Budgeting and Budgetary Control System: A study on ... · PDF fileBudgeting, Budgets, Budgetary Control System (BCS), Management Accounting System. INTRODUCTION Budgeting is In a svery

International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 Volume 6, No. 8, August 2017

Impact Factor: 5.462 www.irjcjournals.org

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Budgeting and Budgetary Control System: A study on Selected

Indian Companies

Dr. K. Manoharan Nair, Former Associate Professor and Head of the Post Graduate Dept of

Commerce and Research Centre, Mahatma Gandhi College, Thiruvananthapuram

Alireza Kaab, Research Scholar, Deptt. of Commerce, University of Kerala, Thiruvananthapuram

ABSTRACT

Budgeting is very important and it determines the way in

which the organization can attain its financial and other

goals. It is an estimate about the future actions of the

management in the form of financial Statements. Once the

budget is set in quantitative or qualitative terms the

management try their best for not exceeding the target set.

But on account of dynamic nature of the environment both

internal and external the estimated figure will vary. As a

control measure they traise the variations between the

actual and the budgeted one and identify the causes of

such variations and take corrective measures for not

occurring such variations in future. One of the

components which is significant for internal control

system is budgetary control system (BCS).The objective of

the present study is to know the budgetary control system

in selected Indian companies.

Keywords

Budgeting, Budgets, Budgetary Control System (BCS),

Management Accounting System.

INTRODUCTION

Budgeting is very important in the sense that it determines

the way in which the organization can attain its financial

and other goals. Budgeting is an estimate about the future

actions of the management in the form of financial

Statements. Management accounting provides useful

information for management to develop strategies. In

order to achieve organizational objectives, implementation

of internal controls is necessary. One of the components

which is important to conduct internal controls is

budgetary control system (BCS). In India much attention

has been given to improving of budgetary control and

planning and their interrelationship in developing

countries like India. Budgeting is the process of preparing

a detailed statement of financial results that are likely to

happen in a period in a time to come. A budget is the sum

of money allocated for a particular purpose and the

summary of intended expenditures along with proposals

for how to meet them .It helps to aid the planning of actual

operations by forcing managers to consider how the

conditions might change and what steps should be taken

now and by encouraging mangers to consider problems

before they arise. It also helps to co-ordinate the activities

of the organization by compelling managers to examine

relationships between their own operation and those of

other departments in a way to control resources;

communicate plans to various responsibility center

mangers, motivate managers to strive to achieve budget

goals , evaluating the performance of managers , provide

visibility into the company’s performance and for

accountability. In this context a study is made to know the

budgetary practices of selected Indian companies

LITERATURE REVIEW

Budgetary control allows for greater expansion

opportunities and provides the means to strengthen the

control of management within major companies and it can

be performs well only in highly managed companies

(Nicolas Berland (2001).

In a study on budgetary control system, David Otley

(2001) revealed that the assumption of budgetary control

is that it is the main integrative control method for most

business enterprises. The assumption being that an

organization’s business plan can be represented financially

by the budget and that the budget can be used as a

monitoring and controlling method for the complex issues

of the business plan.

Ruth Hamson, Len Bird (2002) in a study argued that

budget management and budgetary control is influenced

by three main elements: control, performance and people

all of which are governed by the culture of the

organization.



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Joshi. P.L., Javahar Al-Mudhaki, Wayne G. Bremser

(2003) conducted a study on corporate budget planning,

control and performance evaluation in Bahrain, examined

the budget planning as well as budgetary control systems

within organizations in Bahrain. The study concluded that

most of the companies prepare both fixed and variable

budgets and also they have tight budgetary control

systems.

In study by Alnoor Bhimani and David Otley (2007) found

that budgetary control systems and responsibility

accounting still form the backbone of the management

control systems of many organizations.

Budgetary control is the most common, useful and widely

used standard device of planning and control according to

Rashmi Rathi (2011).

Cheng-Tsung Lu (2011) in study concluded that budgeting

control system could not achieve effectiveness in

planning, motivating, negotiating, and controlling if there

was no support from the organizational members, and also

pointed out when the department managers have higher

budgetary motivation and more positive budgetary

attitude, the budgetary performance tends to be higher.

Sidhakam Bhattacharyya and Gautam Bandyopadhyay

(2012) in a study concluded that no budgetary control

system is effective unless it provides for the integration of

budgeting, accounting and financial accounting.

Budgetary control system is an effective way to reduce the

accounting errors (David A Palmer, 2012). Okpala (2013)

concluded that budgetary control has significant influence

on workers motivation which leads to savings in the

service charge expenditure.

Human factors within budgetary controls thus managerial

commitment, employees’ motivation, employees’ training,

competence as well as attitude affect the budget control

process (Kenneth Adongo and Ambrose Jagongo, 2013).

