Evaluation Of Financial And Budgetary Control In Construction Industry In Nigeria

The purpose of the study was to carry out an evaluation of financial and budgetary control in construction industry in nigeria. It also set out the measure of performance on the organizational and determined the inhibiting factors that affect the use of budgetary controls. In this project, RADAB Builders & Construction LTD was chosen as a case study. The objective was to evaluate the impact of budgeting control in organizations performance, evaluate factors inhibiting effective budgetary control in an organization among others. Data used for the research was collected through well-structured questionnaire using simple random sampling for selecting respondents. Analysis of data was done using frequency percentage and chi-square. Findings from this study revealed that budgets and budgetary controls are factors that can influence the performance of an organization, as they have a very mutual relationship. Concerning how budgets are linked to performance, budgets and budgetary controls mainly form and give every organization the structural support to achieve its goals and objectives, and maximizing performance, through resource allocation and control. Recommendations were then made that all organization must prepare budget and put in place budget control since it has a great impact on organization performance. Also budget control should be made mechanism for resource and control and it should be linked at all times to overall corporate strategies and goals.

Introduction

1.1 Background of the Study

It is a known fact that the Nigerian construction industry continues to occupy an important position in the nation"s economy even though it contributes less than the manufacturing or other service industries, (Aibinu and Jagboro, 2002). The contribution of the construction industry to national economic growth necessitates improved efficiency in the industry by means of cost effectiveness and timeliness, and would certainly contribute to cost savings for the country as a whole. It is also common knowledge that the implementation of the construction project in the industry is usually accompanied with time delay and cost increase as well as owner dissatisfaction (Hafez, 2001).
In general most (if not all), construction projects experience time delays and cost overruns during their implementation phase (Koushki and Kartam,2004). Numerous researchers, both in the developed and developing nations have also examined and identified the causes of time and cost overrun in the construction industry. Mansfield, Ugwu and Doran (1994), for example performed a comprehensive analysis of most important factors responsible for project delays and cost overrun in Nigerian construction projects. This analysis indicated poor contract management, financing and payment of completed works, change in site conditions, shortages of materials, design changes, subcontractors and nominated suppliers, other factors were price fluctuation inaccurate estimates, delays and additional works as factors responsible for project delays and cost overrun.

A comprehensive classification of causes of construction delays has also been determined by Henesy (1993). The classification system included materials, labour, equipment and financial constraints, as the main contributory variable to causes of construction time overrun. The list of major factors causing construction delay in Thailand by Ogunlana and Proumkunting (1996) included the inadequacy of resources supplies, client and consultant shortcomings and incompetence. Koushki and Kartan (2004) studied the impact of construction materials on project time and cost in Kuwait and identified the project related variable affecting the on time delivery of materials as material selection, time, type of materials and their availability in the local market.

Time impacts are inevitable on construction projects, primarily because of the uniqueness of each project and the limited resources of time and money that can be spent on planning, executing and delivering the project.

Time factors are inherent in all of project construction"s undertakings. Construction projects have long been recognized as particularly cost, time and risk-laden. Some of the time and cost factors associated with the construction process are fairly predictable or identifiable; others may be totally unforeseen. The constructed project may not perform as anticipated because the owner may have unrealistic expectations regarding the delivery time of construction forcing contractors into unrealistic gambles, corner-cutting or commitments that may not be realistic (Frimpong 2003).

Project success can be defined as meeting goals and objectives as prescribed in the project plan. A successful project means that the project has accomplished its technical performance, maintained its schedule, and remained within budgetary costs. Project management tools and techniques play an important role in the effective management of a project. Therefore, a good project management lies in the management tools and techniques used to manage the project. Project management involves managing the resources-workers, machines, money, materials and methods used. Some projects are effectively and efficiently managed while others are mismanaged, incurring much delay and cost overruns and negatively affecting the economy (Frimpong 2003).

Budgeting is the accepted basis for profit, planning and financial control. It has been practice effectively and profitably by many progressive companies who generally regard it not simply as a procedure but as one of the more important of process of management. Budgeting is one of the management tools that force manager to perform according to a given level of expectation.

The process of preparing the budget forces the executive to become better administrator. It puts planning in the first key and budgeting primary attention directing because it helps managers to focus in the operating problem early enough. For effective planning or action, budgeting is usually been as an integral of various plans and providing feedback for the actual result. Budgeting has many purposes. The primary purpose of budgeting is conducted under favourable conditions, there is no doubt that a firm which budget will tend to perform rather better than a similar one that does not budget.

