FRANK SOLOMON MIENGBEGHE

THE IMPACT OF POOR BUDGETARY

IMPLEMENTATION ON

CONSTRUCTION COMPANIES

(A STUDY OF SELECTED COMPANIES)

FACULTY OF BUSINESS ADMINISTRATION

DEPARTMENT OF ACCOUNTANCY

COMMANDER,

EMMANUEL

ONIGHOROBOH

Digitally Signed by: Content manager‟s Name

DN : CN = Webmaster‟s name

O= University of Nigeria, Nsukka

OU = Innovation Centre

THE IMPACT OF POOR BUDGETARY IMPLEMENTATION ON

CONSTRUCTION COMPANIES

(A STUDY OF SELECTED COMPANIES)

BY

FRANK SOLOMON MIENGBEGHE

PG/MBA/11/60383

DEPARTMENT OF ACCOUNTANCY

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA,

ENUGU CAMPUS.

AUGUST, 2012.

TITLE PAGE

THE IMPACT OF POOR BUDGETARY IMPLEMENTATION ON

CONSTRUCTION COMPANIES

(A STUDY OF SELECTED COMPANIES)

BY

FRANK SOLOMON MIENGBEGHE

PG/MBA/11/60383

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

AWARD OF MASTERS OF BUSINESS ADMINISTRATION (MBA)

IN ACCOUNTANCY UNIVERSITY OF NIGERIA,

ENUGU CAMPUS.

SUPERVISOR: DR. (MRS) E.O. ONYEANU

AUGUST, 2012.

APPROVAL PAGE

This is to certify that FRANK SOLOMON MIENGBEGHE a Postgraduate

Student in the Department of Accountancy with Registration Number

PG/MBA/11/60383 has satisfactorily completed the requirement for project

research in partial fulfillment for the award of Masters of Business

Administration (MBA) in Accountancy.

……………………………… ………………………

DR. (MRS) E.O. ONYEANU DR. R.O. UGWOKE

Project Supervisor Head of Department

Date: ……………………… Date:…………………..

DECLARATION

I, FRANK SOLOMON MIENGBEGHE a Postgraduate Student of the

department of Accountancy, University of Nigeria, Enugu Campus, with Registration

number PG/MBA/11/60383 has satisfactorily completed the requirements for

the course and research work for the award of the degree of Masters of

Business Administration (MBA) in Accountancy.

……….………………………. FRANK SOLOMON MIENGBEGHE

PG/MBA/11/60383

Researcher

DEDICATION

This work is dedicated to my brother Michael Frank, Jeremiah Gilbert and my

best friend Ebi Leghemo who has been my mentor.

Above all, I thank the Almighty God for protecting and guiding me for all steps I

have taken to finish this programme.

ACKNOWLEDGMENT

I thank God Almighty for giving me the wisdom and strength for starting and

finishing this MBA programme. I am grateful to the head of accounts Department

University of Nigeria, Enugu Campus, Dr. R.O. Ugwoke for his advice and

encouragement to finish this programme. I also extend my gratitude to my course mates

and friends especially Mr. Godknows Oporiopo and Ufrugbu Andrew who have been a

great help to me.

I greatly appreciate my beloved supervisor Dr. (Mrs.) E.O. Onyeanu for her

advice and corrections that make this research work through and excellent. Finally I am

grateful to all those who helped in filling the questionnaires when I sought their opinion.

ABSTRACT

The study intends to investigate the impact of poor budgetary implementation in construction companies.

The purpose is to specifically identify the major causes of poor budgetary implementation practices in

construction companies using megastar technical and Construction Company Ltd, Aleed Construction

Company, Anasami Construction Nig Ltd, Sametech Construction and C &C Construction Co. Ltd as case

study. It is to determine the impact of poor budgetary implementation in construction companies and offer

useful and meaningful suggestions for improving on the identified problems based on the findings. The study was carried out for the five companies. The researcher made use of primary and secondary sources of

data. The primary sources with respect to this study include the various management staff of the companies

and the account staff of the companies selected. Information obtained from these people were by asking

face to face questions and recording their responses, then questionnaires were also administered to them for

more response. A statistical approach (yaro yamen) was used in determining both the sample size and the

proportion of the sample. Then the researcher used simple percentage and chi-square analysis to analyze

the data collected. The study revealed that inadequate or poor budgetary implementation practices are as a

result of deviation from the budgetary principles and standards, manipulation of budget by corrupt officials,

late release of fund budgeted, etc. Recommendations were made based on the findings. The researcher

recommended that there should be timely release of budget so as not to disrupt smooth operations of the

companies. There should be an efficient monitoring of how the budget is implemented in the companies. It

was also recommended that all employees of the companies should understand how a budget is implemented in the companies. The management of the companies were also adviced to motivate

employees by encouraging employees through incentives and benefits in order to achieve the objectives of

the organization.

TABLE OF CONTENTS

Title page - - - - - - - - - i

Approval page - - - - - - - - ii

Declaration - - - - - - - - - iii

Dedication - - - - - - - - - iv

Acknowledgment - - - - - - - - v

Abstract - - - - - - - - - vi

Table of contents - - - - - - - - vii

List of tables - - - - - - - - - x

List of figures - - - - - - - - - xi

CHAPTER ONE

1.1 Background of the Study - - - - - - - 1

1.2 Statement of the Problem -- - - - - - 1

1.3 Objectives of the Study - - - - - - 3

1.4 Research questions - - - - - - - - 3

1.5 Hypothesis - - - - - - - - 4

1.6 Significance of the study - - - - - - 4

1.7 Limitations of the study - - - - - - 5

1.8 Scope of the study - - - - - - - 5

1.9 Definition of terms - - - - - - - 6

References - - - - - - - - - 7

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction - - - - - - - - - 8

2.2 Concepts and definitions for budget and budgetary

implementation - - - - - - - - 10

2.3 Budgeting techniques - - - - - - - 14

2.4 The roles of budgeting - - - - - - - 15

2.5 Problems of budgetary implementation - - - - - 18

2.6 The major uses of budgetary control - - - - - 19

2.7 Stages in budget preparation - - - - - - 20

2.8 Solving behavioural problems in budgeting - - - - 21

2.9 The purpose of budgeting - - - - - - 24

2.10 Functional budgets - - - - - - - 25

2.11 Master budget - - - - - - - - 27

2.12 Budget preparation and approval procedures - - - - 27

2.13 Approval of the master budget - - - - - 28

2.14 Planning, programming, budgeting system (PPBS) - - - 29

2.15 Budgetary control - - - - - - - 30

2.16 The objectives of budgetary control - - - - - 31

2.17 Organization of budgetary control - - - - - 31

2.18 Stages in the planning process- - - - - - 35

2.19 The multiple functions of budgets - - - - - 41

Reference - - - - - - - - 45

CHAPTER THREE

3.1 Research design and methodology - - - - - - 46

3.2 Population - - - - - - - - - 46

3.3 Sources of data - - - - - - - 46

3.4 Sampling techniques/size - - - - - - 47

3.5 Method of investigation - - - - - - - 50

3.6 Method of data analysis - - -- - - - - 50

Reference - - - - - - - - 51

CHAPTER FOUR

4.1 Presentation and analysis of data -- - - - - 52

4.2 Analysis of questionnaires - - - - - - 53

4.3 Testing of hypothesis - - - - - - - 63

Reference - - - - - - - - - 70

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS.

