Published
by Just-Web Research Institute [6 April, 2019]
INVESTIGATING BUDGETING AND ORGANIZATIONAL
EFFICIENCY IN MANUFACTURING FIRMS IN PORT HARCOURT
BY
DEEDENWII,
BARITURE NEELE
(ND, D.CL)
+2347012543482
and +2349050517580
ABSTRACT
This work seeks to investigate budgeting and
organizational efficiency in manufacturing firms in Port Harcourt. Budgeting
in business organizations is formally associated with the advent of industrial
capitalism for the industrial revolution of the eighteenth century, which
presented a challenge for industrial management. A budget can be extremely important and effective
tools for management in piloting the affairs of an organization. However, to
prepare a meaningful budget an organization must know where it is heading to
and its goals and objectives. The results showed and
stressed the importance
budgeting
tools such budget planning, budget monitoring and evaluation and budget control.
The findings also reveal
as argued
that
budgetary control is the process
of determining
various
budgeted figures
for the enterprise and then comparing
the actual performance
with the budgeted figures for calculating the variances, if any. Based on the above findings, the researchers
recommend that
managers in the manufacturing companies
continue with the
motive of valuing budgetary
control in their polices
(planning, monitoring and
control as well as advocating
for participatory budgeting for
these has been found to influence
their financial performance to a great extent.
KEY WORDS: Budgeting and Organization
Efficiency
Introduction
Budgeting
plays a significant role in the performance of any organization. In view of the fact that most firms want to improve their performances, various
systems and structures are
put in place to
ensure that a firm grows
profitably. Planning for finances of an organization is achieved through
the process of budgeting for the organizations activity. Budgets are part of
management control designed to promote the efficient use of resources and
providing support for other critical functions. Budgeting entails a distinct pattern of decisions making
in an organization. This decision is capable of determining the objectives,
purpose or goals, of the organisation
and how these goals are to be achieved by establishing principles, policies and
plans (Silva
and Jayamaha 2012).
Budgeting in business organizations is
formally associated with the advent of industrial capitalism for the industrial
revolution of the eighteenth century, which presented a challenge for
industrial management (Akintoye, 2008). However, the primary characteristic of
businesses all over the world involves setting goals to which money are
connected or allocated. From these goals, specific objectives are delineated
and funds are subdivided among them. Budgeting also provide information and
data of past performance and thereby proceeds to allow for meaningful
comparisons between expected and actual progress. Budget provides a basis for
directing and evaluating the performance of individuals or segment of
organizations and also will structure the decision making environment (Bruns
& Waterhouse, 2005), so they appear to be appropriate as a control devices
impacting performance of organizations. Therefore, considerable streams of
research (Kren, 2002) emphasize the function of budgeting in management control
process and sought to explore the influence of budgetary controls on
organizational behaviour.
Statement of the Problems
A properly and well planned
cash budget should ensure that organizational expenditures match planned cash inflows. A budget is a tool that all
organizations must have on annual basis.
All organizations no matter the type or size need to properly develop a
financial plan for the expected cash intake or expenditure in order to meet
their financial goals and objectives. Management should plan on how to meet the
likely cash excess or deficit for which management can plan in advance as to
how to employ such resources. Since inefficient management of business funds
negatively influence shareholders value the need to know the expected amounts
of cash receipts and payments is critical in enhancing proper financial
management. Over the years, it has been a challenge for management of firms to
know how the budgeting process starts, control and managed. Most organizations visited could not show how
the budgeting process and control are made. A lot of challenges were discovered
in the organization investigated and these firms could not meet
their budget expectations
and also end
up having deficit
budgeting yet all due
process would have
been followed. The above revelations point to the fact that the
budgeting process was not well managed and this had affected the performance most organizations, hence the
basis for the investigation especially with regard
to operating a cash budget.
Objectives of the Study
The
main objective of the study is to investigate budgeting and organizational
efficiency. Specifically other objectives are;
1. To examine the relationship between master
budget and organizational efficiency.
2. To examine the relationship between capital
budget and organizational efficiency.
