Budget And Budgetary Control As A Managerial Tool In An Organization

Project and Seminar Material for Business Administration and Management BAM

Project and Seminar Material for Business Administration and Management BAM


Chapter One


Introduction

1.1 Background of the Study

The resources of an organization should be managed effectively and efficiently to achieve its purpose. This implies that the organization should be able to achieve its objectives by minimizing cost. Thus managing implies co-ordination and control of the efforts of the organization for achieving organizational objectives. The process of managing is facilitated when management charts its future course of certain objectives in advance, and takes decision in a professional manner, utilizing the individual and group efforts in a coordinated rational manner. One systematic approach for attaining effective management performance is budgeting. Budgets are monetized expressions of target to be accomplished in a given year by an individual, organization or nation. It is a deliberate attempt to achieve superior targets over time with available and expected resources. Such targets are influenced by the experiences of the past and expectation of the future.

Basically, a budget system enables management more effectively to plan, coordinate, control and evaluates its activities. It is a device intended to provide greater effectiveness in achieving organizational efficiency. To be effective, however, the functional aspects must outweigh the dysfunctional aspects. Because a budget plan exists, decisions are not merely spontaneous reactions to stimuli in an environment of unclassified goals.

It is pertinent to note that management activities are the driving force behind every organization and of course necessarily unavoidable. These activities – planning, organizing, directing and controlling of economic resources, are schematized to reflect the nature and objectives of the organization and must be tailored towards the attainment of the overall organization’s predetermined objectives. Consequently, it is important to systematically and objectively assess the relevant, efficiency, effectiveness, impact and sustainability of the activities in the light of the budget. In this context, therefore, the concern is to use the budgetary procedures to evaluate management activities.


1.2 Statement of the Problem

As we now launch into the 21st century, organizations worldwide, both private and public, have realized the need to restructure and overhaul their activities for a better quality service delivery pattern. One of the most radically affected aspects of these organizations is the budget and budgetary control. Recognizing the role of budget and budgetary control lending organizations leverage so much on it, in the private sector, several departments, whose main business is the implementation and monitoring of budgets, have been established. In the public sector, budget monitoring and project implementation committees have become an integral part of the administrations. In fact, the soundness or otherwise of the budget is adjudged by all as a to sine quo non for effective management.

In the present area of cyber space management, where information and communication technology is the main resource, budget and budgetary control are also incorporated into the information technology banks of organizations. This has given rise to professionals and specialists whose main duty is to monitor and report deviations from the budget. Several automated control software have also been designed to assist in this arduous task. And so the trend continues. Organizations worldwide are leveraging so much on budget and budgetary control.

But how does budget and budgetary control assist management in effectively discharging its obligations? How is it of importance to the various stakeholders (government, employers, debtors, creditors, owners, etc?). Can it be regarded as a mirror that unerringly reflects the performance of management? These are some of the issues the researcher intends to explore.


1.3 Objectives of the Study

The research is aimed at reviewing the already existing budgetary control procedures with a view to:

  1. Determine whether the use of budget and budgetary control serve as a managerial tool in an organization.
  2. Determine whether the budget reflects the performance of management.
  3. Determine the support programmes designed to aid the administration of the budgeting system in an organization.

1.4. Research Questions

At the end of this research work, it is expected that ample answers be provided for certain questions. These questions that may arise in the course of this study are as follows:

  1. Is the use of budget and budgetary control in an organization a managerial tool?
  2. Does a budget reflect the performance of management?
  3. What are the support programmes, designed to aid the administration of the budgeting system in an organization?

1.5 Research Hypothesis

The hypothesis for this study is set in consideration of the problems and questions earlier mentioned. The following hypothesis will be tested:

Hypothesis One
  • HO1: The use of budget and budgetary control in an organization is not a managerial tool in an organization.
  • Ha1: The use of budget and budgetary control in an organization is a managerial tool in an organization.
Hypothesis Two
  • HO2: There are no way(s) in which a budget reflects management performance.
  • Ha2: There are way(s) in which a budget reflects management performance.
Hypothesis Three
  • HO3: There is no support programmes designed to aid the administration of the budgeting system.
  • Ha3: There is support programmes designed to aid the administration of the budgeting system.

1.6 Significance of the Study

The budget, which is an integral part of planning and control, constitute an important tool of performance management. Thus a research work in it is a valuable one.

The study, having examined the principle of budgeting; preparation, implementation and control, the reader is better positioned in dealing with budgets and budgetary control matters.

Also, having explored the constraining factors of budgeting, the reader is in a better place in using budgets as performance managerial tool. In addition, an examination of the various prerequisites of the budgeting system will enable the reader to better appreciate the use of budget in evaluating performance in relation to predetermined set goals of the organization. Furthermore, an exploration of the dangers and problems associated with budget will also enhance the reader’s knowledge in the use of budget as a performance standard. The work, which also confirms literature on budget and budgetary control, shall in addition serves as a good source for further research.


1.7 Limitation and Scope of the Study

In the literally sense, scope can be said to mean reach extent of an observation or action. In this context, therefore, it will mean reach or extent of this study; the research shall be limited to mainly budget and budgetary control as a planning, controlling and performance managerial tool.


1.8 Definition of Key Terms

Budget:

A plan expressed in quantitative, usually monetary terms, and that covers a specified time period usually one year.

Fixed Budget:

A budget unadjusted to the actual volume of out put attained within a period which would be different from volume originally planned.

Flexible Budget:

A budget, which by recognizing the differences in behaviour between fixed and variable costs in relation to fluctuation in output, turnover, or variable factors such as number of employees, is designed to change with such fluctuations.

Zero-Based Budget:

It is a method of budgeting where by all activities is re-evaluated each time a budget is formulated.

Continuous Budget:

Budget prepared several times each year.

Incremental Budget:

It is a situation where cost levels are determined by what was spent last year or period plus percentage for inflation.

Budgeting:

A process of preparing and using budgets to achieve management objectives.

Cost Centre:

It is a responsibility centre where the manager is responsible for only cost incurred in the sub-unit.

Capital Budget:

It involves the planning to acquire worthwhile projects, together with the timings of the estimated cost and cash flows of each project.

Operating Budget:

A budget that relate to the planning of activities or operations of the organization such as production, sales etc

Management:

The people who control a business or similar organizations.


Chapter Five


Conclusion and Recommendation

5.1 Conclusion

Budgeting and budgetary control measures are an important part of any organization. It serves as a basis for planning, controlling the cost of operations and assessing the performance of workers in the organization. The budgetary process inspires managers to plan, consider the stakeholders involved, provides information for better decision making, increase and boost communication and coordination among sections and departments. For a budget to be effective, there must be sound organizational structure, teamwork, and management fiscal discipline. A budget basically is concerned with the allocation of funds and means of accordance with the activities planned. A budget is a plan of action by which the use of allocated resources is coordinated, monitored and evaluated. Budgeting, therefore, serves as a blueprint for any organization to follow up on planned objectives. Despite the commendable benefits of budgeting, its preparation, implementation and human factors that tend to affect budgeting need to be given serious thought. In the preparation of the budgets, management should give serious thought to the external environment, imminent technologies, organizational structure, size, and culture of the organization.


5.2 Recommendations

Following the discussion, advice is hereby given to managers of every organization as under listed below:

  1. More emphasis must be paid to budgeting and budgetary control system for a health organizational performance.
  2. Organizations without any budget and budgetary control should endeavor to set up planned systems that go a long way in repositioning the organization from their creeping performance to a high performing one.
  3. The government should discourage educational organizations from dependence on grants and encourage sincere and genuine policies that allow organizations to generate and control their own financial resources.

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