5.1 Summary of findings - - - - - - - 71

5.2 Conclusion - - - - - - - - 72

5.3 Recommendations - - - - - - - 73

Bibliography - - - - - - - - 75

Appendix - - - - - - - - 77

Questionnaires - - - - - - - 78

LIST OF TABLES

Table 4.1: Various positions held by the respondents - - - 53

Table 4.2: Educational qualification of the respondents - - - 54

Table 4.3: Response to the causes of poor operational budgeting

practices in the company. - - - - - 55

Table 4.4: Responses to causes of poor budgetary implementation - 56

Table 4.5: Response to impacts of poor budgetary implementation - 57

Table 4.6: Response to the frequency of management running out

of funds in critical areas during implementation. - - 58

Table 4.7: Response to the major causes why the company runs

out of fund in some areas. - - - - - 59

Table 4.8: Response to whether budget variances were investigated

as they occur and corrective actions taken. - - - 60

Table 4.9: Responses to the adherence or not to the budgetary

principles and standards - - - - - 61

Table 4.10: Response on how the problems of poor budgetary

implementation in construction companies be solved - 62

Table 4.11: Observed and expected frequencies of the sample

result on hypothesis one - - - - - 63

Table 4.12: Observed and expected frequencies of the sample

result on hypothesis (ii) -- - - - - 66

LIST OF FIGURES

Fig 1: A chi-Square Distribution - - - - - - 65

Fig 2: A chi-Square Distribution - - - - - - 67

Fig 3: A chi-Square Distribution - - - - - - 69

CHAPTER ONE

1.1 BACKGROUND OF THE STUDY

In the traditional sense, the primary purpose of preparing budget is to understand

and control costs. Budget preparation is very useful in a project as a planning and

controlling tool. Budget could be employed by the company to get priorities among

projects competing for limited resources. It enables the company to set the machinery in

motion for meeting the interim valuations as when due and also used to justify the

elimination of uneconomic projects as well as the revision of its objectives to meet the

demand of a manageable project.

Results of descriptive/non parametric statistical technique indicate that one of the

major problems confronting the construction sector in Nigeria is inadequate managerial

control in the form of sound budget planning and control. The primary concern during

implementation of budget is to ensure the fulfillment of the financial and economic

aspect of budget outlays. The financial tasks include programmed spending of the

amounts for the purpose specified and avoiding lapses or a rush of expenditure towards

the end of the financial year. Budgetary implementation is the enforcement of the set

objectives taking appropriate actions to bring performance in line with planned targets.

1.3 STATEMENT OF THE PROBLEM

Numerous problems militate against an efficient budgetary implementation.

Benneth (1975:23) was of the view that “statute differences or more accurately role

conflict between budget staff and line personnel is an important source of unfunctional

consequence of a budgetary system. This implies that the basic problem of budgetary

implementation arise from differences in the way budget staff and line personnel

understand the budgeting system.

Line employees see budgets as merely emphasizing history, being too rigid,

unrealistic, unattainable and ambiguous. The budget staff are seen as over-concerned

with figures, unconcerned with line problems and cut off by a language of their own (ie

presenting complicated format). These problems would affect the effectiveness of budget

system directly or indirectly through their effects on communication, motivation and

participation.

Again, under the volatile conditions in which they work, managers often lack up-

to-date information on which to base their decisions. There is always a time lag involved

in the process of preparing and approving estimates of proposed expenditures in most

companies. This time lag matters less in a stable economy where factors affecting

budgetary decisions change slowly. But in the fast changing financial conditions of low

income countries, it can make formal budgetary procedures impossible to follow.

Another important problem of budgetary implementation is the unrestricted

transfer of funds from one category of expenditure to another. Lewis (1967:208) opined

that “the characteristics of the African financial environment and changes that take place

after the budget has been approved”. So all these lead to the study of “The Impact of Poor

Budgetary Implementation in Construction Companies (A study of Megastar Technical

and Construction Company Limited, Aleed Construction Company, Anasami

Construction Nig Ltd, Sametech Construction and C & C Construction Co. Ltd).

1.3 OBJECTIVES OF THE STUDY

Major objectives of this study is to investigate the impact of poor budgetary

implementation in construction companies, using Megastar Technical and construction

company Ltd, Aleed Construction Company, Anasami Construction Nig Ltd, Sametech

Construction and C & C Construction Co. Ltd as a case study.

The study will specifically:

i. Identify the major causes of poor budgetary implementation practices in the

companies under study.

ii. Determine the impact of poor budgetary implementation in construction companies.

iii. Offer useful and meaningful suggestion for improving on the identified problems

based on findings.

1.4 RESEARCH QUESTIONS

The following research questions are formulated for the purpose of the study:

1. What are the causes of poor budgetary implementation practices in construction

companies?

2. To what extent has poor budgetary implementation practices impacted in construction

companies?

3. How can poor budgetary implementation problems be improved to enhance the

viability of construction companies to achieve their desired goals and objectives?

1.5 HYPOTHESIS

In order to solve the problems of poor budgetary implementation, the study

intends to test and prove or disapprove the following hypothesis

(1) Ho: There is no significant relationship between poor budgetary implementation

and late release of fund by responsible officials in construction

companies.

(2) Ho: Poor budgetary implementations do not hamper the growth of construction

companies.

(3) H0: Poor budgetary implementation problems cannot be improved in

construction companies to enhance viability of projects.

1.6 SIGNIFICANCE OF THE STUDY

The result of the study is important for the following reasons:

It is to serve as standpoint from which business managers could design an

effective machinery for budgetary implementation practices. Enhancing the viability of

projects embarked upon by companies to achieve the desired objectives by improving the

status of the company.

Helping prospective and potential investors/industrialists to realize the need for

adequate budgetary implementation towards industrial growth. The study will also give

research students and interest groups in future an insight into the various aspect of

budgetary procedures and its impact on the efficient resource management in companies.

1.7 LIMITATIONS OF THE STUDY

The following limitations are inherent in the study.

Lack of enough available sufficient data, because most of the vital documents

needed for the research from the company were not completely provided for the

researcher.

Poor information management and outdated materials in our libraries also pose a

problem. Also time is another factor since no research work is exhaustible, the fact is that

the time required for completion of this work is reasonably short.

However, the study has proffered much efforts to analyze the budgetary

implementation procedure based on the available data taking into consideration the above

limitations

1.8 SCOPE OF THE STUDY

The scope of this study is restricted to the impact of poor budgetary

implementation in construction companies. The areas especially in focus are the

construction industry where Megaster technical and Construction Company Ltd, Aleed

Construction Company, Anasami Construction Nig Ltd, Sametech Construction and C &

C Construction Co. Ltd has been used as case study. The scope in terms of respondents

include: management and staff of accounts departments of the various companies for the

study. These are people that believed to provide the required information on the subject

matter for the study.

1.9 DEFINITION OF TERMS

Traditional Budgeting: a short range fiscal management and expenditure control carried

out through assemblage of costs by type of resources, input and by organizational nor

functional activities. Norvick (19967:3742)

BUDGET IMPLEMENTATION: The science based art of regulating the actual to be in

parity with the set standard, to meet the economic demands placed on a business

enterprise.

RESPONSIBILITY HOLDER: One appointed to lead and account for the operational

unit of a firm with clear definition of their areas of responsibility.

BUDGET: A financial or quantitative statement, prepared prior to a specified accounting

period, containing the plans and policies to be pursued during that period. It is used as the

basis for budgetary control.

