The Impact Of Budgeting And Budgetary Control In Construction Project Delivery In Nigeria

Project and Seminar Material for Building Technology BT

Abstract

This research project examined the impact of budgeting and budgetary control in construction project delivery in Nigeria.

The study tried to find out how industries make budget and uses budget to achieve the objective of the firm.
It also sought to ascertain the importance of budgeting and budgetary control to a construction firm.

It also identified the limitation to the application of sound budgeting and budgetary control system in a construction firm.

In constructing this research project, the researcher had to review some literatures and subsequently embarked on data collection through observation, interview and questionnaire.

The objective of chapter one of this research project is to introduce the topic which the need for the research is given and stated.

The hypothesis and other important aspects like the significant of the problem, the scope and limitation were given.

The objective of chapter two is to present a piece of the extensive literature review carried out in order to reveal the expressed opinion of notable authors and scholars as regards, to the relevance of the budgeting and budgetary control to an organization.

Chapter three present the research design and methodology. Chapter four and five presents the analysis of the research and results, conclusion and recommendation respectively.

These chapters reviewed that budgeting and budgetary control is a sound management system which has the potential to drive a construction firm into prime position in the construction sector of the Economy.

Table Of Content

Preliminary Page(s)

Title page
Certification
Dedication
Acknowledgement
Abstract
Table of Content

Chapter One

1.0 Introduction

1.1 Overview of the study
1.2 Statement of the problem
1.3 Significant of the study
1.4 Purpose of the study
1.5 Scope and limitation of the study
1.6 Research questions/Hypothesis
1.7 Organization of work
1.8 Definitions of terms

Chapter Two

2.0 Literature review

2.1 Types of budget
2.2 Purpose of budget
2.3 Essentials of budgeting
2.4 Budget limitation
2.5 Budgetary controls
2.6 Budgetary controls in the building process
2.7 Objective of budgetary control
2.8 The process of budgetary control
2.9 Administration of budgetary control
2.10 Benefits of budgetary control
2.11 Planning programming budgeting system
2.12 Rolling plans
2.13 Stages in budgeting
2.14 Budget and standard costing
2.15 Budgeting and project cost control
2.16 Cost forecasting and cost control
2.17 Cost control mechanism

Chapter Three

3.0 Research methodology

3.1 Research design
3.2 Method of data collection
3.3 Populations
3.4 Sample
3.5 Questionnaire design and administration
3.6 Data analysis technique

Chapter Four

4.0 Data presentation and analysis

Chapter Five

5.0 Conclusion and Recommendation

5.1 Conclusion
5.2 Recommendations
References
Appendix
Questionnaire

Chapter One

Introduction

1.1 Overview Of The Study

In Nigeria, building construction have gone through a lot of setback due to unplanned programme of works, and the proper utilization of the available capital or resources of the project and this has caused the abandonment of project.

Building projects form an important ingredient in the development process of communities, nations and regions of the world. Ability to conceive and implement building project successfully is important after the measurement of a nation’s wealth.

The construction industry in the last decades and the environment in which it operates has changed significantly.

The changing process is increasing continuously and it seems to be a nearer ending and lactic process. With the changes in construction procurement process, one thing has not changed, which is the importance of cost control (Budgeting and Budgetary control).

According to Alan (1977) Budgeting is a critical decision making process which involves the allocation of limited financial resources to meet constructional goals and objectives.

Formerly, building firms used the appropriate type of budget adopted from government.

The purpose was to limit the expenses on some items such as advertising, research and development which where considered as luxury items. Nothing was done to control construction cost through the establishment of periodic standard and the analysis of variance between actual and predetermined performances.

According to Anyaogu (1999) the word “ Budget” was defined as an expression in financial and quantitative term of an organizational plan of action prepared in advance of the period to which it relate and with the aim of attaining a certain objective. It is a management document that serves as a control medium over the spending activities of an organization.

Budget can equally be defined as a format or statement of management expectation on output, cost and other financial transaction.

Budgetary control was originated in the 1920’s as a means of planning and control. Organization’s wanted to see the possibility and the outcome of their plans and forecast, budget were prepared for this purpose, at this period however, the impact of budgetary control was not fully understood by organizations.

Budgeting and budgetary control are (2) techniques which top management adopted to achieve its task of planning, co-operating, directing and controlling in an organization.

In a lecture delivered in an annual workshop of the Nigeria Institute of Quantity Surveyors (NIQS), Wahab (2000) said while budgetary planning is concerned with setting targets at the onset of a project, Budgetary control is concerned with checking actual performance with those targets and where effective remedial action is necessary to ensure that the project remains with budget at all, times. The exercise embraces the entire construction process which it cycle covers the pre-design, post design, detailed and construction phases.

1.2 Statement Of The Problem

The impact of budgeting and budgetary control in the construction industry cannot be overlooked, but the problem is how effective do they use it to achieve the organizational goals.

In the course of planning, many firms prepares budget as a technique that will quick on them to achieved the objective of their business, but still after preparing the budgets as a technique that will help them in the planning, controlling and co-ordinations of their activities to achieve the goal, the problem mentioned to be solved in the budget remains the some due to the inability of the firm to control their contract cost annually to rhyme with their annual budget.