STATEMENT OF THE PROBLEM

Every organization irrespective of whether it is small,

medium or large made use the tool budgets and implement

it and compare the actual with budgeted and taken steps

for avoiding the occurrence of such causes in future . To

what extent these are made effective is the problem to be

looked into and hence the present study with the following

research questions:

What is the relationship between budgetary control

system and organizational efficiency?

What are the issues related to budgeting and

budgetary control systems within an organization?

How organizational efficiency can be improved

using budgetary control system?

OBJECTIVES OF THE STUDY

The objectives set for the study are:

To investigate the relationship between budgetary

control system and organizational efficiency.

To investigate the issues related to budgeting and

budgetary control system in an enterprise.

To investigate ways by which organizational

efficiency can be improved using budgetary control

system.

METHODOLOGY

Method of Study: The study method is empirical which

tests the feasibility of solutions by applying statistical

measures.

Data Source: Both secondary and Primary data has been

used for the study

Secondary Data: The secondary data has been collected

from the literature survey and annual reports of the

companies selected for the study.

Primary Data: Primary data has been collected by using

Purposive Sampling Technique with a total sample of 50

respondents selected 10 each from 5 Companies selected

purposively by those companies use budgetary control

system in their organization for last five years.

Tools for Data Collection: The primary data has been

collected by using of Questionnaire and Interview

Schedule specifically developed for the purpose.

Tools used for Data Analysis: Simple statistical and

mathematical tools like percentages, mean and ranking

methods are used for analysis of data.

ANALYSIS AND INTERPRETATION OF

DATA



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In the first part of analysis include the socio- economic

background of the respondents and the second part analyze

the variables.

Part A - Analysis on Socio Economic variables

1. Gender

The gender dimension in the management of companies is

significant. The proportion between male and female of

the sample respondents selected for the study are given in

Table 1.1.

Table 1.1: Gender wise Classification

Gender No. of

Responses

Percent

Valid Male 42 84.0

Female 8 16.0

Total 50 100.0

Source: Primary Data

It is clear from Table 1.1 that 84 percent of respondents

are males while other 16 percent are females. It shows that

the majority of respondents are male.

2. Age

Another important personal profile variable is the age of

respondents .It also have an impact on determining the

efficiency of control system in companies. The age wise

classification of respondents is shown in Table 1.2.

Table 1.2: Agewise Classification

Age No. of

Responses

Percent

Valid Below 25 8 16.0

25-35 22 44.0

Above 35 20 40.0

Total 50 100.0


Table 1.2 shows that 16 per cent of respondents fall below

25 years of age, 44 per cent fall between 25 to 35 years

and 40 per cent are of the age group of above 35 years. It

means that majority are from the age group of 25 to 40

years.

3. Educational Qualifications

Education is knowledge and this knowledge increases the

skill, maturity and potential of the managers. So the

information is collected and the views of respondents on it

are depicted in Table 1.3.

Table 1.3 Educational Qualification


Table 1.3 indicates educational qualifications of

respondents, 66 per cent of the respondents have

professional qualification (graduates in MBA, PhD of

accounting) and 34 per cent have non-professional

education. It means majority have high professional

qualifications.

4. Experience

The experience is yet another variable taken for analysis of

the management of rubber plantation in Kerala and the

collected data are recorded in Table 1.4

Table 1.4 Professional Experience


Table 1.4 indicates that 16 per cent of respondents have 1

to 5 years working experience, 24 percent have 5 to 10

years experience, 26 per cent have 11 to 15 years

experience and 34 per cent have above 15 years

experience. Majority of them have experience with 11 to

15 years.

Qualification

No. of

Responses Percent

Valid

Professional 33 66.0

Nonprofessional 17 34.0

Total 50 100.0

Professional Experience

No. of

Responses Percent

Valid 1-5 Years 8 16.0

5-10 Years 12 24.0

11-15 Years 13 26.0

Above 15 Years 17 34.0

Total 50 100.0



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Part B - Variable Analysis

1. Budgeting

Table 1.5: Process of Budgeting and its Efficiency

Source: Computed from Primary Data

Figures in brackets shows Percentage to total.

All responses about budgeting process and budgetary

control system within organizations summarized in table

1.5. in which 30 respondents representing 60per cent of

the total respondents indicated that their organizations

have budget preparation process, which means the process

of budget preparation need to be improved within

organization. The average mean level of satisfaction

recorded in this case is 77 per cent. The average mean

level of satisfaction recorded in this case is 87 per cent. In

it, 56 per cent of the respondents believed there is a

budgetary control system in their organizations. The

average mean level of satisfaction recorded in this case is

80 per cent Responses about existence of budget

committee in organizations indicated that 50 per cent of

respondents declared there is a budget committee in their

organization. The average mean level of satisfaction

recorded in this case is 90 per cent .Relationship between

budgetary control and efficiency obtained highest rank

since 76 per cent of respondents were strongly agreed that

there is a relationship between budgetary control system

and organizational efficiency. The average mean level of

satisfaction recorded in this case is 74 per cent . Only 46

per cent of respondents declared that implementation of

budgetary control system take place in a proper manner in

their organizations.

