A Study on the Impact of Budgetary Controls on the Performance of an Organization

A Study on the Impact of Budgetary Controls on the Performance of an Organization

CHAPTER ONE

INTRODUCTION

1.1. BACKGROUND OF THE STUDY AND PROFILE OF THE ORGANIZATION

Following the uncertainties prevailing in the Nigerian business environment today, managers and stakeholders must be poised and prepared to compete favorably under these rapidly shifting conditions. To survive under these environmental complexities and vagueness managers and stakeholders of both private and public sectors need sharp tools, proven management techniques to forecast the major changes which are likely to affect the business while they choose future direction and dimension of resources needed to attain selected goals.

Budgetary control as a proven management tool helps organization management and enhances the improved performance of any economy in different ways. Its primary function is to serve as a guide in financial planning operators; it also establishes limits for departmental excesses. It helps administrative officials to make a careful analysis of all existing operations, thereby justifying expanding, eliminating, or restricting present practice. Budgeting and control entail a distinct pattern of decisions in an organization that is capable of determining its objectives, purposes, or goals, and how these goals are achieved by establishing principal policies and plans. However, the inability to recognize the problem concerned and fix a boundary off investigation creates an obstacle for the successful implementation of budgeting and control. Some organizations only look for narrow ranges of alternatives which they arrive at from their past expenses and present situation, other management levels even avoid long-term planning and budgeting in favor of today’s problems thereby making the problems of tomorrow more severe. The foregoing reflects on the need for organizations to set up a formal mechanism for scanning its environment for opportunities and give early signs of future problems, this course of action will improve the system of budgeting and control, resulting in an appropriate expectation of improved performance, in the manufacturing sector as seen in this study.

Various researches on budgets and budgetary controls have clearly shown that organizations need to pay serious attention to budgetary processes, budgets, and budgetary controls. In light of these various issues facing organizations as a result of poor/mismanaged budgetary control systems/budgets, the researcher went ahead to research more on the topic and came out with various recommendations and findings to help curb the problems organizations have with their various budgetary control systems.

Interviews and casual discussions with managers, employees, government agencies, etc, formed the initial and informal stages of this study. When enough materials were gotten and reviewed by the researcher, it later developed into complete academic research. Various issues affecting budgetary processes, budgets, and budgetary control are fully addressed in this study.

This study was mainly undertaken to help organizations in Nigeria to grow, thereby also helping the economy of Nigeria to grow, because when enterprises and businesses do well, the economy will do well.

1.2 STATEMENT OF THE PROBLEM

In recent times, companies have performed poorly due, to the fact that they lack effective and efficient budgets, and budgetary control systems to adequately and judiciously allocate resources to meet organizational goals, and maximize performance. A study conducted by Boquist (2001) observed that companies continue to blunder and fail because they have flawed budgetary planning and control systems, which they fail to recognize. Some firms sense the weakness of their budgetary analysis but viewed them as individual problems rather than systematic deficiencies. They misdirect efforts and produce greater frustration. As a result, corporate strategy and capital allocation become misaligned and remain so, despite disapproving financial performance.

Some business organizations do not even know the link between budgetary control and performance, and this affects their performance negatively. Various organizations ranging from small-scale businesses to large-scale businesses, fail to recognize the power of budgets and budgetary control over performance outcomes. These organizations go ahead without paying more attention to improving their performances through their budgets.

1.3 AIMS AND OBJECTIVES OF THE STUDY

The objectives for this study are:

• To identify the link/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 SIGNIFICANCE OF THE STUDY

The addition of knowledge is the aim of every research and this research work seeks to achieve just that. More importantly, this research is necessary for understanding how budgetary control is established, and also how it affects organizational performance.

It is a tool that measures the managerial performance of an organization and promotes good morale and harmony in the organization. It enables the organization to verify whether or not the plans of the organization are understood by all members, and put into effect corrective measures where deviation or under deviation is occurring.

Since a budget is a tool for planning, and financial planning is of almost significance to a businessman, it enables the organization to project the future consequences of present decisions to avoid surprises and understand the link between the present and future decisions.

1.5 SCOPE OF THE STUDY

The research would be concentrated on the Diamond Bank branch in Asaba, the capital town of delta state.  The research would cover the budgetary processes and policies of Merchant Bank and how its performance is influenced and maximized.

1.6 LIMITATIONS

Limitations experienced in the course of this study are centered on problems relating to:

Difficulty in generating reasonable, adequate, and reliable information from respondents- Respondents tend to provide information that they feel the researcher would be pleased to get, which may not be the right information.

Financial constraint– Insufficient funding tends to impede the efficiency of the researcher in sourcing the relevant materials, literature, or information and in the process of data collection (questionnaire and interview).

Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted to the research work.

1.7 RESEARCH QUESTIONS

To achieve the above objectives the following research questions will be used:

• What relationship exists between budgetary control and organizational performance?
• What are the problems associated with budgets and budgetary controls in your organization?
• How can organizational performance be improved through the use of budgetary control measures?

1.8 Research hypotheses

H0: There is no significant impact of budgetary controls on the performance of an organization.

HA: There is a significant impact of budgetary controls on the performance of an organization.

H0: There is no significant relationship between budgetary controls and organizational performance.

HA: There is a significant relationship between budgetary controls and organizational performance.

1.9 Definition of terms

BUDGET: the money that is available to a person or an organization and a plan of how it would be spent over some time.

ORGANIZATION: a group of people who form a business, club, etc. together in other to achieve a particular aim.