MANAGEMENT ACCOUNTING: The techniques used to collect, process and present

financial and quantitative data within an organization to help effective performance

measurement, cost control, planning, pricing and decision making to take place.

ZERO-BASE BUDGETING (ZBB): Is a management process that provides for

systematic consideration of all programmes and activities in conjunction with the

formulation of budget requests and programme planning.

BUDGETARY CONTROL: The process by which financial control is exercised with in

an organization. Budgets for income and expenditure for each function of the

organization are prepared in advance of an accounting period and then compared with

actual performance to establish any variances.

REFERENCES

Baridam, D.M (2001), Research Methods in Administrative Sciences, Third Edition, Port

Harcourt, Sherbroke Associates.

Drury, C. (2002), Management and cost Accounting, Fifth Edition, Italy Vincenzo Bona.

Jacob, D. et al (1972), Introduction to research in education, Holt, Rinehart and Winston

Inc. New York.

Vincent, A.O et al (2010), Social Science Research: Principles, Methods and

Applications. First Edition, El‟Demak (Publishers) Enugu, Nigeria.

CHAPTER TWO

LITERATURE REVIEW

The study reviewed a number of texts on business management, financial

accounting and management, modern management, financial and other business

textbooks. Some business journals, hand books, government abstract, newspapers and

business thesis were equally reviewed to make this work vivid and aim achieving.

This work investigates the impact poor budgetary implementation practices has on

construction companies. The chapter is intended to review related literature, approached

under the following main classes. Concepts and definitions of budgets and budgetary

implementation, budgetary techniques, the role of budgeting problems of budgetary

implementation, factors which affects application of budgetary principles in construction

companies and impact of poor budgetary implementation.

2.1 CONCEPTS AND DEFINITIONS FOR BUDGET AND

BUDGETARY IMPLEMENTATION

A precise definition of budget might equally be misleading or one sided. The

accountants see budget from preparation perspective. Management understands it from

implementation aspects, while the behavioural scientists views it from the human

implication aspects. As non of these views is entirely irrelevant or encompassing, an

attempt must be made to combine the salient facts of the views to obtain the best

functional definition of budget.

The concept, budget, according to Horgreen et al (1990:148), must be conceived

as a formal quantitative expression of management plans. He went further to state that the

master budget summarizes the goals of all subunits of an organization sales, production,

distribution and finance. It quantifies targets for sales, production, net income and cash

position and any other objectives that management specifies.

However, Lucy (1980:313) described a budget as “quantitative expression pf a

plan of action prepared in advance of the period to which it relates. “This suggests that

the process of preparing and agreeing budgets is a means of translating the overall

objectives of the organization into detailed feasible plans of action.

A more comprehensive definition of budge is the one given by the institute of cost

and management accountants (ICMA, in Pickless (1974:3154), which defines budget as

“a financial and quantitative statement, prepared and approved prior to a defined period

of the policy to be pursued during that period for the purpose of attaining a given

objectives”.

From the on-going contributions of different writers and bodies, budget may be

taken to mean a plan, quantified in monetary terms prepared and approved prior to a

defined period of time and usually under a state to display planned income to be

generated and /or expenditure to be incurred, equally the capital to be employed to attain

the underlying objectives.

On the other hand budgetary implementation according to smith et al (1948:587)

is “the actual execution of the budget plan with special efforts being directed towards

corrective action when departures are revealed”. Implementation is an integral part of

policy formulation. According to Harcourt G.C et al (1973:27), “it is a system of

controlling costs which includes the preparation of budgets, co-ordinating the

departments and establishing responsibilities, comparing actual performance with the

budgeted and acting upon results to achieve maximal profitability.

These definitions points out that the effectiveness or otherwise of budgets

depends solely on the ability of those concern to ensure that the responsibility holders are

carrying out their responsibilities according to the requirements of the policies and the

continuous comparison of actual with budgeted result either to secure by individual

action the objectives of the policies or to provide a basis for its revision.

The issue, which might demand a touch here is who implements budget in

construction companies and how this implementation affects policy decisions. The

budget implementation lies with the departmental heads. The departmental heads have

the responsibility of following the budget to the latter. The departmental heads should

make sure they do not approve all sorts of expenses without following the budget for the

month or the year as the case may be. If departmental heads do not adopt some control

measures in approving payments (expenses), it is possible that the budget would be in

deficit and this may affect the working capital of the company, thereby affecting the

company policy of decision making.

2.2 BUDGETING TECHNIQUES

Various special budgets can be prepared for varying reasons. The purpose it will

serve, the organization using it, the personality it should be presented to, the subject the

budget is to treat, the characteristics of the organization, its style of leadership, the

method of preparation. Horgren et al (1990). The aforementioned are all factors

accounting for budget types and styles. This suggest that we have countless forms of

budgets, but for this review, the ones to be dealt with by the study are:

i. ZERO-BASED BUDGETING (ZBB)

Zero based budgeting refers to by Decoster et al (1973:43) “as management

process that provides for systematic consideration of all programmes and activities in

conjunction with the formulation of budget requests and programme planning”. This

followed that the standard on which budgets are based are predicted from past

performance. That is, if there were to be inefficiency in current and past operations as

under capacity utilization, business mistakes, etc. They are more likely to be transferred

to the future budgets. To solve this problem, zero-based budgeting was evolved as a

budgetary control tool.

Zero-base budgeting assumes that budgeting for every function should start from

the scratch. The manager should start by assuming that he has no budget or operation

from which to work. He has to take every item of budget as a new proposition and justify

its needs. In other words, the manager justifies every naira of the budgets he proposes. To

meet this justification, the following procedure is adopted.

a. Identity the problem

b. Analyze the problem

c. Develop alternative solutions

d. Select the most appropriate solutions

e. Implement the solution and review the results.

However, some authors do not believe that for a budget to be zero-base means that it

has to start from the scratch. Halverson et al (1976:28) viewed zero-base budgeting as “

the review and justification of selected, not all current programmed elements starting

somewhere at a point in the base area and not necessarily at zero base”

Based on the above views, the study sees ZBB as a system whereby each

programme, regardless of whether it is entirely new or in existence before, must be

justified in its entirety each time a new budget is formulated. This means, constructing a

budget without any reference to what has gone before, based on a fundamental re-

appraisal of purposes, method and resources.

Zero-base budgeting as a management tool provides significant benefits, some of

which are:

a. Focusing the budget process on a comprehensive analysis of objective and the

development of plans to accomplish these objectives.

b. Expanding lower level management participation in planning, evaluation and

budgeting.

c. Causing managers at all levels to evaluate in details and with reasonableness, the cost

effectiveness of their operations and specific activities both new and old all which are

clearly identified.

d. Provide managers at all levels with better information on the relative priority

associated with budget requests and decisions.

In formulating a budget using zero-base budgeting process, the organization

enters into three phases of management planning, budgeting and review. It is a veritable

budgeting technique which links all the phases of budgeting into one system.

ii. PROGRAMME BUDGETING (PR)

According to Norvick (1967:3716), “program budgeting for an organization

begins with an effort to identity and define objectives and group the organization

activities into programmes that can be related to each objective”. This method allows us

to look at what we produce-output, in addition to how we produce or what inputs we

consume.

In another development Lucy (1989) opined that “a programme represents the

appropriation of fixed sum of money to achieve a specific objective or set of objectives.