2. Relationship between Budgetary Control system and Organizational Efficiency

Table 1.6: Budgetary control system and organizational efficiency

Source: Computed from Primary Data

As presented in table 1.7 only 3 (6.0per cent ) respondents

indicated that future events can be predicted through

budgetary control system. Interestingly, 15 (30.0per cent )

of the respondents indicated that budgetary control system

Strongly

Disagree Disagree Neutral Agree

Strongly

Agree Total

No –

per cent

No –

per cent

No –

per cent

No –

per cent

No –

per cent

No –

per cent Mean

1. Is there any budget preparing

process?

7

(14.0)

7

(14.0)

2

(4.0)

4

(8.0)

30

(60.0)

50

(100) 77

2. Does organization enjoy budgetary

control system?

2

(4.0)

3

(6.0)

2

(4.0)

15

(30.0)

28

(56.0)

50

(100) 87

3. Do you have budget committee? 3

(6.0)

7

(14.0)

3

(6.0)

12

(24.0)

25

(50.0)

50

(100) 80

4. Is there relationship between

budgetary control and efficiency?

2

(4.0)

3

(6.0)

1

(2.0)

6

(12.0)

38

(76.0)

50

(100) 90

5. Does budgetary control system is

in a proper manner?

5

(10.0)

10

(20.0)

1

(2.0)

12

(24.0)

22

(44.0)

50

(100) 74

Forecasting Future

Events

Better

Planning

Cost

Reduction

Maximize

Profitability

Minimize

Variances

Total

No per cent No per cent No per cent No per cent No per cent No per cent

3 6.0% 15 30.0% 12 24.0% 10 20.0% 10 20.0% 50 100 %

No Rank No Rank No Rank No Rank No Rank Total

3 5 15 1 12 2 10 3 10 4 50



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leads to better planning and through good planning

organizational efficiency can be improved, while 12

(24.0per cent ) of respondents pointed out that cost

reduction is one of the components of budgetary control

system which can lead to organizational efficiency. 10

(20.0per cent ) of respondents indicated that maximization

of profitability is an important characteristic of budgetary

control system, and 10 (20.0per cent ) of respondents

believed that budgetary control system would diminish the

variances and eventually leads to organizational

efficiency. All the variables listed above are important

components of budgetary control system in order to

achieve organizational efficiency but the priority is

different in each organization. Some organizations

utilizing budgetary control system as a tool for cost

reduction while some other are using it as a managerial

tool to planning for future operations.

It is noticed from Table 1.6 that 20 per cent each of the

respondents viewed that minimize profitability and

minimize variances and another 24 per cent give

importance to cost reduction and30 per cent viewed that

better planning. Only 6 per cent pointed out that

forecasting and future events . In it first ranked variable is

Better planning according to 15 respondents, Second

ranked variable is cost reduction by 12 respondents , Third

ranked one is Maximise profitability by 10 respondents

and another 10 respondents ranked four as minimize

variance and only 3 respondents ranked fifth as

forecasting future events.

Table 1.7: Are there any issues in implementation of budgetary control system?

Strongly disagree Disagree Neutral Agree Strongly Agree Total

No per cent No per cent No per cent No per cent No per cent No per cent Mean

issues in

implementation of

budgetary control

system

11 22.0% 20 40.0% 0 0.0% 5 10.0% 14 28.0 % 50 100.0 % 56

Source: Primary data

Table 1.7 represents responses in regards to challenges in

implementation of budgetary control system. 14 (28.0per

cent ) of the respondents indicated that there is some

issues in implementation of budgetary control system in

their organizations. It shows these issues should be

addressed by the senior managers. Interestingly, 31

(62.0per cent ) of the respondents believed that there is no

issue in implementation of budgetary control system in

their organizations. It can be interpreted that the budgetary

control systems in these organizations runs smoothly and

senior management considered budgetary control system

as efficiency component.

Table 1.8: What are the barriers in proper implementation of budgetary control system?

