method that collects the views,
perspectives or opinions of respondents regarding a particular issue or
research interest and it involves the use of questionnaire.
The sample technique to be used by the
researcher is the probability sampling method precisely the simple random
sampling.
3.3 POPULATION OF STUDY
For
the purpose of this study the population is made up of the totality of all
manufacturing companies in the industry. It is not possible to include all
members of the given population in the investigation. This is because the
population members are too large to be reached due to geographical coverage.
3.4 SAMPLE SIZE AND SAMPLING TECHNIQUE
3.5 SOURCES OF DATA
3.5.1 INSTRUMENTS FOR DATA COLLECTION
3.5.3 VALIDITY AND RELIABILITY OF INSTRUMENTS
3.5.4 ADMINISTRATION OF INSTRUMENTS
3.6 METHOD OF DATA ANALYSIS
Several
analytical techniques were adopted in the data analysis to add some degree of
reliability. Relevant statistical tools were used to determine the degree of
association apart from the use of tables. The correlation coefficient would be
used to analyze the hypothesis.
3.7.1 CORRELATION
This is a measure of the strength of linear
association between two variables. Simply put, it measures the extent to which
two variables vary together. Correlation will always fall between -1.0 and
+1.0. If the correlation is positive we have positive relationship. If it is
negative, the relationship is negative.
Correlation (r) = n∑XY –
(∑X)(∑Y)
(n∑X2 – (∑X)2 ) (n∑Y2
– (∑Y)2)
Where
X = budgetary control
Y= management effectiveness
REFERENCES
CHAPTER
FOUR
DATA
PRESENTATION AND ANALYSES
4.1 INTRODUCTION
In this chapter, we shall present as
well as analyse the data used for the study. This chapter will be arranged in
three sub-sections thus: Data Presentation, Data Analysis and finally,
Hypothesis testing.
4.2
DATA PRESENTATION
72
questionnaires were distributed to employees in some business organizations in
Rivers State out of which 60 were
correctly completed and returned. Thus, our analysis is based on the 60
correctly completed and returned questionnaire.
4.3 HYPOTHESIS TESTING
CHAPTER
FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1
INTRODUCTION
This
chapter shows the summary of findings, conclusions and recommendation based on
findings from the study were made as well as suggestions for further studies.
This study undertook to investigate the role of budgetary control in
organizational performance.
5.2 SUMMARY OF FINDINGS
The
summary of findings consists of both the theoretical and empirical findings.
During the course of the study and after the analysis of the data collected
from the respondents, the following findings emerged:
i.
Our findings show that there is a
significant and positive relationship between budgetary control measures and
management effectiveness. The implication of this finding is that as the firm
introduces budgetary control measures, management becomes more effective
ii.
Budgetary control system is an
important tool for planning, controlling and coordination the activities in an
organization thereby contributing to achieve a higher standard of performance.
5.4 CONCLUSION
5.5
RECOMMENDATIONS
BIBLIOGRAPHY
Abernethy, M.A., Brownell (1997),
Management Control Systems in Research and Development Organisations. The Role
of Accounting, behaviour and personnel Controls. Accounting Org.Soc. 22;
pp233-248.
Adu-Gyamfi, O. (2008), Public Sector
Financial Management, Accounting and Auditing in Ghana. Pages 139-161
Amoako-Gyampah K., Acquaah M. (2008),
“Manufacturing strategy, competitive strategy and firm performance: An
empirical study in a developing economy environment”, Production Economics,
vol. 3, Issue 2 pp. 575-592
.
.
.
.
Wilhelmi, M., Kleiner, Brian H. (1995),
“New developments in budgeting”, Management Research News, Vol. 18, Issue 3-5;
pp.78. Cost and Management
Wikipedia,
the free encyclopedia, Non-parametic
Statistics Retrieved 18th March, 2012 from, www.google.com
Yin, R.K. (1994), Case Study Research
Design and Methods, 2nd edition, Sage Publication Int.
Project
Reference Code: C032
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