The programme budget itself present resources and costs categorized according to the

programme or end product to which they apply. The entire process by which objectives

are identified, programmes defined and quantitatively described, and the budget recast

into a programme budget format is called the structural phase of planning-programming

budgeting. Reginald et al (1971).To develop a programme budget, specific goals should

be established, the present level of performance should be determined through the study

of available data, and qualified targets set in each of the specific goals that were

established.

The strengths of PB is that it aids planning by focusing attention on competition

for resources among programmes and on the effectiveness of resources use with

programmes. Again program budgeting cuts across organizational boundaries, drawing

together the information needed by decision makers without regard to decision in

operating authority among jurisdictions.

To be effective, the program budget categories should be designed to facilitate the

grouping of expenditures in such a way that they can be related to program outputs. The

program budget has to be prescriptive and not merely descriptive for only a prescriptive

budget produce change.

iii. TRADITIONAL BUDGETING

According to Reginald et al (1971:44) “traditional budgeting takes cognizance

and makes reference to previous/past and thus makes comparison so as to draw a new

budget plan”.

Norvick (1967:3742) viewed traditional budgeting as being characterized by a

short range fiscal management and expenditures control objective. However, in

traditional budgeting, costs are assembled by type of resource input (line item) and by

organization or functional categories.

It is common place in the literature on budgeting for business to say “that budget

is the financial expression of a plan”. The major strength of traditional budgeting

according to Naomi et al (1974) is that it tends to evaluate performances. In measuring

performance, consideration is taken of both the previous and expected performance so as

to draw up a new plan.

2.3 CONTINUOUS BUDGET/ROLL BUDGET

Continuous budget which is known as rolling budget is a system of budgeting that

involves continuously updating budgets by reviewing the actual results of a specific

period in the budget and determining a budget for the corresponding time period. It has

been described as an attempt to prepare targets and plans which are more realistic and

certain by shortening the period of budget preparations. Under this method, instead of

preparing a budget annually, there would be budget every three or six months so that as

the current period ends, the budget is extended by an extra period; for example, if a

continuous budget is prepared every three months, the first three months would be

planned in great details and the none months in lesser details, because the greater

uncertainty about the longer term future. This means that, if a first continuous budget is

prepared for April to June, in detail to march in less detail a new budget will be prepared

towards the end of June to cover June to September in details and October of the

following year in lesser details.

Advantages of Continuous Budget/Rolling Budget

a. management is made to be continuously aware of the budgetary process since the

figures for the next 12 months are always made available.

b. it allows for more frequent assessment and revision of the budgets in the light of

current trends particularly during the period of inflation, thus, the budget does not

become quickly obsolete or out dated.

Disadvantages of Continuous Budget/Rolling Budget

Higher costs and efforts are required for continuous budget due to lack of co-

operation and negative attitude of the operating managers to the control techniques.

Managers personal objectives also override the goal congruence of the organization. This

negative and disfunctional attitude of managers manifest at both the planning stage and

implementation stage.

2.4 THE ROLES OF BUDGETING

Budgeting serve multiple functions and offer variety of information to the over all

operations of business enterprise.

Katz (1975:453) opined that “budgeting reports serve a reliable means of

communication, where the top management can inform the manager of the goals of the

firm that it expects him to fulfill.

Moreover, Lucy (1989:321) was of the view that “the whole process of budget

preparation and subsequent performance evaluation by budgetary control needs to be

carried out so as to motivate managers rather than create resentment and adverse

reactions”.

Smith, et al (1983) stressed on the role of budget in motivating employees, when

he said that the careful use if budgeting reports directly contribute towards effective

motivation by expressing goals and by supplying knowledge of performance. This

implies budget report of performance has a direct effect on motivation, since it gives the

departmental managers as well as other employees the knowledge of their performance.

However, study has shown that decentralization of responsibilities in an

organization facilitates the budgeting system, whereby the lower and the middle

management are involved in the preparation of budgets provides conducive atmosphere

for effective motivation. Therefore budgets are used to raise the employees level of

aspiration thereby increase their levels of performance, rather than informing them of

goals and decisions.

As to the contribution of budgets to the growth of an organization, a question may

be asked; in what specific way do budgets make management actions more efficient and

effective in maximizing the present values of the owners net worth? To this question,

Anthou H.R et al (1957:49) has the following suggestions,” a budget system enables

management more effectively to plan, coordinate, control and evaluate the activities of

the business”. By using budgets to coordinate activities, the organization is more likely to

operate at an optimal level given the constraints on its resources.

The control and decision making consequences are among the more important

aspect of budgeting. Budget implicitly incorporates control at the point of decision since

budget provides relevant information to a decision maker at the time he has to choose

between alternatives.

More often, the comparison between budgets and the actual, reveals

discrepancies. The investigation of such variances and the resulting control procedures

tends to device methods to reduce costs, improvement in the firms efficiency, and better

future planning.

Summarily, the roles of budgeting in construction companies can be outlined as

follows;

a. It helps to regulate all the activities and functions of all the departments of the

organization thereby making its economic goal attainment visible.

b. Budgetary information provide management with bases for formation of economic

polices

c. To raise money. This has been described as the classical role of budget Nwankwo,

G.D (1982). In this sense, the budget is simply a way of finding or raising enough

money to meet the projected expenditures of the organization.

d. It enables the management to take an overall view of the company knowing which

department that needs special attention.

e. It is a means of setting control in expenditure for each department of the company.

2.5 PROBLEMS OF BUDGETARY IMPLEMENTATION

Numerous problems militate against an efficient budget implementation. Benneth

(1975:23) was of the view that “statute differences, or more accurately role conflict

between budget staff and line personnel, are an important source of unfunctional

consequences of a budgetary system.”.

This implies that the basic problem of budgetary implementation arises from

differences in the way budget staff and line personnel understand the budgeting system.

Line employees see budgets as merely emphasizing history, being too rigid,

unrealities, unattainable and ambiguous. The budget staff are seen as over-concerned

with figures, unconcerned with line problems and cut-off by a language of their own (ie

presenting complicated format). These problems would affect the effectiveness of budget

system directly and indirectly through their effects on communication, motivation and

participation.

In another development, under the volatiles conditions in which they work,

managers often lack up-to-date information on which to base their decisions. There is

always a time lag involved in the process of preparing and approving estimates of

proposed expenditures in most companies. This time lag matters less in a stable economy

where factors affecting budgetary decisions change more slowly.

Another important problem of budgetary implementation is the unrestricted

transfer of found from once category of expenditure to another. Lewis (1967:28) opined

that “the characteristics of the African financial environment and the many changes that

takes places after the budget has been approved.”

Also another problem that budget implementation encounters is that of instability.

It might be political, social or economical. Political or economic instability pose a serious

threat to budgetary implementation. Ibru (1998), opined that “where instability and

uncertainty prevails, budgets are often in a flux”.

In summary, lateness in finalization of the budget, budget crowding, uncertainly

in revenue flow, high costs leading to job delays, opacity in the tendering process, lack of

implementation programme and the absence of any definite and measurable objectives or

targets set out for budget implementation are among the problems of budgetary

implementation in construction companies.

2.6 THE MAJOR USES OF BUDGETARY CONTROL

The management of any company employs budgetary control for many purposes.

Some of the purposes include:

1. To give management a timely signal as to the extent that actual achievements have

deviated from the expected.

2. To give management a clue as to why these deviations have occurred.

3. To provide a basis for taking corrective action, including a justification for revising

the budget if necessary.

