Full Project – The impact of budgetary control on business enterprise performance

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CHAPTER ONE

INTRODUCTION

In this study, the chapter one comprises of the background of the study, the statement of the problem, which highlighted the inefficient use of budgetary control and the failure of the organization to properly implement budgetary control, it also comprises major and minor objective of the study which the study is set to achieve. A follow-up research questions, the scope, and limitation of the study and explanation of strong terms were also provided in this chapter.

1.1 BACKGROUND OF THE STUDY

The word “budget” was derived from the French word  “bougette financial proposals of an organization for a given period usually one year. The organization could be government, business enterprises or family.

Initially, business firms used the appropriation type of budget adopted by the government. The purpose was to limit the expenditure on some items such as advertising and research and development, which were considered as a luxury item. But this is in contrast to what is obtainable in the present day economics. Going by the volume IV of International Edition of the Encyclopedia Americana [1988], “a business unit employs a budget to carry out it’s financial planning or forecasting. A business budget is a formalized quantitative presentation – a set of figures of a firm’s coordinated plans”.

Budgeting is essential, a process of planning and control. A well-prepared budget provides management with a planned program based upon investigation, study, and research on the part of the entire organization. Also, a well-prepared budget provides complete coordination of the marketing, production and financial activities of the business. Budgeting alone, however, does not bring the realization of the plans. Control over operations is necessary so that deviations from the plans may be noted and corrected so that the business may be kept on theplanned course.

Budgetary Control originated in the 1920’s as a means of planning and control. A businessman wanted to see the possible outcome of their plans and forecasts, and budgets were prepared for this purpose. Hamilton [1961] rightly indicated that, “modern budgetary control comprises  both a plan of operations and the means for controlling operations within the scope of the “plan”. He further pointed out that: “Budgetary Control by itself is not a wonder-working device; neither should it be regarded as a mere accounting procedure. It is a powerful tool for good business management. Effective use of this tool requires sound organization, proper accounting classification and records, adequate research, and the enthusiastic support of all employees from the top down”. Budgetary Control is very useful in the making of business plans. Every organizational activity can be expressedregarding budgets. With the operation of a budgetary control system, business expenditure can be made to match with the economic realities of the organization.

In recent years, budgetary Control has frequently been examined to find its relationship with the profitability of business enterprises. The existence of many industries as at present can only be justified regarding their profitability or performance. Therefore, to such industries, anything, which improves their profitability, is worthwhile.

Performance can be related to profitability because, without profitability, performance can not be measured.Performance means achievement and accomplishment, and all this can be made possible only if there is a tremendous increase in profitability level of the business organization. Profitability may mean different things to different organization under different conditions. The most organization takes it to mean the ability to realize a return over and above the cost of resources put into the organization’s activity. However, to some other business enterprise, anything, which reduces the cost of operation, is profitable.

The use of budgetary control in performance and profit planning is tremendous. It can be used in matching expenditure and income to make some profits and improve performance. And to the extent that budgetary control is frequently applied in profit planning, its contribution to business enterprise performance and the realization of profits cannot be doubted

1.2 STATEMENT OF PROBLEM

Budget is a guide to particular objectives, it is a working plan that leads to the attainment of a set goal, it is therefore obvious that without a guide it is practically impossible to arrive or achieve a set goal, or at best difficult to achieve at uneconomic level.

However, many organizations has attempted to design and implement a financial plan, but sad to note that the skills and technicality require implementing the budget for success result or performance is lacking as it lost the control potency which the instrument deserves to effect the positive desired result.  Budget, which is one of the tools that could be used by the business organization to achieve their profit plan, unfortunately, is not being used properly by many business organizations. In essence, many business organizations have failed in their performance which has affected their profit plan due to lack of budgetary control in their organization.Which brings us to the question, and so what? Many people have lost their job, a gross national product of the country is also affected, the per capita income of individual as also reduce drastically, and this also leads to increase in crime rate in the country.