Source Primary data

Table 1.9: Rank of Responses

Source: primary data

Undetermined

Responsibilities

Lack of Financial

Experts

Senior Management

Negligence

Organizational

Strategies

Inaccurate

Information

Total

No per cent No per cent No per cent No per cent No per cent No per cent

9 18.0% 11 22.0% 26 52.0% 4 8.0% 0 0.0% 50 100.0%

Senior Management

Negligence

Lack of

Financial Experts

Undetermined

Responsibilities

Organizational

Strategies

Inaccurate

Information

Rank per cent Rank per cent Rank per cent Rank per cent Rank per cent

1 52 2 22 3 18 4 8 5 -



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It is seen from table 1.9 that first ranked variable by

respondents ( 52 per cent) is the senior management

negligence, second rank one is lack of financial experts (

22 per cent of the respondents ), third ranked one is

undermined responsibilities ( 18 per cent of respondents) ,

fourth ranked variable is organizational strategies and fifth

ranked one is inaccurate information .

CONCLUSIONS AND SUGGESTIONS

Budgeting is very important and it determines the way in

which the organization can attain its financial and other

goals. Hence, the current study conducted to investigate

budgeting and budgetary control system (BCS) within

Indian organizations. The study data analysis indicates that

budgetary control system is implemented in most of the

organizations but somehow it should be improved. Most of

the respondents agreed that there is a strong relationship

between budgetary control system and organizational

efficiency. Interestingly, finding of the study revealed that

budgetary control system serves different purposes within

Indian organizations, in some organizations BCS is used

for cost reduction and in other cases it used for maximize

profitability as well as to minimize variances. Eventually,

most of the respondents agreed that there are some barriers

in proper implementation of BCS in their organizations.

The findings indicated that most significant barrier in BCS

implementation is senior management. Hence, the senior

management plays prominent role in implementation of

BCS and the problems involved the management should

be addressed in order to achieve organizational goals.

The study recommends that in order to increase

organizational efficiency, senior management should put

in place measures to solve the problems associated in

budgetary control system procedure. Moreover, budget

participation should be take place within organizations in

order to enhance employee’s perception in regards to

budgeting and planning.

While this study extends the literature on budgeting and

budgetary control system, more studies in this field are

needed. The study recommends further research on

budgeting and budgetary control system since it is most

significant factor in organizational efficiency.

REFERENCES

[1] Batty, J. (1963), “Management Accounting

including Financial Management and Control”,

Macdonald and Evans.

[2] Nicolas Berland: environmental turbulence and

functions of budgetary control, Accounting,

Business & Financial History, Vol.11, No.1,

Paris, France, (2001), PP 59-77.

[3] David Otley: extending the boundaries of

management accounting research: developing

systems for performance management, British

Accounting Review, Vol.33, United Kingdom,

(2001). PP 243-261.

[4] Ruth Hamson, Len Bird: Devolved Budgets in the

Public Sector, Journal of Finance and Management

in Public Services, Vol.9, United Kingdom, (2002),

PP 29-44.

[5] P.L. Joshi, Javahar Al-Mudhaki, Wayne G.

Bremser: corporate budget planning, control and

performance evaluation in Bahrain, Managerial

Auditing Journal, Vol.18, Bahrain, (2003), PP 737-

750.

[6] Alnoor Bhimani and David Otley: Trends in

budgetary control and responsibility accounting,

Contemporary Issues in Management Accounting,

United Kingdom, (2007), PP 291-307.

[7] Cheng-Tsung Lu: Relationships among budgeting

control system, budgetary perceptions and

performance: A study of public hospitals, African

Journal of Business Management, Vol.5, No.5,

Taiwan, (2011), PP 6261-6270.

[8] Sidhakam Bhattacharyya and Gautam

Bandyopadhyay: Expenditure and Budgetary

Control in Urban Local bodies in India -

Developing Prism Model, International Journal of

Governmental Financial Management, Durgapur,

West Bengal, India, (2012), PP 16-26.

[9] David A Palmer: budgetary control and variance

analysis, Financial Management Development,

No.213, USA, (2012), PP 1-10.

[10] Kenneth Enoch Okpala: Budgetary Control and

Service Charge Management Performance in Real

Estate Sector, Asian Economic and Financial

Review, Vol.3, No.6, Mowe Ogun State, Nigeria,

(2013), P 749-761.

[11] Kenneth Adongo and Ambrose Jagongo:

Budgetary Control as a Measure of Financial

Performance of State Corporations in Kenya,

International Journal of Accounting and Taxation,

vol.1, No.1, Kenya, (2013), PP 38-45.

[12] Baloguan, Mamidu and Owuze: budgetary control

and organizational performance, Journal of

Educational Research in Natural and Social

Sciences, Vol.1, No 1, Owo, Nigeria, (2015), PP

97-108.

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Budgeting and Budgetary Control System: A study on ... · PDF fileBudgeting, Budgets, Budgetary Control System (BCS), Management Accounting System. INTRODUCTION Budgeting is In a svery