4. To define organizational objectives in a manner that in both flexible and adaptive to

both unexpected and anticipated changes, especially with respect to the volume of

operations. In other words, it re-enforces wisdom that planning is the basis of control.

5. To serve as a model for the most efficient and effective utilization of organizational

resources.

6. To make centralized authority more effective through a better process of

decentralization of responsibilities and activities of subordinates.

7. To provide the means through which the various activities of the organization are

most effectively co-co-coordinated.

8. To provide a basis for evaluating the performance of subordinates, measuring their

efficiency and ensuring that the internal pricing system (rewards and punishment) is

working well.

9. Where units (products or cost centre as the case may be) are concerned, it also

enables standard costs to be used most effectively.

It is important to always bear in mind that standard setting is indispensable to the

budgetary process as a whole, including the implementation and control aspects.

2.7 STAGES IN BUDGET PREPARATION

The stages in budget preparation include:

(a) Planning Stage: Assuming the operating managers are involved in preparing a budget;

they may:

i. Intentionally build in slack in the budget.

ii. Express the opinion that budget is time wasting and that they are always busy to

prepare the budget.

iii. Argue that formalising a budget on paper is too restrictive and that they should be

granted some flexibility in making their operational decisions.

iv. Frequently, prefer incremental system of budgeting to considering alternative

options and new ideas.

v. Have in mind that the budget is unattainable, that is, having negative idea about

the achievement of the budget.

(b) Implementation Stage

i. Lack of co-operation and co-ordination with other budget centres.

ii. Putting in less effort to achieve budget targets without putting all efforts to

achieve more than budgeted.

iii. Managers may disregard a control report which shows negative variances.

iv. Tack of controlling cost to achieve their own selfish end.

v. Having much interest in short-term factors to the detriment of more important

longer term consequences.

vi. Blaming budgeting system s for any problems which may occur.

2.8 SOLVING BEHAVIOURAL PROBLEMS IN BUDGETING

(a) Motivation: Horngren (1996) defines motivation as the “need, some selected goal and

the resulting drive that influence action towards the goal”, He suggested that motivation

has two aspects:

i. Direction or goal congruence exists when managers working in their own best

interest also are in harmony with the goals of top management (that is, the

organization as a whole). It is very difficult to obtain the goal congruence in an

organization. This is one of the essentially behavioural problems in budgeting.

ii. (ii) Strength with getting subordinates to run rather than work towards the desired

goal. Incentive improves the performance of employees and helps to reduce

personal or departmental objective.

iii. Motivation helps to improve business results and eliminate misdirected or

dysfunctional operation. Horngren argues that accounting system must be designed

in such a way as to achieve a motivational response from its use, provided that the

costs of providing such a system do not outweigh the expected results. He also

acknowledges that human behaviour is inclined to damage the usefulness of formal

accounting system.

(b) Participation: Participation by employees in budget setting and the encouragement

of a human approach and man - management would remove the drawbacks to effective

budgeting. All the operators of the budget should be fully involved in the preparation of

the budget.

Participation leads to more positive attitude and higher performance.

Kenis (1979) reports a positive correlation of attitude and performance with participation,

while scholars such as Bryan, Locke, Stedry and others, show a negative relationship

between participation and performances.

Argyris (1952) on the other hand cautioned against the level of participation, as different

organizations use the word participation to describe quite different activities. He

suggested that the involvement of managers should be total, otherwise pseudo-

participation could lead to counter-productive results.

(c) Goal Congruence: Goal congruence means alignment of individual interest of

managers to the overall objective of an organization. This overall objective should not

conflict with the individual or group objectives entirely but recognition must be given to

the fact that organizational objectives cannot be set and implemented through budgeting

without consideration of the interaction of individual group and departmental objectives.

Hopwood‟s (1976) emphasized that there are many problems in achieving goal

congruence because:

(I) There may be numerous objectives in one organization, some of which may

conflict.

(II) Different managers may perceive their objectives differently.

(III) Departmental rivalries.

(IV) Different and conflicting reward structures.

Other practical realities make perfect goal congruence extremely unlikely.

Efforts should be made to educate both top management and middle management on the

importance of goal congruence.

(d) Management Support: Top management should be interested in the budgetary

system in order to ensure that operating managers give the necessary cooperation.

(e) Reporting System: Efforts should be made to isolate uncontrollable cost from

controllable ones in order to have meaningful variances reporting system.

(1) Communicating: Communication should be adequate with the operating managers at

all stages of the budgetary system.

2.9 THE PURPOSE OF BUDGETING

i. Communicate ideas and plans to everyone affected by them. A formal system is

necessary to ensure that each person is aware of what he or she is supposed to be

doing. Communication might be one-way, that is, with managers giving order to

subordinates or there might be a two-way dialogue and exchange of ideas, between

managers and subordinates.

ii. Coordinate the activities of different departments or sub-units of the organization.

This concept of coordination implies, for example, that the purchasing department

should base its budget on production requirements, and that the production budget

[that is, direct labour budget and machinery utilization budgets, etc i should in turn be

based on sales expectations. Although, straight forward in concept, co-ordination, in

practice, is remarkably difficult to achieve, and this often leads to „sub-optimality‟

and conflict among departmental managers.

iii. Establish a system of control by having a plan against which actual results can be

progressively compared and variances analysed for prompt attention and action.

iv. Motivate employees to improve their performances. The level of attainment usually

incorporated in the budget is a realistic figure for the budget period. Thornton:

(1978).

Thornton, (1978) suggests that two levels of attainment could be fixed:

(I) a “minimum expectations” budget, and (ii) a “desired standards” budget.

A budget is a means to an end, and not an end in itself. It is a short term plan that depicts

the focus of a long term objective of the organization. It covers area of responsibility of

one specified person, so that his performance can be measured at the end of a budget

period. It follows that the budget should be prepared in conjunction with those who are to

be responsible for achieving the budgeted performance. in this way, a head of department

translates his goal in the budgets. This approach offers motivation to the managers. This

technique, with its stress on personality, differs from standard costing, for the latter is

concerned with standards for products or services.

2.10 FUNCTIONAL BUDGETS

Functional budgets are prepared by the departmental heads. The order of

importance in preparation of the budget depends on the budget limiting factor of the

organization. Where sales are considered critical to the success of the objectives, the sales

budget is prepared first. Similarly, where source of raw material is restricted and in

limited supply, the raw material budget is prepared first.

The order of presentation suggests that the sales are critical and so sales budget is

prepared before other budgets:

i. Sales budget. This will incorporate decisions about selling prices and expected

sales volume for each item of product (or service) for all segments of the

company‟s product or service;

ii. The departmental budgets for marketing, sales and distribution would also be

made at an early stage, because estimates of spending on sales promotion,

advertising and salesmen, etc will be necessary to gauge the expected volume of

sales;

iii. Having prepared the sales budget, it should be possible to estimate production

requirements in terms of quantity of raw materials, labour hours, machine hours,

etc. However, decision must first be taken about stocks of finished goods. A

decision to increase stocks would mean that production for the period must

exceed sales volume. On the other hand, a decision to reduce stock levels (so as to

improve the organization‟s cash position) would mean that production volume

would be less than sales volume by the amount of the run-down in stocks. The

level of stock to hold would depend on the variability in demand, lead-time for

raw materials, etc.; (iv) The production budget is then prepared, specifying the

expected quantities of each product to be made, in each factory or manufacturing

department, followed by the budgets of resources for production, that is,

Materials usage budget for all types of materials, direct and indirect;

Machine utilization budget for the operating hours required on each machine or

group of machines;

Labour budget (all grades of labour, direct and indirect in hours and cost);

Overhead cost centre‟s budgets for production, administration, and research and

development cost centres.

