Budgeting And Budgetary Control As A Tool For Financial Planning And Control

1.0 Introduction

1.1 Background of the Study

"The point make by Harold Genean" The builder of ITT legendary CEO for nearly two decades is that, the firms and organization get at most what they plan to achieve. A well manage firm implement the planned operations to attain the planned results. Planning is a process of charting the future course to attain goals, recognize opportunities and minimize the negative effects of unavoidable event. Successful organizations usually are the results of good planning. Conversely, failure to plan often results to compromising goals and can lead to financial disaster. The budget is one of the aspects of planning used by many organizations for profit and non -profit, large or small, services or manufacturing" Blocher, Chen

Therefore, a budget is a quantitative expression of a plan of action an as aids of coordination and implementation, it may be formulated for the organization as a whole or for any sub-unit.

Budget is very vital in management function, without plans and budget for future, the individual or organization cannot grow and prosper. Budget, simply put, as a plan quantified in monetary prepare and approves to a defined period of time usually showing planned income/revenue to be generated, expenditure to be incurred during that period and capital to be employed to attain a given objective.

Budgeting control is a part of the overall system of responsibility accounting within an organization. Responsibility accounting is a system of accounting in which costs and revenue are analyzed in accordance with areas of personal responsibilities so that the performance of the budget holder can be monitored in financial terms. Therefore, the aim of budgetary control is to provide a formal basic for monetary the progress or the organization as a whole and it"s a component parts, towards the achievement of the objectives specified in the planning budgets.

Adeniyi (2001), see budgeting as the process of preparing detailed short-term plans for the functions, activities are departments of the organization thus converting the long-term cooperate plan into action.

Invariably, the realization of this long-term will entail the realization of a least some levels of financial control in the short-term.

The budgetary control system provides some of the feedback necessary to be able to make corrections to current operations and activities in order to meet the original objectives and plans (i.e. single- loop feedback) and also some of the feedback upon which alternation to the plans are made, if necessary (i.e. double-loop feedback).

Usually, budgetary control is operated with standard costing as both systems are inter-related and mutually complementary. However they are not entirely, it can be operated without standard costing and this occur in industries where maybe difficult to operate a system standard costing in operation.

Financial planning, according to Pandy (2003:05) is the process of estimating the funds requirement of a firm and determining the source of funds" therefore, financial planning is a systematic approach for attaining effective management performance and also it indicates a firm growth, performance, investment and requirement of funds during a given period of time. On the other hand, financial control (controller) by and large, traditionally is functions of chief accountants or management accountants through the subsidiary control or budgetary control.

Financial planning and control is no doubt a goals pursued by all organizations including University of Ilorin (the case study organization). Budgetary control and budgeting has come to constitute independable tools of management decision making and control and so, should have some impact over this important goals to the attainment of financial planning and control. The existence of otherwise of the impact was what this project or research set out to investigate.

1.2 Statement of the Research Problem

There are many hindrances toward a prolong survival of some organization in Nigeria. One of such problem is the overcharging condition of the business environment coupled with the complexity of the business. This affects the objective/goal of some organization.

Hence, budgeting system was considered as a toll to eliminate poor financial planning and control and some optimality in some organization.

1.3 Objective of the Study

The study will be of interest to the researcher as a result of study valve of budgeting and budgetary control as a tool for financial planning and control. This research work emphasized on how effectively budgeting and budgetary control can help in achieving the objective of educational institutions.

Specifically, the study focuses to:

Evaluate the meaning of budget and its effects.

Examine the role of budgetary system as a tool to effective financial planning and control in an organization.

Consider various ways in which budget as being applied as a means of financial control

Recommend the possible ways of making budgeting system of an organization useful.

1.4 Significance of the Study

Researches with useful outcome have been conducted in relation to budgeting and budgetary control and their respective impact on the financial planning and control of organization. However little among the research will be effective on budgeting system of financial planning and control especially of educational institution for instance, Oyinloye (2000), restricted his research work on budgeting and its uses in the organization and also Faluse (2003), limited his work on types of budgeting and budget operate in organizations. Little did he mention the impact of budgeting control on the financial planning and control of organization. To this end, this study will concentrate more on budgeting and budgetary control as a tool for financial planning and control in an organization institution.

1.5 Research Question

In the course of the research work answer will be provided to the following research question.