Budgetary control is control technique which when the compares of the planned state of affairs with actually state of affairs and the continuous devising of means of correcting the deviation. It involves the use of available technique such as operational research, computer science and so on, to ensure that the budget is realistic as possible. The budget is without doubt, the most widely used control device in both business and government circle. The budget is drawn up for control purpose, that is an attempt to control the direction that the firm taking. Indeed, it is used extensively to many people, the word budget is synonymous with control still, and the preparation of budget originates as a part of planning process. Some companies in other to avoid the negative reaction that are many a time associated with the concept of control. Refer to their budgetary controls as either profit plan or profit path. The aim of budgetary control is to provide a formal basis for monitoring the progress of the organization as a whole of its component parts towards toward the achievement of the objectives specified in the planning budget.

Budget planning budget control is part of the overall system or responsibility accounting within an organization. A vast number of organization and company are getting involved in financial and budgetary control in Nigeria, and this is taking different forms, but the one that seems to be gaining more recognition is based on the concepts and ideas developed in budgetary control.

1.2 Statement of the Problem

Construction can be considered as a dynamic industry which is constantly facing uncertainties. These uncertainties and the many stakeholders in these kinds of projects, make the management of costs difficult which consequently causes cost overruns. Therefore, cost overruns are considered one of the most critical issues during the execution of construction projects (Chan, et al., 2004; Doloi, 2011).
Many private organizations do not apply budget controls as effectively as efficiently as they could. As a result, most companies lack a strong commitment to enforcing financial requirements needed. Following the current uncertainties in the Nigerian business climate, Yesuf (2015) believes that managers and stakeholders must be poised and prepared to compete favorably in these fast changing conditions. Nicoleta, K. (2017) asserted that in order to survive in the face of a variety of business environmental complexities and ambiguity, managers and stakeholders in both the private and public sectors require sharp tools and proven management techniques to forecast major changes that are likely to affect the business while determining future direction and resource dimensions required to achieve specific goals. As a result, Nicoleta noted that budgeting and control comprises a different pattern of decisions in an organization capable of deciding its aims, purposes, or goals, as well as how these goals are realized via the establishment of key policies and plans. In contrast, some organizations" incapacity to detect the budgeting problem and set a limit off investigation provides a barrier to the successful adoption of budgeting and control in private organizations. Some organizations make it difficult to execute budgeting and control effectively. Chemweno (2014) found that some firms only consider a small range of choices based on their previous spending and current condition, and that some management levels even forgo long-term planning and budgeting in favor of today"s difficulties, hence exacerbating tomorrow"s problems. As seen in this study, the need for organizations to establish a formal mechanism for scanning their environment for opportunities and early warning signs of future problems is reflected in the foregoing. This course of action will improve the budgeting and control system, resulting in an appropriate expectation of improved performance.

1.3 Objective of the Study

The main objective of this study is an Evaluation Of Financial And Budgetary Control In Construction Industry In Nigeria. Specifically, the study aims

To itemize the impact of financial and budgetary control in RADAB Builders & Construction LTD.

To exemplify by using financial and budgetary control by management for planning, control and decision making.

To know what is financial and budgetary control and why it is of interest and to whom.

To look into ways of encouraging human support for budgeting control.

1.4 Research Questions

The research intends to test the following research questions in the course of this project.

Does financial and budgetary control enhance planning and decision making efficiently?

Does financial and budgetary control ensure rational allocation of resources?

Does financial and budgetary control a motivational tool for staff?

1.5 Research Hypotheses

The hypothesis would be formulated as null and alternative

Ho: financial and budgetary control does not enhance planning and decision making efficiently
Hi: financial and budgetary control enhances planning and decision making efficiently

Ho: financial and budgetary control does not ensure rational allocation of resources
Hi: financial and budgetary control ensure rational allocation of resources

Ho: financial and budgetary control is not a motivational factor
Hi: financial and budgetary control is a motivational factor

1.6 Significance of the Study

This study will be of importance to building professionals and the general public because it would not only clarify but also create awareness of the extent to which inadequacies in cost control techniques can adversely affect project performance. The study will also help contractors, clients, consultants and all parties involved in construction projects about ways of improving their current method of cost management and control.

The study will also be of great benefit for other student researchers" who may want to venture into the same subject matter. Having gotten results-both empirically and theoretically, the study will serve as a foundation for future research studies.

1.7 Scope of the Study

The study will cover some selected quantity surveyors from RADAB Builders & Construction LTD. All findings and recommendations from the study may not reflect the true view of the traditional roles and changing roles of quantity surveyors as the researcher could not cover a wider area due to financial and time constraints.

1.8 Limitation of the Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.

1.9 Definition of Terms

Construction:

In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking. Normally, the job is managed by a project manager and supervised by a construction manager, design engineer, construction engineer or project architect

Deliverable:

Deliverable is a term used in project management to describe a tangible or intangible object produced as a result of the project that is intended to be delivered to a customer (either internal or external). A deliverable could be a report, a document, a server upgrade or any other building block of an overall project.

Project Management:

This is the discipline of planning, organizing, motivating, and controlling resources to achieve specific goals. A project is a temporary endeavour with a defined beginning and end (usually time-constrained, and often constrained by funding or deliverables), undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value.