(v) A material‟s purchasing budget is also required, specifying the expected

quantities and price of each stores item for raw materials bought-in components,

stationery, etc. In order to prepare the purchases budget, a decision must first be

taken about stock level. Purchase requirements (in quantity) are the usage

requirements, plus any increase in raw material stocks, or less any decrease in

stocks;

(vi) A capital expenditure budget, updated each year, co-vering a period of the next t

hree to five years;

(vii) A working capital budget, specifying the changes in debtors and creditors during

the year. Turnover periods would be estimated and the effect of any proposed

decision on discounts or credit period allowances considered; and

(viii) The cash budget cannot be prepared until the functional budgets in (I) to (vi) have

been decided, prepared and agreed.

2.11 MASTER BUDGET

The master budget consolidates the position of all the functional budgets in the

form of a budgeted trading and profit and loss account and a budgeted balance sheet.

Budgetary control relates expenditure to the person responsible for each function,

thus affording an effective method of control. It is an important principle of the system

that an executive is held responsible only for expenditure within his control.

2.12 BUDGET PREPARATION AND APPROVAL PROCEDURES

Budget Preparation Procedures

The business of any organization must be conducted in an organized and orderly

manner to achieve the desired results. Budget preparation is a serious activity of

management and some time should be expended on it. In practice, top management may

constitute a budget committee which could comprise: (a) The Managing Director / Chief

Executive Officer as the Chairman

(b) Chief Accountant (or Director of finance) as the budget officer. He coordinates the

preparation and readiness of other budgets and prepares the cash budget as well as the

master budget. His knowledge of the interrelationship of these other functional budgets

puts him in an advantageous position to be the budget officer.

(c) The head of department or the line and service managers who prepares the functional

budgets of the department.

It is good management policy to have a pre-budgeting meeting where the guidelines for

the new budget period are drafted, discussed and approved. This would include the

requirements that the new budgets must meet the standard parameters.

2.13 APPROVAL OF THE MASTER BUDGET

The budget committee will submit the master budget to the top management

(usually the Board of Directors) for approval. If it is approved, the master budget will

then become the blueprint for the activities of the budgeted period. If approval is not

received, sections of the budget will have to be amended to incorporate any change or

review in emphasis so as to meet the requirements of top management. However, these

requirements should be realistic. There are limits to the success which can be achieved.

Some improvements may be possible for the following reasons:

(a) Managers may have been too pessimistic in their estimates.

(b) Padding or slack variables may have been built into the budget that is, estimates of

costs may be overstated and activity understated so that the budget can be easily

achieved.

(c) Improvements in efficiency may be possible.

(d) Additional sales promotion may yield positive results.

(e) It may be possible to increase productive capacity although in many industries, this

could take considerable time.

2.14 PLANNING, PROGRAMMING, BUDGETING SYSTEM (PPBS)

PPBS analyses the output of a given programme and also seeks for the

alternatives to find the most effective means of reaching basic programme activities.

PPBS involves the preparation of a long-term corporate plan that clearly establishes the

objectives that the organization have to achieve. PPBS is the counter part of the long-

term process for profit-oriented organizations.

Aims and Objectives of PPBS

(i) The aim of PPBS is to enable the management of a non-profit making

organization to make more informed decision about the allocation of resources to

meet the overall objectives of the organization.

(ii) It enables the management to identify the activities, functions or programmes to

be provided thereby establishing a basis for evaluation of their worthiness.

(iii) PPBS provides information that will enable management to assess the

effectiveness of its plans.

Stages in PPBS

(i) Calls for a careful specification and overall objectives are made.

(ii) identify programmes that will achieve these objectives and those programmes which

are normally related to the major activities undertaken by government establishments.

(iii) The costs and benefits of each programme are determined, so that budget allocations

can be made on the basis of the cost-benefit of the programme.

(iv) Analyses, the alternatives to find the most effective means of reaching basic

programme objectives.

(v) These analytical procedures will be established as to systematically form part of

budgetary control.

2.15 BUDGETARY CONTROL

There is a difference between a budget and budgetary control/budgeting. A budget

is just an integral part of budgetary control/budgeting.

Budgetary control is defined as: “a system of controlling costs which includes the

preparation of budgets, coordinating the departments and establishing responsibilities,

comparing actual performance with that budgeted and acting upon results, to achieve

maximum profitability‟ (CIMA).

Budgetary control is also defined as, “the establishment of budgets relating the

responsibilities of executive to the requirements of a policy, and the continuous

comparison of actual with budgeted results either to secure by individual action the

objective of that policy or to provide a basis for its revision”.

Certain fundamental principles can be outlined from the above definitions of

budgetary control:

a. Establish a plan or target of performance which co-ordinates all the activities of the

business;

b. Record the actual performance;

c. Compare the actual performance with that planned;

d. Calculate the differences or variances, and analyze the reasons for them; and (e) Act

immediately, if necessary, to remedy the situation.

2.16 THE OBJECTIVES OF BUDGETARY CONTROL

The objectives of budgetary control include:

(a) Combine the ideas of all levels of management in the preparation of the budget;

(b) Co-ordinate all activities of the business;

(c) Centralise control;

(d) Decentralise responsibility of each of the managers involved;

(e) Act as a guide for management decisions, when unforeseeable conditions affect the

budget;

(f) Plan and control income and expenditure so that maximum profitability is achieved;

(g) Direct capital expenditure in the most profitable way;

Ensure that sufficient working capital is available for the efficient operation of the

business;

(I) Provide a yardstick against which actual results can be compared; and

(j) Show management which action is needed to remedy a situation.

2.17 ORGANIZATION OF BUDGETARY CONTROL

These include:

(a) The Preparation of an Organisation Chart: This defines the functional

responsibilities of each member of management and ensures that he knows his

position in the company and his relationship to other members.

(b) The Budget Period is the time to which the plan of action relates. Periodic budgets

cover a fixed period of time, most commonly one year. They will be divided into

shorter time periods, known as: control periods, for purposes of reporting control.

With a one-year period budget, control periods may be 4 weeks [13 periods each

year] or one month [12 periods each year]. Long-term budgets [for example,

capital expenditure budgets] may be for periods of up to five, ten years, or even

longer.

(c) Budget Manual: The organization for budgeting [and budgetary control] should be

documented in a budget manual, which has been described as a “procedure or rule

book which sets out standing instructions governing the responsibilities of

persons, and the procedures, forms and records relating to the preparation and use

of budgets”. (C1MA)

Even though organizations are different, the content of a manual include:

(a) Description of budgetary planning and control;

(b) Goals of each level of the budgetary process;

(C) Association with long term planning;

(d) Nature of organogram depicting duties and level of budget officers;

(e) Analysis of relevant budgets and association with accounting activities;

(f) Description of principal budgets;

(g) Composition of budget committee and mode of operation;

(h) Modalities for the preparation and publication of budget;

(I) Designation and responsibility of the budget manager;

(j) Chart for codes;

(k) Design and nature of form; and

(1) Mode of operation especially where they concern procedures for accounting,

preparation of reports and deadline for the submission of such reports/budgets.

(d) Budget Committee: The overall responsibility for budget preparation and

administration should be given to a Budget Committee, normally chaired by the chief

executive of the organization, with departmental heads or senior managers as members.