3. To examine the relationship between sales budget
and organizational efficiency.
Research Questions
The
following research questions to guide the study are;
1. Is there relationship between master budget
and organizational efficiency?
2. Is there relationship between capital budget
and organizational efficiency?
3. Is there relationship between sales budget
and organizational efficiency?
Significance of the Study
This
study is important because it will guide management of an organisation in
future financial decision making. It will also serve as a reference for
ensuring prudent financial management in organisation in Nigeria. Also it will
be an added value to the knowledge base on budgeting and serve as an impetus
for future policy making. However, it will also serve as a guide to policy
makers, development workers and stakeholders in Nigeria and the world as a
whole.
Scope of the Study
The scope of this study was discussed under
three levels biz:
Content
Scope: Base on the content scope, the study
variables will include the independent variables (Budgeting) which dimensions
includes; Master Budget, capital budget and sales budget and the dependent
variables (Organizational Efficiency) which measures includes; Effectiveness,
Profitability and Productivity.
Geographical
Scope: The study will be carried out in selected manufacturing
firms; these firms are; Nigeria Bottling firms in Port Harcourt.
Unit of Analysis: The
staff of the firms mentioned will form the basis of our unit of analysis.
Limitations of the Study
The researcher met with a lot of constraints
which includes that of; time, attitude of respondents and financial barriers
which made it difficult to collect data needed for this study and therefore
limits the study to the selected firms in Rivers State.
Definition
of Related Terms
Budgeting: Budgeting is a process whereby the
plans of an institution are translated into an itemized, authorized and
systematic, plan of operation, expressed in monetary term for a given period.
Sales
Budget: The sales budget is an estimate of future sales often
expressed on both units and monetary terms.
Organizational Efficiency: Is the organization's degree of
success in using the least possible inputs in order to produce the highest
possible outputs.
REVIEW OF RELATED LITERATURE
Conceptual Framework
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Conceptual
Framework showing the relationship between budgeting and organizational
Efficiency
Concept of Budgeting
Budgets
are financial blue print that qualifies a firms plan for the future. It’s a
detailed plan that outlines the acquisition and use of financial and other
resources over a given period of time. According to Flamholtz (2003) a budget
in an organization acts as a mechanism for effective planning and controlling.
Schick (2009) concurs by stating that the main purpose of a budget in any
organization is for planning and controlling in order to achieve organizational
goals and objectives.
Drury (2006) defines budget as a plan
expressed in quantitative, usually monetary term covering a specific period of
time usually one year in other words a budget is a systematic plan for the
utilization of manpower and materials resources. In a business organisation a
budget represents an estimate of future costs and revenues. Lucey (2006)
defines budget as a plan expressed in money terms. It is prepared and approved
prior to the budget and may show income, expenditure and the capital to be
employed. It may be drawn up showing incremental effects of former budgeted or
actual figure, or be compiled by zero-based budgeting.
Benefits of a Budget
Lucey (2000) outlines the benefits of
budget as follows:
a.
It provides clear guidelines for managers and supervisions and is the
major way which organizational objectives are translated into specific tasks
and objectives related to individual managers.
b.
Because of the exception principle, which is at the heart of budgetary
control, management time can be saved and attention directed to areas of most
concern.
c.
Better control of current operations is helped by regular, systematic
monitoring and reporting of activities.
d.
Provided there is proper participation, goal congruence is encouraged
and motivation increased.
Dimensions of Budgeting
The following are the dimensions of
budgeting, they are;
1.
Master Budget: The master budget also known as
profit plan is a comprehensive set of budgets covering all phases of an
organizations operations for a specified period of time. The master budget is
the principal output of a budgeting system. It is a comprehensive profit plan,
that tie together all phases of an organizations operations. It is comprised of
many separate budgets that are independent.
2.
Capital Budget: Pandy (2009) defines capital budgeting
as the firm’s decision to invest an entity’s current funds most efficiently in
long-term activities in anticipation of an expected flow of the future benefits
over a series of years. A cash budget involves detailed estimate of anticipated
cash receipts and payments for the fourth coming year or period.
3.