1.3 OBJECTIVES OF STUDY

This study aims to find out the Impact of Budgetary Control on Business Enterprise Performance. This study has been designed:

1. To determine the impact of budgetary control as instruments for accountability on enterprise net profit margin of business performance.
2. To examine the impact of Human factor as managerial commitment and Employees attitudes towards budgetary control enterprise return on investment.
3. To determine the existing significant relationship between budgetary controls process as planning and preparation of budget and business index performance
4. To determine the impact of flexibility Challenges of budgeting in budgetary control on enterprise performance’s return on investment.
5. To determine the economic impact of continuous budgeting on the profitability index of enterprise performance in Nigeria?

1.4    RESEARCH QUESTIONS

1. What is the economic impact of Feature of budgetary control as instrument for accountability towards enterprise profit plan?
2. Does Human factor as managerial commitment and Employees attitudes towards budgetary control affect enterprise return on investment?
3. What significant relationship exists between budgetary control process as planning and preparation of budget and business index performance?
4. What possible impact is the impact of Challenges of budgeting as lack of flexibility in budgetary control has on enterprise performance’s return on investment?

5       what are the economic benefits of continues budgeting on the profitability index of enterprise performance in Nigeria?

1.5    RESEARCH HYPOTHESIS 

In this work, the following hypotheses are formulated:

H1     Feature of budgetary control as instruments for accountability increase the net profit margin of Business enterprise performance.

H2     Human factor as managerial commitment and Employees attitudes towards budgetary control increase the Business enterprise return on investment

H3     Budgetary control process as planning and preparation of budget has positive impact on the development and growth index of enterprise performance

H4     Challenges of budgeting as lack of flexibility in budgetary control have negative impacts on enterprise performance’s return on investment

H5     Continuous budgeting as classification has the potential of increasing the    profitability of the business performance.

1.6 SIGNIFICANCE OF THE STUDY

There is presently a high incidence of Industrial failure due to the nationwide economic recession. For a country like Nigeria, the problem has become a daunting one. The pegging of exchange and interest rates are invariably increase the cost of operation of these eight related Business organizations, hence decreasing their profit.

Therefore, it is very necessary for every organization to plan its expenditure and ensure costs and still operate profitably regarding, having a return over and above the cost of operation. And by so doing there will be more increase in productivity, more young people will be employed.it will also boost the gross national product of the country, and per capita income will increase drastically. It is the determination of the contribution of budgetary control in this regard that comprises the significance of this study.

1.7 SCOPE AND LIMITATIONS OF THE STUDY

The research covers the Poly Consult and Be frank Table water and six other business organization. Some difficulties were encountered in the course of obtaining the necessary information. For instance, on several occasions, it was impossible to get in touch with the officers who should supply the needed information.

Moreover, when these officers were reached, it was sometimes impossible to obtain the needed data which most of the officers in these Business organization considered as being very confidential.

Obviously, all these problems had some effect on the information collected, and probably, the conclusions reached.

1.8 DEFINITION OF TERMS

The following operational variables are defined in the context of this research study.

BUDGET; It is an economic plan, quantified in respect of a period of time, which related an organizational operating ability and objectives with its financial resources. It is also an itemized listing, and frequently the allotment of the amount of all estimated revenue a given business anticipates receiving, and the listing and frequently the segregation of the account of all estimated cost and expenses that will be incurred in obtaining the above mentioned income during a stated period of time.

BUDGETARY CONTROL; This is the process of controling performance and cost by setting target, measuring performance, apportioning responsibilities for cost as shown in budget statement and reports and acting upon deviation from plans.

PERFORMANCE; This is a state of achieving or accomplishing a specified task or job. Performance could also means achievement, and all this can be made possible only if there is a tremendous increase in profitability level of the business organization.

AN ORGANIZATION; This is a group of individuals working together to achieve some specified goals and objectives for the purpose of the organizational growth and the development.

AN INDUSTRY; Is a firm that concentrates in the manufacturing of different or particular item or product for consumption or used purpose? It is also a branch of trade contrasted with distribution and commerce.

PROFITABILITY; This is a state of minimization of cost or the realization of some returns over and above cost in relation to a company.

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Full Project – The impact of budgetary control on business enterprise performance