BUDGETARY CONTROL PRACTICES ON THE PERFORMANCE OF AN ORGANIZATION IN ILORIN METROPOLISE OF KWARA STATE (A CASE STUDY OF SELECTED MICROFINANCE BANKS)

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The process of preparing and using budget to achieve organizational objectives is simply called “budgeting”. Budgeting is an important element which is crucial to management accounting technique which can benefit all aspect of business if it is thoroughly understood and properly deployed. The growing complexity of the business environment and the ever increasing competition among firms in the modern time makes planning and budgeting inevitable tool for business success (Lucey 2010).

Successful organizational management is no longer just a matter of flair, skill and determination, a conscious effort is needed to harness available resources towards the achievement of organizational objectives (Pandy, 2008). Therefore budgeting is one of the tools adopted by management for effective cost planning, control and increase in productivity.

Wildarsky (2010) argued that because a budget serves diverse purposes, it means different things to different people, among the various possible interpretations given by him include; it is a plan, it is a prediction, and it is a link between financial resource and human behaviour to accomplish organizational objectives. Also, it is a mechanism for making choices among alternative expenditure.

Rufus Wizon (2012) opined that without a budget a business may aim less and ultimately fail. Even with a budget a business organization may not reach its planned objectives or destination, but effective budgetary control practices will note the deviation from the plan and thus provide the opportunity for necessary corrective action. The making of such plans and the continuous review and execution are the essence of budgetary control.    

Batty (2006), defined budgetary control as a system which uses budgets as a means of planning and control-ling all aspects of producing and or selling commodities or services. This is true as we tend to prepare revenue and expenditure variance analysis to be able to deduce areas of divergencies for which the management needs to watch to avoid embarrassment as any adverse variance will translate into inability to meet the corporate objective which will eventually lead to disagreement with stakeholders.

STATEMENT OF THE PROBLEM

In recent times, business organizations have performed poorly due to the fact that they lack effective and efficient budgets and budgetary control systems and practices to adequately and judiciously allocate resources to meet organizational goals, and maximize performance. A study conducted by Boquist (2001) observed that companies continue to perform poorly and fail because they have flawed budgetary planning and control systems, which they apparently fail to recognize. Some firms sense weakness of their budgetary analysis but viewed them as individual problems rather than systematic deficiencies. They misdirect efforts and produce greater frustration. As a result, corporate strategy and capital allocation become misaligned and remain so, despite disapproving financial performance.

Some business organizations do not even know the link between budgetary control practices and performance, and this affects their performances negatively. Various organizations ranging from small scale businesses to big companies fail to recognize the power of budgets and budgetary control over performance outcomes. These organizations go ahead without paying more attention to improving their performances through their budgets.

AIMS AND OBJECTIVES OF THE STUDY

The major aim of the study is to examine the impact of budgetary control practices on the performances of an organization. Other objectives of the study are;

1. To examine the impact of effective budgetary control practices on profitability and performance of an organization.
2. To determine whether budgetary control is practicable in micro finance banks in Nigeria.
3. To examine the benefits of budgetary control to shareholders of an organization.
4. To examine the relationship between budgetary control practices and the performance of an organization.
5. To make useful recommendations based on research findings.

RESEARCH QUESTIONS

1. What is the impact of effective budgetary control practices on profitability and performance of an organization?
2. Is budgetary control practicable in micro finance banks in Nigeria?
3. What are the benefits of budgetary control to shareholders of an organization?
4. What is the relationship between budgetary control practices and the performance of an organization?
5. What are the recommendations based on research findings?

RESEARCH HYPOTHESES

Hypothesis 1

H0:     There is no significant impact of budgeting control practices on the performance of an organization.

H0:     There is a significant impact of budgeting control practices on the performance of an organization.

Hypothesis 2

H0:     There is no significant relationship between budgeting control practices and performanceof an organization

H0:     There is a significant relationship between budgeting control practices and performance of an organization

SIGNIFICANCE OF THE STUDY

The addition of knowledge is basically the aim of every research and this research work seeks to achieve just that. More importantly, this research is necessary in understanding how the budgetary control is established, and also how it affects organizationalperformance.

It is a tool which measures managerial performance of an organization and promotes good morale and harmony in the organization. It enable the organization verify whether or not the plans of the organization are understood by all members, and put into effect corrective measures where deviation or under deviation is occurring.

Since budget is a tool for planning, and financial planning is of almost significance to a business man, it enables the organization project the future consequences of present decisions in order to avoid surprises and understand the link between present and future decision.

SCOPE AND LIMITATIO OF THE STUDY

This study is restricted to budgetary control practices on the performance of an organization in selected microfinance banks in Ilorin metropolis of Kwara state.

LIMITATION OF THE STUDY

One of the major problems encountered in the course of this study was difficulty in obtaining data from the management body of the organization due to fear of disclosing their management strategies to competitors. Time constraints were also a problem in the course of this research work.

OPERATIONAL DEFINITION OF TERMS

• PLANNING: Planning is defined as the activity where the managers analyzed the present conditions to determine the way of reaching a desired future state.
• FORECASTING: This is the procedures and techniques for predicting condition or event that are expected to prevail in the future.
• BUDGETING: This is a formulation of plans in a given period in numerical term.
• BUDGET: This is defined as a future plan of action for the whole organization or a section there of, which is expressed in monetary term.
• BUDGETARY CONTROL: This is the establishment of budget, relating to the responsibility of the executives to the requirement of the policy and the continuous comparison of actual performance with budgeted level so as to secure either by individual or collective action the objective of such policies.