Sales Budget: Stanton (2001) mentions that the
cornerstone of successful marketing planning in a firm is the measurement and
forecasting of market demand. The key figure needed is the sales forecasts
because it is the basis for all budgeting and all operation in the firm.
Purpose of
Budgeting
According to Drary, (2000) Budgeting is a
detailed plan, expressed in a quantitative terms, that specifies how an
organization will acquire and use resource during a particular period of time.
Budget system has four primary purposes, which are:
v Planning: The most recognizable purpose of a budget is
to quantify a plan of action. The budgeting processes force the individuals
that constitute an organization to plan ahead for the well performance of an
organization.
v Facilitating
Communication and Coordination: For an organization to be effective, each manager in the organization
must be aware of the plans made by other mangers. Allocating Resource:
Naturally, an organizations resource is limited and budgets provide one means
of allocating resource among competing users.
v Managing
Financial and Operational Performance: A budget is a plan, and plans are subject to change. Therefore a budget
serves as a useful bench mark in which actual results can be compared.
v Evaluating
Performance and Providing Incentives: Comparing actual results with budgeted results also help managers to
evaluate the performance of individuals, departments, divisions or entire
company since budget are used to evaluate performance, they can be used to
provide incentives for people to perform well.
Organizational Efficiency
For an organization to succeed at accomplishing its aims, it
must be able to create the right plans needed to accomplish those aims, pull
together the resources needed to implement those plans, and then use resources
such as cash and labor in the actual implementation of those plans. It is an
important factor in the firm's organizational effectiveness, this being the
ease and degree of success with which the organization is able to accomplish
its aims. Organizational efficiency is the organization's degree of
success in using the least possible inputs in order to produce the highest
possible outputs. Organizational
efficiency will be the degree of organization’s ability to fulfill its mission
with the smallest costs or resources.
The
Budget as a Tool for Measuring Financial Performance
Merchants and Stede (2003) postulate that
performance relates to qualitative and quantitative description of results
which can help shape the fortunes of an organization. The relevance of
performance measurement is highlighted by the popular dictum “what you measure
is what you get” (Kaplan and Norton, 2006). Bogt (2004) mentions that
measurement relates to organizational activities, production or output and in
the public sector performance measurement relates to primary activities and
outcome resulting from public policy.
Performance measurement is simply a method for assessing progress
towards stated goals. It is not intended to act as a reward or punishment
mechanism, but rather as a communication and management tool. The goal of
instituting performance measurement in government is to shift the focus from
the amount of resources allocated, to the results achieved with those
resources. Performance measurement in the public sector can serve a variety of
purposes. First, it serves as a vehicle for communication. To the public, they
signal the things that government deems important, and how the government
should be judged. Second, it serves as a motivational tool. To those within the
organization, measures signal what is important, and what is necessary for
success. Finally, measures can serve as a vital management and decision-making
tool, providing information that can be used to make improvements in program
design and service delivery.
THEORETICAL FRAMEWORK
Stakeholders’
Theory
In definition stack holder theory (Clarkson,
1994) states that a firm is a system of stake holders operating within the
large system of the host society that provides the necessary legal and market
infrastructure for the firms activities the purpose of the firm is to create
wealth or value for its stake holders by converting their stake into good and
services thus view is supported by
(Blair, 1995) who proposes that the goods 2 directors and management
should be maximizing total wealth creation by the firm the key to
adhering thus is to enhance the voice and provide ownership like incentives to
those participants in the firm who contributes or controls critical specialized
inputs (firm specific human capital) and to align the interests 2 their critical
stake holders with the interest of outside passive stakeholder.
EMPIRICAL
FRAMEWORK
Muleri, (2001) did a study on budgeting
practices in Non-governmental organization in Kenya. The aim of the study was
to establish effectiveness of budgeting practices among British NGO’s in Kenya.
The research looked at the concept from a different point of view and found
that most organization used modern practices as zero based and philosophies to
reduce financial management. The researcher observed that there is a limitation
on budgeting process which leads to cost cutting to achieve cost effectiveness
there is lack of solid based to enforce budgeting controls as a motivator and
concluded that although profit was the main indicator of performance in public
sector, budget management should be measured against the background of sound
financial policies.
