AN APPRAISAL OF BUDGETING AS A TOOL FOR EFFECTIVE CONTROL IN THE PUBLIC SECTOR (A CASE STUDY OF POWER HOLDING COMPANY OF NIGERIA)

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Traditional budgeting has been criticized for a long time now for its inadequacy as a means of management control. Criticisms concerning its inadequate practices in a changing business environment emerged as early as the mid 1980’s with Johnson and Kaplan (1987) seminal book relevance lost?

It called also note from the work of Allen (1998). Who stated that the rapid changes in today’s business environment renders a rigid approach to budgetary control obsolete. It is no longer helpful in his anything up to 15 months previously. He argues that amongst the requirements of a more appropriate system, would be the building in of accountability to explain the differences between actual and planned performance. This demands a more immediate time frame of information reporting. Thus, there is a need to integrate strategic management and budgeting. The works of C. Adams et al (200) called be pointed to this regard. These author, conceptualized that to be effective, budgets must aligned with the organization’s strategies, appropriate strategic planning, and performance management process introduced, and must involve processes that are value based, consequential and continuous.

The work of Tim Blumentritt (2006) called be viewed as further contributions to the above stand point as he recognizes the need for organizations to integrate strategic management and budgeting. What seems rather unfortunate according to Tim Blumetritt (2006) is the fact that most organizations still great the budgeting and strategic management processes separately and also, a significant portion of small and medium sized enterprises do not engage in strategic planning (Tim Blunetritt 2006, p 74).

Hence, the reason for this research work which is to investigate the question; “what is the budgeting practice in Nigerian manufacturing company?” The motivation for this study also comes from the work of Herath and Indrani (2007) who investigated on the “roles of Budgetary Control System (BCS) as a component of the Management Control System (MCS) in creating and sustaining competitive advantage” and came up with a positive conclusion. They concluded that though BCS called play a leading role in establishing an efficient MCS for creating a sustainable competitive advantage, budgeting will not function in isolation (P 79). “Instead, it can be used more effectively oriented knowledge enterprise” (Herath and Indrani; 2007, P179)

The choice of Power Holding Company of Nigeria (PHCN)  is related to the fact that it is a manufacturing company in a very competitive industry and lots of challenges faces Nigerian manufacturing companies as they struggle with economic depression and high inflation resulting form IMF world bank led structural adjustment plan (SAP) implemented by the Nigerian government. These programs were initiated to promote the liberalization of the domestic economy, operations efficiency, productivity growth, privately owned enterprises development, economic growth, trade and investment. The economic liberalization policies have nurtured on upon economy and have minimized the hurdles that the manufacturing companies need to clear in order to obtain raw materials and inputs, and other resources for productive activities. However, it has created an unprecedented change in their business environment through increased competition both in the domestic market and from need to development and implement a well conceived strategic plan is order to be competitive in the business environment.

Statement of the Problem

Nomatter ho well a plan is organized, it cannot produce results on its own, thereby the need for control strategy through budgeting practices to check compliance and excesses in the manufacturing industry with particular reference to Power Holding Company of Nigeria (PHCN) . What is the budgeting practice in the Nigerian manufacturing companies?

Objectives of the Study

The aim of this study is to investigate the management control practice (budget being the tool for management control) in Power Holding Company of Nigeria (PHCN) . The objectives of this study include the following:

1. To examine the present system of budgeting being practiced in Power Holding Company of Nigeria (PHCN) .
2. To examine how budgeting and control system effectively put to use in order to enhance the accomplishment of the organizational set goals and objectives.
3. To highlight some of the problems that militates against better performance.

Research Questions

1. What is the present system of budgeting being practiced in Power Holding Company of Nigeria (PHCN) .
2. How is budgeting and control system effectively used in order to enhance the accomplishment of organization goal and objectives.
3. What are the problems that militate against better performance.

Significance of the Study

The target groups of this study are managers, business practionners and scholars in the field of business management. This will enhance a deeper knowledge about how better a management control would be if its essential tools are well integrated.

Scope and Limitation of the Study

The scope of this study is limited to the 2005 – 2010 budgeting periods of Power Holding Company of Nigeria (PHCN)  Plc. The estimates of both revenue and expenditure of the above years will be examined. The process of budget preparation, control, management control, implementation and review will be covered by the study.

Limitation of the Study

The study is limited to Power Holding Company of Nigeria (PHCN)  Plc. Uyo and if they are applying the concepts of budgeting in their operations and how well. As the organization under consideration is a manufacturing firm having to contend with competition, we cannot justify the credibility of all information to be used for the study.