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  • Chapters 1 to 5
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A precise definition of budget might equally be misleading or one sided. The accountants see budget from preparation perspective. Management understands it from implementation aspects, while the behavioural scientists views it from the human implication aspects. As non of these views is entirely irrelevant or encompassing, an attempt must be made to combine the salient facts of the views to obtain the best functional definition of budget. The concept, budget, according to Horgreen et al (1990:148), must be conceived as a formal quantitative expression of management plans. He went further to state that the master budget summarizes the goals of all subunits of an organization sales, production, distribution and finance. It quantifies targets for sales, production, net income and cash position and any other objectives that management specifies. However, Lucy (1980:313) described a budget as “quantitative expression pf a plan of action prepared in advance of the period to which it relates. “This suggests that the process of preparing and agreeing budgets is a means of translating the overall objectives of the organization into detailed feasible plans of action. A more comprehensive definition of budge is the one given by the institute of cost and management accountants (ICMA, in Pickless (1974:3154), which defines budget as “a financial and quantitative statement, prepared and approved prior to a defined period of the policy to be pursued during that period for the purpose of attaining a given objectives”. From the on-going contributions of different writers and bodies, budget may be taken to mean a plan, quantified in monetary terms prepared and approved prior to a defined period of time and usually under a state to display planned income to be generated and /or expenditure to be incurred, equally the capital to be employed to attain the underlying objectives. On the other hand budgetary implementation according to smith et al (1948:587) is “the actual execution of the budget plan with special efforts being directed towards corrective action when departures are revealed”. Implementation is an integral part of policy formulation. According to Harcourt G.C et al (1973:27), “it is a system of controlling costs which includes the preparation of budgets, co-ordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximal profitability. These definitions points out that the effectiveness or otherwise of budgets depends solely on the ability of those concern to ensure that the responsibility holders are carrying out their responsibilities according to the requirements of the policies and the continuous comparison of actual with budgeted result either to secure by individual action the objectives of the policies or to provide a basis for its revision. The issue, which might demand a touch here is who implements budget in construction companies and how this implementation affects policy decisions. The budget implementation lies with the departmental heads. The departmental heads have the responsibility of following the budget to the latter. The departmental heads should make sure they do not approve all sorts of expenses without following the budget for the month or the year as the case may be. If departmental heads do not adopt some control measures in approving payments (expenses), it is possible that the budget would be in deficit and this may affect the working capital of the company, thereby affecting the company policy of decision making.

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 Various special budgets can be prepared for varying reasons. The purpose it will serve, the organization using it, the personality it should be presented to, the subject the budget is to treat, the characteristics of the organization, its style of leadership, the method of preparation. Horgren et al (1990). The aforementioned are all factors accounting for budget types and styles. This suggest that we have countless forms of budgets, but for this review, the ones to be dealt with by the study are:

  1. ZERO-BASED BUDGETING (ZBB) Zero based budgeting refers to by Decoster et al (1973:43) “as management process that provides for systematic consideration of all programmes and activities in conjunction with the formulation of budget requests and programme planning”. This followed that the standard on which budgets are based are predicted from past performance. That is, if there were to be inefficiency in current and past operations as under capacity utilization, business mistakes, etc. They are more likely to be transferred to the future budgets. To solve this problem, zero-based budgeting was evolved as a budgetary control tool. Zero-base budgeting assumes that budgeting for every function should start from the scratch. The manager should start by assuming that he has no budget or operation from which to work. He has to take every item of budget as a new proposition and justify its needs. In other words, the manager justifies every naira of the budgets he proposes. To meet this justification, the following procedure is adopted. a. Identity the problem b. Analyze the problem c. Develop alternative solutions d. Select the most appropriate solutions e. Implement the solution and review the results. However, some authors do not believe that for a budget to be zero-base means that it has to start from the scratch. Halverson et al (1976:28) viewed zero-base budgeting as “ the review and justification of selected, not all current programmed elements starting somewhere at a point in the base area and not necessarily at zero base” Based on the above views, the study sees ZBB as a system whereby each programme, regardless of whether it is entirely new or in existence before, must be justified in its entirety each time a new budget is formulated. This means, constructing a budget without any reference to what has gone before, based on a fundamental reappraisal of purposes, method and resources. Zero-base budgeting as a management tool provides significant benefits, some of which are:
  2. Focusing the budget process on a comprehensive analysis of objective and the development of plans to accomplish these objectives.
  3. Expanding lower level management participation in planning, evaluation and budgeting.
  4. Causing managers at all levels to evaluate in details and with reasonableness, the cost effectiveness of their operations and specific activities both new and old all which are clearly identified.
  5. Provide managers at all levels with better information on the relative priority associated with budget requests and decisions.