The purpose of the committee is to:

(I) Ensure the active co-operation of departmental managers arid to act as a forum in

which differences of opinion can be argued out and reconciled;

(ii) Ensure that managers in the organization understand what other departments are

trying to do;

(ill) Establish long-term plans around which the budgets should be built, and then to

identify budget objectives;

(iv) Review departmental budgets; and

(v) During the year, examine reports showing actual performance compared with

budget and expectations.

(e) The Budget Officer: He controls the budget administration on a day to day basis. He

will be responsible to the budget committee and should ensure that its decisions are

transmitted to the appropriate people and relevant data and opinions are presented for its

consideration. He will normally have the vital jobs of educating and selling the budget

idea. Since the master budget is summarized in cost statements and financial reports the

budget officer is usually an accountant.

(f) The Introduction of Adequate Accounting & Records: It is imperative that the

accounting system should be able to record and analyses the information required. A

chart of accounts should be maintained which corresponds with the budget centres.

(g) The General Instruction on Techniques to all concerned in Operating the

System: Each person must feel that he is capable of carrying out the budgeted

programme.

(h) Budget Centres: An organization‟s planned activities are divided into separate areas

known as budget centres or cost centres. Each area selected as a budget centre must be

clearly definable, and should be the natural responsibility of one particular manager [or

supervisor]. A separate budget is prepared for each budget [or cost] centre. The „budget

centre budgets‟ are known as departmental budgets. Departmental budgets are often used

to build up budgets for overhead costs, that is:

i. The production overhead budget will be compiled from separate budgets for the

production departments, maintenance, production planning, quality control, etc

ii. The administration budget will be compiled from separate budgets for personnel,

finance, management services, information technology, etc.

iii. The selling and distribution budget will be the amalgamation of budgets prepared

by sales office managers, marketing managers, warehouse and transport

managers.

iv. The research and development budget.

(I) Principal Budget Factor: This is also known as the key budgeting factor or

limiting budget factor. The first task in budgeting is to identify the factors which

impose limitation or ceiling on the level of activity, it is usually sales demand;

but it may also be limitations on any resource materials, labour, machine time,

working capital, etc. Once this factor is defined, the rest of the budget can be

prepared. It determines priorities in functional budgets, for example, it may be

material, labour or plant.

Management may not know in advance which is the principal budget factor. One method

to identity this factor is to prepare a draft sales budget, and then consider whether any

resource shortage prevents this level of sales from being met.

(j) Level of Activity: It will be necessary to establish the normal level of activity, that is,

the level the company can reasonably be expected to achieve: quantity to produce,

quantity to be sold, etc.

2.18 STAGES IN THE PLANNING PROCESS

The following stages would be considered in the planning process:

STAGE 1: ESTABUSHING OBJECTIVES

Establishing objectives is an essential pre-requisite of the planning process. In all

organizations employees must have a good understanding of what the organization is

trying to achieve. Strategic or long-range planning therefore begins with the specification

of the objectives towards which future operations should be directed. The attainment of

objectives should be measurable in some way and ideally people should be motivated by

them. Johnson and Scholes (1999) distinguish between three different objectives, which

form a hierarchy: the „mission‟ of an organization, corporate objectives and unit

objectives.

The mission of an organization describes in very general terms the broad purpose

and reason for an organization‟s existence, the nature of the business(es) it is in and the

customers it seeks to serve and satisfy. It is a visionary projection of the central and

overriding concepts on which the organization, is based. Objectives tend to be more

specific, and represent desired states or results to be achieved.

Corporate objectives relate to the organization as a whole. They are normally

measurable and are expressed in financial terms such as desired profits or sales levels,

return on capital employed, rates of growth or market share. Corporate objectives are

normally formulated by members of the board of directors and handed down to senior

managers. It is important that senior managers in an organization understand clearly

where their company is going and why and how their own role contributes to the

attainment of corporate objectives. Once the overall objectives of the organization have

been established they must be broken down into subsidiary objectives relating to areas

such as product range, market segmentation, customer service and so on.

Objectives must also be developed for the different parts of an organization. Unit

objectives relate to the specific objectives of individual units within the organization,

such as a division or one company within a holding company. Corporate objectives are

normally set for the organization as a whole and are then translated into unit objectives,

which become the targets for the individual units. You should note that the expression

aims is sometimes used as an alternative to mission and the term goals is synonymous

with objectives.

STAGE 2: IDENTIFY POTENTIAL STRATEGIES

The next stage is to identify a range of possible courses of action (or strategies.)

that might enable the company‟s objectives to be achieved. The corporate strategy

literature advocates that, prior to developing strategies, it is necessary to undertake a

strategic analysis to become better informed about the organization‟s present strategic

situation, This involves understanding the company‟s present position, its strengths and

weaknesses and its opportunities and risks.

Having undertaken a strategic analysis, the next stage is to identify alternative strategies.

The identification of strategies should take into account the following:

1. The generic strategy to be pursued (i.e. the basis on which the organization will

compete or sustain excellence).

2. The alterative directions in which the organization may wish to develop.

The role of long- and short-term planning within planning, decision-making and control

process.

An organization should determine the basis on which it will compete and/or

sustain a superior level of performance (i.e. the generic strategy that it will follow). The

purpose is to ensure that deliberate choices are made regarding the type of competitive

advantage it wishes to attain. Porter (1985) has identified three generic strategies that an

organization can follow:

1. Cost leadership, whereby the organization aims to be the lowest cost producer

within the industry;

2. Differentiation, through which the organization seeks some unique dimension in

its product/service that is valued by consumers, and which can command a

premium price;

3. Focus, whereby the organization determines the way in which the strategy is

focused at particular parts of the market. For example, a product or service may

be aimed at a particular buyer group, segment of the product line or smaller

geographical area. An organization that adopts a focused strategy aimed at narrow

segments of the market to the exclusion of others also needs to determine whether

within the segment it will compete through cost leadership or differentiation.

Small companies often follow very focused or niche strategies by becoming so

specialized in meeting the needs of a very small part of the market that they are

secure against competition from large organizations.

Porter‟s view is that any organization seeking a sustainable competitive advantage

must select an appropriate generic strategy rather than attempting to be „all things to all

people‟. Having identified the basis on which it will compete, an organization should

determine the directions it wishes to take. The company should consider one or more of

the following:

1. Doing nothing;

2. Withdrawing from some markets;

3. Selling existing products more effectively in existing markets (market penetration);

4. Selling existing products in new markets (market development);

5. Developing new products for sale in existing markets (product development);

6. Developing new products for sale in new markets (diversification).

STAGE 3: EVALUATION OF STRATEGIC OPTIONS

The alternative strategies should be examined based on the following criteria: 1

1. Suitability, which seeks to ascertain the extent to which the proposed strategies fit the

situation identified in the strategic analysis. For example, does the strategy exploit the

company strengths and environmental opportunities, avoid the weaknesses and counter

the environmental threats?

2. Feasibility, which focuses on whether the strategy can be implemented in resource

terms. For example, can the strategy be funded? Can the necessary market position be

achieved? Can the company cope with the competitive reactions?

3. Acceptability, which is concerned with whether a particular strategy is acceptable. For

example, will it be sufficiently profitable? Is the level of risk acceptable? The above

criteria represent a broad framework of general criteria against which strategic options

can be judged. The criteria narrow down the options to be considered for a detailed

evaluation. The evaluation of the options should be based on the approaches described in

Chapters 13 and 14 and will not be repeated here. Management should select those

strategic options that have the greatest potential for achieving the company‟s objectives.

