CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Companies are constantly given goals that must be met within a certain amount of time. When these objectives are determined, action plans are created to steer employees toward reaching the objectives. A thorough yearly financial plan, known as a budget, may be included in the plan. Budgeting, according to Abdullahi (2012), entails setting specified objectives, reporting actual performance outcomes, and evaluating performance in relation to the established goals. Budgetary control systems are widely used and are regarded as an important instrument for financial planning. The goal of budgetary control is to offer a forecast of revenues and expenditures. This is accomplished by building a model of how our company would perform financially if specific strategies, events, and plans are implemented (Nyambura 2016).
Budgeting has traditionally been considered as a means of restricting spending, and as a result, a significant portion of management’s work is spent allocating funds. However, practical data suggests that budgeting in today’s worldwide environment extends beyond just displaying predicted income and project spending. Rather, a budget safeguards and regulates how management responds to suggestions presented to it, as well as assessing the current and future costs as well as advantages connected with such a plan. However, it must not lose sight of the environment in which it functions, since this will affect the budget outcome.
CIMA (2005) defines budgetary control as “the formulation of budgets tying executive duties to policy objectives, and the constant comparison of actual with planned outcomes, either to ensure by individual action the policy’s purpose, or to give a foundation for its adjustment.” Budgetary control is a cost- and resource-management method that comprises comparing actual performance to budgeted performance and then acting on the actual results to reduce variation and maximize returns. Budgetary control, in essence, is supposed to guarantee that the actions being carried out are producing the expected results. Aduloju (2012) defines budgetary control as any management approach that involves setting some kind of target, measuring variances between the original target and actual outcomes on a regular basis, and motivating people to reduce those variances. Budgetary control, according to Chenhall W.A. (2012), is a strategy for controlling total expenditure on materials, salaries, and overhead by comparing actual performance to anticipated performance. This approach is also seen to be a useful tool for cost control and coordination, with the potential to improve the efficacy of organizational performance.
1.2 Statement of the problem
Many private organizations do not apply budget controls as effectively as efficiently as they could. As a result, most companies lack a strong commitment to enforcing financial requirements needed. Following the current uncertainties in the Nigerian business climate, Yesuf (2015) believes that managers and stakeholders must be poised and prepared to compete favorably in these fast changing conditions. Nicoleta, K. (2017) asserted that in order to survive in the face of a variety of business environmental complexities and ambiguity, managers and stakeholders in both the private and public sectors require sharp tools and proven management techniques to forecast major changes that are likely to affect the business while determining future direction and resource dimensions required to achieve specific goals. As a result, Nicoleta noted that budgeting and control comprises a different pattern of decisions in an organization capable of deciding its aims, purposes, or goals, as well as how these goals are realized via the establishment of key policies and plans. In contrast, some organizations’ incapacity to detect the budgeting problem and set a limit off investigation provides a barrier to the successful adoption of budgeting and control in private organizations. Some organizations make it difficult to execute budgeting and control effectively. Chemweno (2014) found that some firms only consider a small range of choices based on their previous spending and current condition, and that some management levels even forgo long-term planning and budgeting in favor of today’s difficulties, hence exacerbating tomorrow’s problems. As seen in this study, the need for organizations to establish a formal mechanism for scanning their environment for opportunities and early warning signs of future problems is reflected in the foregoing. This course of action will improve the budgeting and control system, resulting in an appropriate expectation of improved performance. Against the backdrop that this study is focused on an examination of budgetary control and its impact on organizational performance using Nigeria Breweries as case Study.
1.3 Objective of the study
The broad objective of this study is to examine budgetary control and its impact on organizational performance using Nigeria Breweries as case Study. Specifically the study seeks:
- To ascertain the necessity of budgeting control system in allocation of private organization resources.
- To identify the relationship between budgetary control and organizational performance.
- To identify the problems associated with budgets and budgetary control in an organization.
- To identify ways to improve organizational performance through budgetary control measures.
1.4 Research Question
The study is guided by the following research questions:
- What are the importance of budgeting control system in allocation of private organization resources.
- What is the relationship between budgetary control and organizational performance?
- What are the problems associated with budgets and budgetary control in an organization?
- What are the ways to improve organizational performance through budgetary control measures?
1.5 Significance of the study
The significance of this research work cannot be over emphasized because it is inequitable in every organization. It will be appreciated by management of private companies as its sets standard of performance which act as day to day guide time for the successful realization of the budget plan and the attainment of organizational objectives. The study is also relevant to all public and private sectors as financial resource these days are scare and limited, this budgeting control is inequitable because the limited funds available has to be judiciously utilized allocated and this can only be made possible through budgeting control. Empirically, the study will contribute to the general body of knowledge and serve as a reference material to both scholars and student who wishes to conduct further studies in related field.
1.6 Scope of the Study
The scope of this study borders on budgetary control and its impact on organizational performance using Nigeria Breweries as case Study. It will ascertain the necessity of budgeting control system in allocation of private organization resources. It will identify the relationship between budgetary control and organizational performance and explore the problems associated with budgets and budgetary control in an organization. It will suggest ways to improve organizational performance through budgetary control measures.
1.7 Limitation of the study
Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing to the nature of the discourse thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. Additionally, the researcher will simultaneously engage in this study with other academic work. More so, the choice of the sample size was limited to Nigeria Breweries as few respondent were selected to answer the research instrument hence cannot be generalize to private organization. However, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.
1.8 Definition of terms
Budget: A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group of people, a business, a government, or just about anything else that makes and spends money.
Budgetary Control: Budgetary control is financial jargon for managing income and expenditure. In practice it means regularly comparing actual income or expenditure to planned income or expenditure to identify whether or not corrective action is required.
Organization Performance: Organizational performance comprises the actual output or results of an organization as measured against its intended outputs.
REFERENCE
Abdullahi, A. (2012). Budget in Nigeria Public Sector; Need for Balanced Scorecard Perspective. International Journal of Finance and Accounting, 1 (2): 1
Aduloju,S. (2012). Organizational Effectiveness. Advances in Management and Applied Economics (2) 4.
American Public Human Services Association (2012). Guidebook for Building Organizational Effectiveness Capacity. Washington, DC.
Chemweno Q.E,(2014). Systematic review of budgeting and budgetary control in government owned organizations. Research Journal of Finance and Accounting, 6(6), 1-10.-6.
Chenhall W.A. (2012): The budgetary and performance influences of product standardization and manufacturing process automation. Journal of Accounting Research 28 (2): pp. 388-397
Nicoleta, K. (2017). Determinants of effective budget implementation among local authorities in Kenya: a case study of City Council of Nairobi, Unpublished MBA Project, University of Nairobi
Nyambura, E. (2016). The effect of budgetary control on effectiveness of nongovernmental organizations in Kenya.
Yesuf, A. (2015). Budgeting and budget monitoring practice in NGOs operating in Ethiopia. Addis Ababa University, Ethiopia.