To this affect the question is, is budgeting important or useful to a construction company in the areas of planning, controlling and coordinating of their activities, since after all the effort in preparing budget and the objective of the organization remains unachieved . Is there no co-committee to integrate the effort of all the functional staff who prepares the budget and explain the deviation arising from the budget?

1.3 Significance Of The Study

The significance cannot be overemphasized. This research has been useful for being able to find out that there is need for budgeting in a construction firm.

Budgeting is a way of managing, it is a management tool. It also has a lot of importance to contract in the building construction firm, although it is a means, not an end itself.

The benefit of budgeting in a construction firm includes planning co-ordination, classification of responsibility, improved communication, increased in control avert the abandonment of capital constructional projects and the motivation of personnel.

Budgeting also increases the morals, thus the productivity of the labour force by seeking their useful participation in the formulation of plans and policies by bringing a harmony between individual goals and the company’s objective.

It helps the firm in resources optimization, capital and human, it aids the most profitable channels.

1.4 Purpose Of The Study

The purpose of the study is to find out the need for budgeting in a construction company.
This study is fashioned to know if:

Budgetary control can be used in comparing actual contract sum with the expected expenditure.
Budgetary control as a continued monitoring system can be used to expect new event in a construction company and react quickly to changes.
Budgetary control, through its check and balance method can be used in making and controlling profit plan in a construction firm.
Budgetary control can be used to monitor the cash flow of the project.

1.5 Scope And Limitation Of The Study

This study is based on budgeting strategies of small construction firms and their budgeting procedure, the process of this research did not cover much location but his immediate environment (Owerri) to facilitate his work.

Although the study was successful, some problems were encountered.

These problems include impossibilities faced as to get in touch to firms, companies and persons who should supply the needed information.

The word construction is also limited to the building industry as construction comprises a wide range of activities.

Other limitation to this work is time constraint.

1.6 Research Questions/ Hypothesis

The following hypothesis and Research were made to guide the study.

Budgeting and budgetary control is not useful to a construction firm in project delivery.
Budgeting and budgetary control cannot be used in the monitoring of cash flow in construction project.
Budgeting and budgetary control has contributed in construction project delivery
Budgeting and Budgetary control is useful to a construction firm in project delivery

1.7 Organization Of Works

This project is divided into five chapters.

Chapter one is the introduction.
Chapter two is literature review.
Chapter three is the research mythology where all the techniques, procedures and tools of analysis of data would be presented.
Chapter four is data presentation and analysis.
Chapter five is summary, conclusion and recommendation.

1.8 Definition Of Term

Budget:

Is the plan or forecast in which to monitor the performance of a set target which is used to measure the actual achievement of people, department or “the firm itself”.

Budgetary Control:

Is a system of controlling cost through the preparation of budget, co-ordination of the development, establishing responsibilities, relating the responsibilities of the executive to her requirement of a policy. It is a technique which embarrasses all activities of the project and serves to support the key aspects of management control process.

Planning:

Is the methodical process which occurs first with determining the precise course of action to achieving a desired target through established production objectives.

Rolling Plan:

Is a part of perspective plans. Its purpose is to ensure continuity in the implementation of a perspective plan objective.

Planning Programming Budgeting System:

This is one of the budgeting system which calls for a comprehensive application of the cost benefits analysis to detailed expenditure project applied to functional expenditure categories.

Zero Based Budget:

This system calls for a total review of the entire budget each year with emphasis on a ranking of alternative project rather than on a detailed item by item analysis.

Balance Budgeting:

This is where the budgeted revenue is equal to the budgeted expenditure.

Budget Centre:

A responsibility center where the manager is responsible only for cost (expenses) incurred in the sub-unit.

Chapter Five

5.0 Conclusion and Recommendation

5.1 Conclusion

The following conclusions where made basic on the result of the study.

Budgeting and budgetary control and a construction firm in order to achieve increase in productivity, reduction of wastage on site and adequate utilization of resources.
Budgeting and budgetary control is important on a construction firm in project delivery in the area of planning, co-ordination, clarification of responsibility, improved communication, increased control and motivation of personnel.
Through budgeting, management is compelled to plan for the look ahead and become more effective in administering the business operation.
Budgeting help to increase the morale and thus the productivity in the formulation of plans and perform mere effectively.

Finally, it was concluded that budgeting and budgetary control aid in directing the total effort of the firm into the most profitable channels.

5.2 Recommendations

In the process of using budgeting and budgetary control every organization should:

Understand that the budgetary control goals are subsidiary to the entire organization objective and should be subordinated with the later whenever there is conflicts between them.
Ensure that the routine application is not allowed to be tedious and prohibitively expensive.
Engage well-qualified and trained persons in the processing and control of budgetary system.
Ensure that they communicate expectations to all concerned with the management of the firm so that they are understood, supported and implemented.
Ensure that every construction firm should embrace the concept of budgeting and budgetary control for its helps in planning, co-ordination and control, clarification of responsibility, improved communication and motivation.
It provides a means of measuring and controlling the performance of individual and units and to supply information on the basis of which the necessary corrective action can be taken.

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