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BUDGET AND BUDGETARY CONTROL AS A TOOL FOR THE

EVALUATION OF MANAGEMENT PERFORMANCE


































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ABSTRACT

The budget is a document designed to estimate income and expenditure
over a time period usually the previous year and altered to accommodate
any foreseeable fluctuations. Many individuals, corporations and
governments plan their financial activities by preparing budgets.
For an organization to be successful, it must plan its financial
activities well in advance. It must estimate its income and expenditures using
historical data of activities in the past and allow for anticipated future
trends.
The budget as demonstrated by many writers is not just a financial
plan that sets forth cost and revenue goals but a device for controlling,
coordination, communication, motivation and performance measurement.
The research work on budget and budgetary control contained in chapter
two is no small measure a stepping stone for managers and researchers for
efficient and effective management of organizations as it enhances their
knowledge about budgeting.
All the views presented in chapter four are purely field information
obtained from the sampled organization within Makurdi metropolis. The
analysis of data also throws an insight into the importance or otherwise of
using budgets and budgetary control measures in an organization,
management performance as reflected by the budge as well as the legal
framework and support programmes put in place to assist the administration
of the budgeting system.
The recommendations advanced in chapter five, if implemented will
no doubt position management in advantageous posture.


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TABLE OF CONTENTS

Title Page.i
Certification ii
Declaration..iii
Dedication...iv
Acknowledgement...v
Abstract...vi

Chapter one
1.0 Introduction..1
1.1 Background to study1
1.2 statement of the problem..3
1.3 Objective of study5
1.4 Research questions ...5
1.5 Research hypothesis.6
1.6 Significance of study7
1.7 Delimitation of scope of study.8
1.8 Definition of key terms8

Chapter two
2.0 Literature review.10
2.1 Introduction 10
2.2 The scope and meaning of budget...11
2.3 Types of budget...12
2.3.1 Programme planning and budgeting system .14
2.4 Purpose of budgets 16
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2.5 Meaning of budgetary control..21
2.5.1 Budget monitoring...23
2.5.2 Budget evaluation ...24
2.5.3 Budget departing..25
2.6 Conditions necessary for the success of budgetary control system.26
2.7 Control mechanism for correcting evaluations33
2.7.1 Stages of control..35
2.7.2 Variance analysis.37
2.7.3 Feedback control system..37

Chapter three
3.0 Research methodology...39
3.1 Introduction ...39
3.2 Research design..39
3.2.1 Determining the population....40
3.2.2 Determination the sample size....40
3.2.3 Type of sampling methods..42
3.2.4 Sources of data collection...42
3.2.5 Data collection methods..43
3.2.6 Data presentation and analysis technique43
3.3 Research design problems...46

Chapter four
4.0 Data analysis and results.47
4.1 Introduction 47
4.2 Data presentation and analysis47
4.3 Test of hypothesis43
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4.4 Discussion of findings.65

Chapter five
5.0 Summary of research findings, conclusion and recommendations .68
5.1 Introduction..68
5.2 Summary of findings68
5.3 Limitations of study.70
5.4 Conclusion71
5.5 Recommendations ...72
5.6 Suggestions for further research ..74

Bibliography75
Appendix .78
























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CHAPTER ONE
INTRODUCTION

1.1 Background to 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.

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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
organizations 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 21
st
century, organizations worldwide, both
private and public, have realized the need to restructure and overhaul their
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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
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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:
i. Determine whether the use of budget and budgetary control result to
the overall effective performance of management.
ii. Determine whether the budget reflects the performance of
management.
iii. 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:
i. Is the use of budget and budgetary control in an organization
necessary for the effective performance of management?
ii. Does a budget reflect the performance of management?
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iii. What are the support programmes, designed to aid the
administration of the budgeting system in
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
HO
1
: The use of budget and budgetary control in an organization is
not necessary for the effective performance of management.
Ha
1
: The use of budget and budgetary control in an organization is
necessary for effective performance of management.
Hypothesis Two
HO
2
: There are no way(s) in which a budget reflects management
performance.
Ha
2
: There are way(s) in which a budget reflects management
performance.
Hypothesis Three
HO
3
: There is no support programmes designed to aid the
administration of the budgeting system.
Ha
3
: There is support programmes designed to aid the
administration of the budgeting system.
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1.6 Significance of the Study
The budget, which is an integral part of planning and control, constitute
an important tool of performance evaluation. 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 evaluation 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 readers 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.

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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 evaluation 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.
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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.
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