RESEARCH METHODOLOGY
Research Design
Methodology
is therefore concerned with the subject of the research method, which is simply
an organized way of achieving set objectives. The research design used
descriptive and survey method of data collection in an attempt to empirically
ascertain budgeting and organizational efficiency.
Population of the Study
In the course of carrying out this research work, the targeted
populations for this study are all employees of organization. A total of ninety
(90) questionnaires were distributed to staff and management staff of the
organization.
Sample and Sampling Techniques
The researcher retrieved a total of eighty (81) questionnaires from the
number distributed which was used for this research work. To determine the
sample size of this study, we shall use Taro Yamen’s formula, it thus states:
Where;
N =the
population
n =
sample size
1 = is
constant
e =
level of significance, usually 0.05
Research Instrument
Questionnaires
were the main data collection instrument due to the nature of data that is
required, the time available for the study and the objectives of the study. Questionnaire
design is a list of questions designed to obtain information from respondents
by filling in the answer in spaces provided for this purpose. The
questionnaires were constructed into a simple and understandable manner.
Questions were structured leaving the respondents with the options to choose.
Sources and Method of Data Collection
The researcher discovered that the descriptive/survey type of study was
the most appropriate to meet the requirement of this study. As a result of
this, the research instrument used for the collection of primary data needed
for the study was mainly questionnaire administration. The questionnaire was
design in a way that respondent could easily provide adequate answer in the
study. The data were analyzed using simple descriptive method stated in tables
and expressed in percentage. In the course of this research work, two
hypotheses were stated to give direction for the research work.
Data Analytical Method
In this
study both the primary and secondary data were used. Secondary data was used in
establishing chronological framework of this research work.
Primary Data: Primary data was used to collect eighty (81)
questionnaire distributed to the respondent aimed at drawing empirical
inference on the impact of budgeting and organizations efficiency and these
eighty (81) questionnaires were distributed to each staff and management of
firms.
Secondary Data: Secondary data used were mainly textbooks,
journals, Internets, magazines etc.
Reliability and Validity
Reliability
is the extent to which the instrument yields the same result on repeated
trials. Although unreliability is always present to a certain extent, there
will generally be a good deal of consistency in the result of a quality
instrument gathered at different times.
Validity is concerned on the degree to which a measuring instrument
measures what it is designed to measure.
SUMMARY,
CONCLUSION AND RECOMMENDATIONS
Summary
The
study investigated the budgeting and organizational efficiency. The results
showed
and stressed the importance budgeting tools such budget planning, budget monitoring
and evaluation and budget control. The findings also
reveal as
argued that budgetary control
is the process of
determining various
budgeted figures
for the enterprise and then comparing
the actual performance
with the budgeted figures for calculating the variances, if any.
Conclusion
A budget can be extremely important and
effective tools for management in piloting the affairs of an organization.
However, to prepare a meaningful budget an organization must know where it is
heading to and its goals and objectives. Priorities changes and this means that
many people should be involved in the budget preparation and approval process
to ensure that resulting budget is fully supported. Once prepare, the budget
must be compared to actual result from a timely basis throughout the year to
ensure that management knows where deviation is accruing for corrective action
to be taken when necessary. Budgeting is a tool of management, not a substitute
for management. A good budget can do very little to itself, good management and
a good budget can do much together. Therefore, effective budget and budgetary
control is indispensable in the local government system in Nigeria.
Recommendations
Based on the above findings, the researchers
recommend that;
1.
This
study recommends that
managers in the manufacturing companies
continue with the
motive of valuing budgetary
control in their polices
(planning, monitoring and
control as well as advocating
for participatory budgeting for
these has been found to influence
their financial performance to a great extent.
2.
The study also
recommends that managers produce
detailed budgetary plans
to enable the implementation
of the long term or strategic
plan.
3.
This
study also recommends that managers within the organization
must have a clear understanding
of the role which they
are required to play in ensuring
budgetary compliance.
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