Time:

This is a dimension in which events can be ordered from the past through the present into the future, and also the measure of durations of events and the intervals between them.

Cost:

A cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost.

Cost Overrun:

Occurs when the final cost of the project exceeds the original contract value at the time of completion.

Good Cost Performance Project:

Project in which the cost overrun of the project does not exceed 10 percent of the initial budget.

Poor Cost Performance Project:

Project in which the cost overrun of the project exceeds 10 percent of the initial budget.

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.

Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.

Chapter three deals on the research design and methodology adopted in the study.

Chapter four concentrate on the data collection and analysis and presentation of finding.

Chapter five gives summary, conclusion, and recommendations made of the study.

Summary, Conclusion and Recommendations

This chapter considers the summary of findings, conclusion and policy issues of the study. The findings are what the researcher found out during the study based on the responses given and interviews conducted. This also includes the conclusion of the whole work .

5.1 Summary

The first objective of this study was an evaluation of financial and budgetary control in construction industry in Nigeria using RADAB Builders & Construction LTD, Lagos State as case study. Findings from the study show that budgetary control has a strong relationship with organizational performance, because, budget itself forms the basis for decision making, foundation for sound planning, measure for performance of an organization, budgetary controls provide structural support for performance and it also acts as a tool for resource allocation and control (see table 4.2.4).

The above findings strongly suggest that budgets are greatly linked to performance of an organization, hence, it should not be neglected. The study also revealed that budgets and budgetary controls have a greater link to the performance of an organization because, it provide structural support for performance. If the power of budgetary controls are not fully utilized or recognized by an organization, performance may not be fully maximized, as resources may be allocated and channelled to unprofitable projects/ventures.

The second objective of this study was to identify the problems associated with budgetary controls in an organization. The study revealed that the biggest challenge facing budgetary control is that the organization"s managers do not fully understand or appreciate the importance of budgets/budgetary controls in the organization (see table 4.6). other problems identified are: inadequate/in-complete financial records, lack of integration with overall organization"s strategy, kacj of financial experts, and overestimation of cost (see table 4.2.6). If these problems persist for long, it could lead to the organization performing below expectation. Losses may realised in the long run if organization do not address budgetary control problems effectively. The third objective of the study was to identify ways of improving the performance of an organization.

Findings revealed that in actual fact, the performance of an organization can be improved (see table 4.2.9). The study also revealed that the performance of an organization can be improved if budgets are linked with the overall organizational strategies. Keeping proper and complete financial records will also improve performance. Others are: using budgets as bench marks, getting more experienced and skilled financial analyst, revising and debating on past, current and future budgets, and creating an enabling environment for effective and efficient budgetary control. All of these solutions will go a long way in improving the performance of an organization if adopted.

5.2 Conclusion

This study conducted a preliminary investigation of budgetary control and performance of an organization, using Access bank plc as a case study. The researcher reviewed previous literature and contributions to this study, the problems associated with budgetary control, various ways to improve performance through budgetary controls, various ways to improve performance through budgetary controls in previous and recent times, among other salient issues relevant to the subject of study. The researcher found out that the performance of some organization in Nigeria leaves much to be desired, as a result of the various problems associated with budgets and budgetary control systems in some organization. However, an empirical investigation was undertaken, using the descriptive research design, to aid easy understanding of the layman who is also expected to maximize the advantage of the result-oriented budgetary control system. Following our findings, the researchers hereby advise mangers and business operators to pay more attention to their budgetary control systems, while those without any should endeavour to ensure the set-up of a result-oriented system as it goes a long way in repositioning businesses and organizations from their creeping performance level to an improved and high capacity utilization point.

5.3 Recommendations

After a preliminary investigation of how budgetary control are linked to the performance of an organization, the researcher through her findings and analysis, came up with the following recommendations to help organizations maximise performance:

First, organizations must recognize that budgets and budgetary controls are heavily linked to organizational performance. Managers should endeavour to fully utilize the budget resource, since it has the power to completely transform the organization. Organizations without budgetary control systems should endeavour to put it in place in their organization.

Second, organizations must at all times link their budgets to their overall corporate strategies and goals. Budgets/budgetary controls must always be prepared in a strategically manner to fit into the organization"s goals and aims. Budgets should not be prepared as a mere formality or function.

Third, accurate and complete financial records must be always kept by the organization. Without proper financial records, organizations may not be able to achieve maximum performance. Budgets will never be a useful tool for improved performance if financial estimates and records are in-complete or in-accurate.

Fourth, budgets/budgetary controls should be used as an internal control measure to check and measure performance in an organisation. As observed by the study, budgets/budgetary controls form an integral part of an organization"s internal control, hence, it should always be used to control most of the organization"s financial operations and activities.

Finally, budgets/budgetary control should be made the sole tool and mechanism for resource allocation and control. All resources needed for a project should be authorized by the budget of the organization, as this will enhance greater accountability and transparency in the organization.

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