A budget is a quantitative plan of action prepared in advance for the period to which it relates while control encompasses all the methods and procedure which directs employees towards achieving the organizational objectives.
This work is carried out to know how budgeting process is required to achieve different purposes within an organization. In addition to aiding, planning, coordinating and communicating activities of an organization, budget provides a financial blue print that enables a firm coordinate all its activities.
For effective understanding, this research work is presented in five chapters.
Chapter one dealt with the background of the prevailing circumstance s that led to the introduction of budget and its control in an organization.
From this, other chapters derived their based in order to confirm the findings, recommendations and conclusion.
It is worthy to mention here that budget and budgetary control has been a welcome and rewarding development in achieving an organizational aims.
A budget is designed to express forecast of revenue and expenditures for the ensuring fiscal year, which may correspond to the calendar year with exemption of primitive economics. The budget is the key instrument for the expression and execution of policies, principles, procedures, plans and objectives of management in quantitative and monetary values. Management of an enterprises is efficient if, it is able to accomplish the objectives of the enterprise and it is effective when it accomplishes the objectives with minimum effort.
After planning and setting of designed goals which in essence means making a project in the form of predetermined statement of managerial policy during a given period that provides a standard for comparison with actual results to achieve an organizational objective. There is need to monitor the progress of the company towards these goals. In controlling, managers measure their firm’s performance against established objectives, determine the cause of deviation and take corrective action where necessary. Without budgets, controlling would lack a plan against which to measure performance and as such the companies organizational objectives would not be attained.
Horngren and foster (1999), defined a budget as “a quantitative expression of a plan of action and an aid to co-ordination and implementation”. Also, Warren and fess (1998) defined budgeting as “formal written statement of management plans for the future expressed in financial terms.
Almost everyone uses some form of budgeting to handle personal finances, whether it be a written plan for how much to spend on rent, food, clothing, entertainment, travel etc. In order to control this expenditure, they normally set limits on how much they will spend on each item. As they incur the actual expenditure, they make comparison with the budgeted estimate. Both the public and private enterprises use the budget and budgetary control system. The private enterprise, which are profit oriented are aimed among others at maximum profit achievable which forms the core objectives of the financial aim of the enterprises.
An organization must plan in order to decide what line of action to pursue in a future time period and effective ways of bringing it about. Planning is vital to the success of an organization because when formulated, it leads to making critical appraisal of existing condition and gives the business a sense of direction. Thus, we can say that a plan which is prepared to show how resource will be acquired and used over a period of time is known as budgeting. Its use to control activities is known a budgetary control. A budget draws the course of future action; thus it aids management in fulfilling its planning function. Managers set different goals for their business but a common goal for almost every business are a planned profit. To ensure that its goals is attained, a firm must set limits on what is to be spend and what is to be considered acceptable operating performances. The limits are set forth in a master budget ad compared with the actual result as the year progresses. Without budget such find that its cost have exceeded acceptable level. This brings about the budgetary control system.
The budgetary control system is a system where the act plans or goals to achieve an organization objective is monitored and actions are taken to improve performance or reverse goals which becomes unrealistic. According to Hussey, R (2000) the budgetary control system “is the setting of plans (or budget) which lay down policies for which managers are responsible”. Howard and Brown (1998) sees budgetary control as a “system of controlling cost which includes the preparation of budgets, coordinating the department and establishing responsibilities, comparing actual performance with budgeted and acting upon result to achieve maximum profitability”.
The process of budgetary entails the following:
The budgeting process serves several purposes firstly; it provides a financial blue print that enables a firm to coordinate all its activities. Using budgets, manager can project outcome and adjust strategies where they are needed before operations begins, thus avoiding costly errors.
Also, the budgeting process forces the managers to re-examine past performances, which may enable them to discover and correct inefficient outmoded method and operations.
In addition, budget enables manager to implement the planning and control functions some organization see the preparation formal budget as time consuming and expensive but, the cost of not budgeting may be far greater and many ultimately lead to the company’s failure. As a guard against total failures in and organization, adequate planning to reduce uncertainty about the future must be the watch wood. The planning process of an enterprise would involve four fundamental procedures:
Using a budget and budgetary control system for frequent comparison between planned and actual performance, a firm is able to isolate deviations from the budget soon after their occurrence and take appropriate corrective action.
This study is therefore intended to examine the efficiency of budgeting as a means of achieving the financial objective of an organization.
The essence of budget and budgetary control is comparison of performance against plan or target. The implementation of plan without well designed budget and budgetary control system is a waste of time. In other to achieve and ensure efficiency there is need to plan and maintain effective and efficient budgeting control system. Such planning and control needs to be coordinated as a result of scarcity of resource and the need to achieve profitability. The following problems will therefore to critically examine in the study.
For management to achieve the firm’s objectives or organizational goals, it is charged with responsibility of planning, controlling and coordinating activities. Other objectives of the organization may include:
Therefore, the research will enable us to focus attention on the following areas.
The following questions formulated in the course of this work.
(a) Is there a positive relationship between budgeted estimates and the actual?
(b) Has budgeting help in effective planning and control of the financial activities of an organization?
(c) Will budget help in effective communication and performance evaluation?
(d) Finally, does budgeting assist an organization in achieving financial objective?
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