Meaning of budget, budgeting, budgetary control and financial planning.

What is the conceptual framework of budgeting and budgetary control?

What is the various type of budgeting in existence in Nigeria tertiary institution?

What are the various budgetary control existences in Nigeria tertiary institution?

What are the effects of budgeting in Nigeria tertiary institution?

What is the difference between budgeting and budgetary control?

What are the various ways in which budgeting is applied as a means of financial control?

What are the clear behavioural implications of budgets?

What are the required necessary for a successful budgeting?

What are the significant limiting factors on budgets?

1.6 Scope of the Study

The research will use University of Ilorin, Nigeria, an educational institution as a case study, which uses budgeting and budgetary control. In addition, this study will focus on budgeting and budgetary control as a technique or tool and also it therefore considered the ways in which budgets are being formulated and applied in an organization.

1.7 Limitation of the Study

It is widely known that the journey to success is never smooth and easy. A lot of obstacles were encountered in the course of conducting the study.

The major obstacles were time and financial constraints there was the need to shuttle between Kwara state polytechnics main campus and University of Ilorin main campus (permanent sites) repeatedly covering a distance of about 4.5km on each occasion during the data collection with the school on session with exam fast approaching and depleting my meager financial resources in the process.

1.8 Plan of the Study

The research is written to examine budgeting and budgetary control as a tool for financial planning and control.
The study begins with chapter one that deals with background of the study, statement of the research problem, objectives of the study and definition of key terms. Chapter two deals with the literature review of the work of other author related to this research. Chapter three emphasizes on research methodology, historical profile of the case study, method of data, collection, population and sample size and method of analysis. Chapter four embraces the data presentation and analysis, discussion of the analysis, hypothesis and discussion of findings. Chapter five deals with summary, conclusion and recommendation.

1.9 Definition of Key Term

1.9.1 Budget

A budget is a financial statement made by government organization, firm etc., which spell out their estimated revenue and proposed expenditure for the coming financial year. A budget consists of a package of proposals regarding revenue which is likely to be derived from various sources and expenditure which is likely to be met on various items.

Thus, according to Ronald, Michael and Frank (2000:625) budget is a detailed planning expressed in quantitative terms, that specific how organization will acquire and use resources during a particular period of time, a more professional definition is given by the chartered institute of management accounting (CIMA) in their official terminology (1982), "it is a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing a planned" income to be generated or expenditure to be incurred during that period and the capital to be employed to attain a given objectives".

Therefore, more importantly, a budget is a shot term plan prepared beforehand and stating the planning income (revenues) and expenditure for a specified period.

1.9.2 Budgeting

Budgeting is a process that deals with establishment and regular reviews of budget. Hermason, Edwards and Maher (1998:568) see budgeting as "organizational activity involves the coordination of finance and non-financial planning to satisfy organizational goals and objectives"

1.9.3 Budgetary Control

Budgetary control is the establishment of budgetary relating to responsibilities of executives to the requirements of a policy and either to source by individual action the objective of that policy or to provide a basis for its revision (CIMA 1982)

Lucy (2003) also sees budgetary control as part of the overall system of responsibility accounting within an organization. Thus, responsibility accounting is a system of accounting in which cost and revenues are analyzed in accordance with areas of personal responsibility so that the performance of the budget can be monitored in financial terms.

Lucy (2003) also says that the aims of budgetary control is to provide a formal basis for monitory progress of the organization as a whole and its component parts, towards the achievement of the objectives specified in the planning budget.

The budgetary control system provides some of feedback necessary to be able to make corrections to current operation and activities in order to meet the original objectives and plans (i.e. single loop feedback) and also some of the feedback upon which alternations to the plans are made, if necessary (i.e. double loop feedback)

1.9.4 Financial Planning

Financial planning is a process of estimating the fund requirements of a firm and determines the sources of fund. Therefore, financial planning indicates a firm"s growth, performance, investment and requirement of fund during a given period of time, usually 2 - 5 years.

5.0 Summary, Conclusion and Recommendation

5.0 Introduction

In this concluding chapter, summary, conclusion and recommendation are presented. And also the area where the results of this project validate the position of previous research are also presented.

