Budget As A Tool For Planning And Controlling In An Organisation

The purpose of this study is to examine how budgeting and budgetary control has been used as a tool for effective managerial planning and control in organizations in the hospitality industry. This study consists of the survey of five hotels, Sheraton Hotel and Towers, Federal Palace Hotel, Lagos Airport Hotel, Ikeja Palace Hotel and Eko Hotel and Suites; were carefully selected as case studies. The study reveals that there are academically qualified manpower to prepare budget, and that budgets make for planning before acting by using foresight as well as hindsight. The results show that the ultimate purpose of budgeting is to discover and pursue the most profitable course of action open to the organization. It also shows that the lack of budget is suicidal to an organization"s survival. Results show that budgeting should be encouraged and prepared by all organizations. The lack of a budget can be seen to be a failure to achieve a strategic plan.

Introduction

1.1 Background to the Study

There is the need for optimization of the scarce resources available to organizations, that is available resources are to be put to their most optimal or profitable use. Since these resources are scarce, a plan has to be drawn to eliminate wastage and arbitrary resource allocation. This trend of thought brings us to the "concept of budgeting".

An organization plans ahead in terms of sources of revenue and avenues of expenditure within a specific time frame. Irrespective of the fact that it is privately or publicly owned, organizations find it of utmost importance to prepare budgets and put in place budgetary controls for the purpose of achieving the best possible results.

Omolehinwa (2001 :309) defines budgeting as "the plan of the dominant individuals in an organization expressed in monetary terms and subject to the constraints imposed by other participants and the environment indicating how the available resources may be utilized to achieve whatever the dominant individuals agree to be the organization"s "priorities".

In real world policy- and decision-making, information is intertwined with, and therefore reflects, interests and ideologies of various stakeholders (Weiss 1983). The information-content of (performance) measurement systems has an impact on how management and policy are defined, controlled, reported on and legitimized (Bouckaert 1995:384).

Thus the information-content of budgetary control systems can be part of strategies to create meaning, exercise control or establish legitimacy. (Meyers 1994; Rubin 1997).

Schick (1996) identified three ideal-type budget functions: control, management and planning and throughout the 20th century, other functions have been added to those outlined by Schick, for instance achieving savings or increasing accountability (Rubin 1996). As a result budget processes have gradually accumulated functions (Caiden 1988). Contemporary budget systems can thus be understood as multi-functional, multi-formatted and multi-procedural phenomena. Budget reform then can be described as shifts in functions, formats and procedures.

1.2 Statement of the Problem

The focus on improving financial control has resulted in introducing more sophisticated financial accounting techniques in organizations, requiring long-term financial planning, and more comprehensive financial statements and financial audits. The performance oriented reforms at this level have focused on strategic and performance planning, aligning budget formats to these performance plans, linking performance monitoring with accrual and cost accounting and conducting performance audits.

It is a common practice for corporate bodies to prepare their yearly budget proposals for approval, the budget approval in most cases is hinged on the performance and actualization of the previous years" budgets.

However the underlying problem of the budgetary system is its strict implementation within the dynamic of an ever changing business and political environment of the corporate business world.

Thus for corporate management, budgeting and budgetary controls may be reviewed periodically to attain given objectives with organizational goals.

That practice of performance measurement against plans would make management able to take remedial action against variances in order to bring the deviating operations/departments back on course.

1.3 Purpose / Objective of the Study

The purpose of this study is to examine how budgeting and budgetary control has been used as a tool for effective managerial planning and control in organizations in the hotel industry.

It will highlight the budgeting and budgetary control procedures as they apply to these organizations and the recent innovation in budgeting and the constraints of administration of budgetary control for effective decision making and attainment of organisational goals/plans.

1.4 Research Questions

This study attempts to proffer answers to some relevant research questions, and is meant to give a thorough insight into the analysis of the concepts and objectives of the study that would enable the researcher to extract useful deductions from the research work.

Are there qualified and experienced manpower adequate for the formulation of the budgetary control techniques and budget preparation?

What types of budgetary and budgetary control systems are available?

What causes inefficiency in the budgetary process?

What is the root cause of poor budget implementation and budgetary control in organizations?

What are the available budgetary control techniques used by the organization?

What other control techniques are available other than budgetary control methods which the organization uses?

To what extent does the organization"s budget control its activities?

1.5 Research Hypotheses

Hypothesis 1

Ho: There are not enough qualified and experienced manpower for the formulation and implementation of the budgetary control techniques.

H1: There are enough qualified and experienced manpower for the formulation and implementation of the budgetary control techniques.

Hypothesis 2

Ho: The organization"s budget to a large extent does not control its operations and activities.

H1: The organization"s budget to a large extent controls its operations and activities.

1.6 Significance of the Study

The significance of this research project is that budget functions always involve an element of control (top-down) as well as an element of accountability (bottom-up). Control and accountability may thus be regarded as "permanent" budget functions. The way in which these permanent functions are defined however, has varied according to time and place.