In formulating a budget using zero-base budgeting process, the organization enters into three phases of management planning, budgeting and review. It is a veritable budgeting technique which links all the phases of budgeting into one system.

  1. PROGRAMME BUDGETING (PR) According to Norvick (1967:3716), “program budgeting for an organization begins with an effort to identity and define objectives and group the organization activities into programmes that can be related to each objective”. This method allows us to look at what we produce-output, in addition to how we produce or what inputs we consume. In another development Lucy (1989) opined that “a programme represents the appropriation of fixed sum of money to achieve a specific objective or set of objectives. The programme budget itself present resources and costs categorized according to the programme or end product to which they apply. The entire process by which objectives are identified, programmes defined and quantitatively described, and the budget recast into a programme budget format is called the structural phase of planning-programming budgeting. Reginald et al (1971).To develop a programme budget, specific goals should be established, the present level of performance should be determined through the study of available data, and qualified targets set in each of the specific goals that were established. The strengths of PB is that it aids planning by focusing attention on competition for resources among programmes and on the effectiveness of resources use with programmes. Again program budgeting cuts across organizational boundaries, drawing together the information needed by decision makers without regard to decision in operating authority among jurisdictions. To be effective, the program budget categories should be designed to facilitate the grouping of expenditures in such a way that they can be related to program outputs. The program budget has to be prescriptive and not merely descriptive for only a prescriptive budget produce change.

 iii. TRADITIONAL BUDGETING According to Reginald et al (1971:44) “traditional budgeting takes cognizance and makes reference to previous/past and thus makes comparison so as to draw a new budget plan”. Norvick (1967:3742) viewed traditional budgeting as being characterized by a short range fiscal management and expenditures control objective. However, in traditional budgeting, costs are assembled by type of resource input (line item) and by organization or functional categories. It is common place in the literature on budgeting for business to say “that budget is the financial expression of a plan”. The major strength of traditional budgeting according to Naomi et al (1974) is that it tends to evaluate performances. In measuring performance, consideration is taken of both the previous and expected performance so as to draw up a new plan.

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Continuous budget which is known as rolling budget is a system of budgeting that involves continuously updating budgets by reviewing the actual results of a specific period in the budget and determining a budget for the corresponding time period. It has been described as an attempt to prepare targets and plans which are more realistic and certain by shortening the period of budget preparations. Under this method, instead of preparing a budget annually, there would be budget every three or six months so that as the current period ends, the budget is extended by an extra period; for example, if a continuous budget is prepared every three months, the first three months would be planned in great details and the none months in lesser details, because the greater uncertainty about the longer term future. This means that, if a first continuous budget is prepared for April to June, in detail to march in less detail a new budget will be prepared towards the end of June to cover June to September in details and October of the following year in lesser details

Advantages of Continuous Budget/Rolling Budget

  1. management is made to be continuously aware of the budgetary process since the figures for the next 12 months are always made available.
  2. it allows for more frequent assessment and revision of the budgets in the light of current trends particularly during the period of inflation, thus, the budget does not become quickly obsolete or out dated.

Disadvantages of Continuous Budget/Rolling Budget

Higher costs and efforts are required for continuous budget due to lack of cooperation and negative attitude of the operating managers to the control techniques. Managers personal objectives also override the goal congruence of the organization. This negative and disfunctional attitude of managers manifest at both the planning stage and implementation stage.


Budgeting serve multiple functions and offer variety of information to the over all operations of business enterprise. Katz (1975:453) opined that “budgeting reports serve a reliable means of communication, where the top management can inform the manager of the goals of the firm that it expects him to fulfill. Moreover, Lucy (1989:321) was of the view that “the whole process of budget preparation and subsequent performance evaluation by budgetary control needs to be carried out so as to motivate managers rather than create resentment and adverse reactions”. Smith, et al (1983) stressed on the role of budget in motivating employees, when he said that the careful use if budgeting reports directly contribute towards effective motivation by expressing goals and by supplying knowledge of performance. This implies budget report of performance has a direct effect on motivation, since it gives the departmental managers as well as other employees the knowledge of their performance


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