5.1 Summary

Budgeting and budgetary control have, without doubt, come to stay as part of the necessary management activities in modern day cooperate entities such as educational institution. Budgeting a more or less annual component of the long term planning process. It used among others thing to set standards, targets and goals which, if properly pursued, will assist to bring about tomorrow, a realization of day"s ideal. Budgetary control comprise steps and activities that evaluate the extend of compliance to these plans and which indicate where necessary either a need for corrective action to facilitate goals or standard attainment, or perhaps need to review the standard themselves.
The relevance of budgeting and budgetary control to educational institution non-profit making was examined in the content of cooperate entities. An educational institution University of Ilorin was used as a case study. The case study employees budgeting and budgetary control system in the management of its operation.

Therefore, hypotheses were put forward and test on:

Whether the budgeting and budgetary control serve as a tool for financial planning and control in the case study and

Whether the applications of budgeting and budgetary control has a motivational affection on employees in the case study.

A total of thirty (30) questionnaires were administered of which twenty six (26) copies were returned successfully. In all, 156 responses were sampled for hypothesis 1 and 130 responses for hypothesis 2, based on chi-square test of significance was carried out both hypothesis were test out degree for freedom of 20 and 16 respectively out 2% significance level for both. From the test carried out, the following results were obtained.

Budgeting and budgetary controls do indeed serve as a tool for financial planning and control. In effect, they contrite the overall organization objective and so justify their continued application in corporate management.

The application of budgeting and budgetary control in the case study of Unilorin does not contrite to employee Motivation.

5.2 Conclusion

Budgeting and budgetary control are indeed beneficial to cooperate organization, especially in their effort attaining continued financial planning and control. Efforts need, however, be made to balance the need for budgetary control with employee motivation, if Budgeting and budgetary control as a tool for financial planning and control such benefit are to be fully exploited, and then they must apply the use of budgeting and budgetary control for proper financial planning.

5.3 Recommendation

Base on the research results, the following are recommend.

Since budgeting as well as the attendant control has been substantiated as tool for financial planning and control, organization already is using it. It should continue to do so, while those that are not yet using it should consider starting up their own budget system.

Since the test of hypothesis 2 indicates that the budget system in Unilorin does not have motivational effect on employees, management of cooperate bodies in general and of University of Ilorin especially, may need to pay particular attention to issues raised in literature review (chapter two) of this work.

(2000) advocates that the best performance in attainable where standard are high enough for small adverse variances to be inevitable. To attain optimal performance, therefore, effort should be made to identify and employee such standard. However, the resulting adverse invariance should be seen as a sign of health performance, and not something to be avoided.

Chapter One

1.0 Introduction

1.1 Background of the study

1.2 Statement of the research problem

1.3 Objectives of the study

1.4 Significance of the study

1.5 Research questions

1.6 Scope of the study

1.7 Limitations of the study

1.8 Plan of the study

1.9 Definition of key terms

Chapter Two

2.0 Literature Review

2.1 Historical profile of the case study

2.2 Budgeting in different organization

2.3 International aspect of budgeting

2.4 Budget cycle and budgetary process and its administration

2.5 The benefits of budgets to organization

2.6 Condition for a successful budgeting

2.7 Limiting factor on budget

2.8 Behavioural implication of budgets

2.9 Application of budgeting to various non-profit making organizations

2.10 Budgeting classifications

2.11 Alternative approaches of budgeting

2.12 budgeting and computer

Chapter Three

3.0 Research Methodology

3.1 Method of data collection

3.2 Population and sample size

3.3 Sampling techniques

3.4 Method of data analysis

Chapter Four

4.0 Data Presentation, Analysis and Interpretation

4.1 Discussion of the analysis

4.2 Hypothesis

4.3 Discussion of finding

Chapter Five

Summary, Conclusion and Recommendation

5.0 Introduction

5.1 Summary

5.2 Conclusion

5.3 Recommendation

Appendix

Reference

Letter of introduction

Questionnaire

• Effect Of Budgeting And Budgetary Control On Organization Performance
• Impact Of Budgeting And Budgetary Control In Construction Project Delivery In Nigeria
• Role Of Budgeting And Budgetary Control In A Business Organization
• Impact Of Budgeting And Budgetary Control System In The Banking Industry
• Application Of Budgeting And Budgetary Control Of Non Profit Making Organization
• Effects Of Budgeting And Budgetary Control On The Performance Of Middle Management
• Budgeting And Budgetary Control In A Business Organization

• Accounting Project Topics and Materials