The place under scrutiny in this study is the hospitality industry where the purpose has been to use the budget as a management policy tool and the concept of accountability has been defined in terms of quality of service clients. Where the purpose has been to use the budget as an instrument for financial control, accountability has been defined in terms of detailed line-items. Where the purpose has been to improve management, accountability has been defined in terms of performance or results. These "purposes" can be regarded as "variable" functions, whose dominance has been contingent with changes in the administrative, political and societal context and in the perceptions and behaviour of the all levels of management in the hospitality and tourism sector of the economy.

1.7 Scope and Limitations of the Study

The study concentrated on the problems associated with budgeting and budgetary control which have brought about changes in policy from the use of a planning programme budgeting system.

This study covered practice and problems of the budget process in relation to organizations in the hotel industry. Specifically the five selected hotels are Sheraton Hotel and Towers, Federal Palace Hotel and Suites, Lagos Airport Hotel, Ikeja Palace Hotel and Eko Hotel and Suites; all located in Lagos.

However the limitations of this study included the difficulty in getting extremely busy financial executives and officials to fill the questionnaire and fear of information divulgence. Non-disclosure letter, particularly to competitors was submitted to allay fear by the researcher.

In addition some respondents did not answer correctly some of the questions in the questionnaire while a few others returned partially filled questionnaires.

1.8 Brief Description of Selected Hotels

Lagos Airport Hotel, was established in 1942 as "Grand Hotel", present owners bought it through the Western Region Government in 1959 and it became a subsidiary of Odua Investment Company. Incorporated in 1961 as a Private Limited Liability Company. Located on Obafemi Awolowo Way, Ikeja. Presently it has 277 rooms and suites, halls, restaurant, bars and swimming pool. Other hotels in Odua group are Lafia Hotel and Premier Hotel, both located at Ibadan.

Eko Hotel and Suites was established in 1974 but started operation in 1977, jointly owned by Lagos State Government (25%) and OHA Ltd - a French company (75%). Located on AdetokunboAdemola Street, Victoria Island overseeing the Atlantic Ocean and Kuramo Lagoon. Eko Hotel and Suites is made up ofEko Hotel, Eko Suites, Kuramo Lodge and Ocean View Restaurant. Presently it has 604 rooms and suites, ballrooms, restaurant, exhibition centre, bars, sports / health club and swimming pool.

Lagos Sheraton Hotel and Towers, a public quoted company, IS owned majorly by Ikeja Hotels PIc. Sheraton was opened in 1985. It is managed and operated formally by Sheraton Overseas Management Corporation and presently by Starwood Hotels and Resorts Inc and located on Mobolaji Bank Anthony Way, Ikeja. Presently it has 332 rooms and suites, ballrooms, night club, discotheque, restaurant, exhibition centre, bars, sports / fitness centre and swimming pool.

Federal Palace Hotel and Suites, still undergoing renovation on one of two wings was built in 1960 at the dawn of Nigeria"s independence, incorporated in 1964 and owned by the Federal Government of Nigeria until 1992 when it was acquired by The Tourist Company of Nigeria. One of the wings was built to coincide with Festival of Art and Culture (FESTAC) "77. Located on Ahmadu Bello Way, Victoria Island overlooking Lagos Harbour. Presently it has about 632 rooms and suites, ballrooms, restaurant, mini-bars, sports and health club and swimming pool.

Ikej a Palace Hotel, is privately owned by His Royal Highness, Oba G.

A. Banjo, the Ajalaye of Ilugun South, Alaro Ogun State, was established in 1979 located on Toyin Street right at Toyin, Allen and Opebi Roundabout. Presently it has 20 rooms and casino, restaurant, bars, sports/ health club and houses many shops including Courier Company, bureau de change and boutique.

Summary, Conclusions and Recommendations

5.1 Summary

Based on the analysis in chapter four of this study, the following is the summary of the findings of the research.
On the research respondents, most are male, within 36-45 years age bracket, they possess mostly first degrees and professional qualifications, and they have between 5-20 years" experience in the hotel/hospitality.

The result indicates that budgeting is strategic to a company"s survival and that the organization"s budget controls its operations and activities although some doubts are expressed in this regard by a few respondents.

The study also revealed that there are academically qualified manpower to prepare budget and formulate budgetary control techniques, and that budgets proactively highlight/identify problems right from planning stage and budgeting makes for planning before acting by using foresight as well as hindsight, and that budgeting translates to better financial performance in the organization.

Efficient budgeting can be seen to highlight cash flow levels and assists management in respect of surplus funds deficit and a well-structured budgeting system eliminates inefficiencies and improves job processes. While budgets lead to higher production output and economy of scale, budget is also a tool for effective managerial planning and control, and it remains the guide for organizations" performance.

Results show that the ultimate purpose of budgeting is to discover and pursue the most profitable course of action open to the organization, and that budgets serve as a link between financial resources and human behaviour to accomplish policy objectives. Results show that budgets should be encouraged and prepared by all organizations, and that the lack of budget is suicidal to an organization"s survival.

The study also revealed that the organization"s management team is responsible for good and poor budget implementation and that annual budgeting is bureaucratic, time consuming and unnecessary.

However the studies also brings to the fore the fact that there is no alternative planning better than budgeting, and that actual results are always compared (variance reporting) at the end the budget period. i

5.2 Conclusions

The review of literature in chapter two and data analysis in chapter four has helped in drawing findings upon which the following conclusions are based. As enterprises today continue to move towards integrated financial systems and reporting, with the availability of professionals and the benefit of budgeting and budgetary control there is the need for enterprises including the hospitality industry to get applications designed for the budgeting process assist in maintaining a competitive advantage in today"s business world.

The budgeting process though very important tends to become very cumbersome and error-prone because of the little or no integration in the accounting software. Implementing a strategic budgeting process can seem like an enormous challenge when an organization needs to incorporate the strategic plan from the top of the organization while aligning it with the data collection process at the lower levels. The qualified and experienced staff can take care of this.

After all, each level and department of the organization has a different vision of what the corporate budget should accomplish. While a financial manager may need a budgeting process that will predict revenue, expense, and profits; a CEO may require an ongoing analysis of the company"s strengths. On the other hand, a budget administrator needs a tight integration of budgeting with financial data for the system to be proactive as can be seen in the hotel industry in Nigeria.

5.3 Recommendations

The field work, book review and the questions raised in the course of this study lead to the following recommendations:

5.3.1 Budgeting should be a Dynamic and Collaborative Process.

Budgeting is not a static process and should not be treated as an annual accounting exercise. Whether an organization is large or small, its budgets undergo constant revisions and require input from all levels. Organizations should ensure that budgeting encourages collaboration across the enterprise and remains an ongoing process, not an annual event. Management should look for a budgeting system with workflow capabilities that allow for automatic distribution and consolidation of budget plans. This will reduce confusion and ensure that budget submissions from multiple departments have the maximum integrity.

5.3.2 Keep the budgeting process simple.

Often organizations realize the budgeting system is too complex and requires a high degree of technical knowledge to use after it is already in place. Companies should install a budgeting application with an interface that is familiar and easy to use. The user-friendliness of the application will reduce or even eliminate the learning curve for end users. Today"s technology can help organizations build a strategic budgeting tool. The benefits of a budgeting process with tight integration and automation involving all levels of the organization - from the top down to lower levels ¬is a management tool that will save organizations valuable time and resources.

5.4 Suggestion for Further Studies

Budget and budgetary control as an indispensable control mechanism can hardly be dealt with exhaustively within the short period of this study. The conclusions and recommendations have been based on the limited information gathered in the course of this study with no iota of bias or sentimental consideration. While the researcher strongly holds on to the above recommendations, it is hoped that further studies on the topic will be explored.

Preliminary Page(s)

Title Page

Declaration

Approval

Dedication

Acknowledgement

Abstract

Table of Content

Chapter One

1.0 Introduction

1.1 Background to the study

1.2 Statement of the Problem

l.3 Purpose / objective of the study

1.4 Research questions

1.5 Research hypotheses

1.6 Significance of the study

1.7 Scope and limitations of the study

1.8 Brief description of selected hotels

References

Chapter Two

2.0 Literature Review

2.1 Introduction

2.2 The concept of budgeting

2.3 Principles of budgeting

2.4 Prerequisites for effective

2.5 Budgetary system

2.6 Budgetary control

2.7 Behavioural implications of budgeting

2.8 Types of budgets

2.9 Budgeting techniques

2.10 Dynamism

2.11 Dynamic budgeting techniques

2.12 Budget and strategy

Chapter Three

Research Methodology

3.0 Introduction

3.1 Restatement of research questions and hypothesis

3.2 Research design

3.3 Sampling procedure

3.4 Data collection procedure

3.5 Questionnaire design

3.6 Statistical tools

Chapter Four

Data Presentation and Analysis

4.0 Introduction

4.1 Characteristics of the population

4.2 Presentation of data

4.3 Analysis of data

Chapter Five

Summary, Conclusions and Recommendations

5.1 Summary

5.2 Conclusions

5.3 Recommendations

Bibliography

• Budget And Budgetary Control As A Managerial Tool In An Organization
• Budgeting Is An Indispensable Tool For Planning And Control In The Oil Industry
• Budgetary Control: An Effective Tool For Planning And Control In The Banking Industry
• Appraisal Of Budgeting As A Tool For Effective Control In Public Sector
• Effective Budgetary Implementation As A Tool For Socio-Economic Development
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• Accounting Project Topics and Materials