There could be just one strategy chosen or several.

STAGE 4: SELECT COURSE OF ACTION

When management has selected those strategic options that have the greatest

potential for achieving the company‟s objectives, long-term plans should be created to

implement the strategies. A long-term plan is a statement of the preliminary targets and

activities required by an organization to achieve its strategic plans together with a broad

estimate for each year of the resources required.

Because long-term planning involves „looking into the future‟ for several years ahead the

plans tend to be uncertain, general in nature, imprecise and subject to change.

STAGE 5: IMPLEMENTATION OF THE LONG-TERM PLANS

Budgeting is concerned with the implementation of the long-term plan for the

year ahead. Because of the shorter planning horizon budgets are more precise and

detailed. Budgets are clear indications of what is expected to be achieved during the

budget period whereas long-term plans represent the broad directions that top

management intend to follow.

The budget is not something that originates „from nothing‟ each year-it is

developed within the context of ongoing business and is ruled by previous decisions that

have been taken within the long-term planning process. When the activities are initially

approved for inclusion in the long-term plan, they are based on uncertain estimates that

are projected for several years. These proposals must be reviewed and revised in the light

of more recent information. This review and revision process frequently takes place as

part of the annual budgeting process, and it may result in important decisions being taken

on possible activity adjustments within the current budget period. The budgeting process

cannot therefore be viewed as being purely concerned with the current year-it must be

considered as an integrated part of the long-term planning process.

STAGES 6 AND 7: MONITOR ACTUAL OUTCOMES RESPOND TO

DIVERGENCIES FROM PLANNED OUTCOMES

The final stages in the decision-making, planning and control processes are to

compare the actual and the planned outcomes, and to respond to any divergences from

the plan. These stages represent the control process of budgeting.

2.19 THE MULTIPLE FUNCTIONS OF BUDGETS

Budgets serve a number of useful purposes. They include:

1. Planning annual operations;

2. Coordinating the activities of the various parts of the organization and ensuring

that the parts are in harmony with each other;

3. Communicating plans to the various responsibility centre managers;

4. Motivating managers to strive to achieve the organizational goals;

5. Controlling activities;

6. Evaluating the performance of managers.

Let us now examine each of these six factors.

PLANNING

The major planning decisions will already have been made as part of the long-

term planning process. However, the annual budgeting process leads to the refinement of

those plans, since managers must produce detailed plans for the implementation of the

long- range plan. Without the annual budgeting process, the pressures of day-to-day

operating problems may tempt managers not to plan for future operations. The budgeting

process ensures that managers do plan for future operations, and that they consider how

conditions in the next year might change and what steps they should take now to respond

to these changed conditions. This process encourages managers to anticipate problems

before they arise, and hasty decisions that are made on the spur of the moment, based on

expediency rather than reasoned judgement, will be minimized.

COORDINATION

The budget serves as a vehicle through which the actions of the different parts of

an organization can be brought together and reconciled into a common plan. Without any

guidance, managers may each make their own decisions, believing that they are working

in the best interests of the organization. For example, the purchasing manager may prefer

to place large orders so as to obtain large discounts; the production manager will be

concerned with avoiding high stock levels; and the accountant will be concerned with the

impact of the decision on the cash resources of the business. It is the aim of budgeting to

reconcile these differences for the good of the organization as a whole, rather than for the

benefit of any individual area. Budgeting therefore compels managers to examine the

relationship between their own operations and those of other departments, and, in the

process, to identify and resolve conflicts.

COMMUNICATION

If an organization is to function effectively, there must be definite lines of

communication so that all the parts will be kept fully informed of the plans and the

policies, and constraints, to which the organization is expected to conform. Everyone in

the organization should have a clear understanding of the part they are expected to play in

achieving the annual budget. This process will ensure that the appropriate individuals are

made accountable for implementing the budget. Through the budget, top management

communicates its expectations to lower level management, so that all members of the

organization may understand these expectations and can coordinate their activities to

attain them. It is not just the budget itself that facilitates communication-much vital

information is communicated in the actual act of preparing it.

MOTIVATION

The budget can be a useful device for influencing managerial behaviour and

motivating managers to perform in line with the organizational objectives. A budget

provides a standard that under certain circumstances, a manager may be motivated to

strive to achieve. However, budgets can also encourage inefficiency and conflict between

managers. If individuals have actively participated in preparing the budget, and it is used

as a tool to assist managers in managing their departments, it can act as a strong

motivational device by providing a challenge. Alternatively, if the budget is dictated from

above, and imposes a threat rather than a challenge, it may be resisted and do more harm

than good.

CONTROL

A budget assists managers in managing and controlling the activities for which

they are responsible. By comparing the actual results with the budgeted amounts for

different categories of expenses, managers can ascertain which costs do not conform to

the original plan and thus require their attention. This process enables management to

operate a system of management by exception which means that a manager‟s attention

and effort can be concentrated on significant deviations from the expected results. By

investigating the reasons for the deviations, managers may be able to identify

inefficiencies such as the purchase of inferior quality materials. When the reasons for the

inefficiencies have been found, appropriate control action should be taken to remedy the

situation.

PERFORMANCE EVALUATION

A manager‟s performance is often evaluated by measuring his or her success in

meeting the budgets. In some companies bonuses are awarded on the basis of an

employee‟s ability to achieve the targets specified in the periodic budgets, or promotion

may be partly dependent upon a manager‟s budget record. In addition, the manager may

wish to evaluate his or her own performance. The budget thus provides a useful means of

informing managers of how well they are performing in meeting targets that they have

previously helped to set. The use of budgets as a method of performance evaluation also

influence human behaviour.

REFERENCE

Benneth A.H (1975) “Programme budgeting with special Reference to Nigeria”. Essay in

Administration. University of Ife. Baner and Balagun.

Decoster D.T and Schate E.L (1973) management Accounting, A Decision emphasis,

New York: John Wiley and sons Inc.

Halverson T.P and Argyris Y. (1976) Managerial Accounting: Decision Emphasis.

Chicago Science Research Association Inc.

Harcourt G.C et al (1973) “A conceptual frame work for financial Accounting” journal of

accounting, July 1973 pp27.

Horgren C.T, and Sudden, G.L (1990): Introduction to Management, London Practice

Hall International Inc.1990.

Katz, T.S (1975) Accounting: An information system: Macmillan press.

Lucey, T. (1989) Costing London. Guernessy Press Co. Ltd.

Smith, J.L. et al (1983): Accounting principles New York. Mc Graw hill Book company.

William P. (1974) Accountancy Pitamn Publ. 39 Parker Street, London pp3154.

CHAPTER THREE

3.1 RESEARCH DESIGN AND METHODOLOGY

This chapter deals with the design of the study, including the population sources

of data, sampling techniques and size, method of investigation and method of data

analysis.

3.2 POPULATION

The population of this study consisted of all the departments in the company. The

following departments were used for the study. Accounts department, Operation

department, department of Quantity Survey, Logistics department, Admin. department,

Business Development and Internal Audit department.

A total of ninety five staff spread across the departments of the company were

used for the company were used for the study. This selection was randomly made.

3.3 SOURCES OF DATA

In the course of the study, the researcher made use of two major sources of

statistical data the primary and the secondary sources of data. The major primary sources

with respects to this study include the company employees of all the departments

including the management staff.

The information from these people were obtained by asking oral face to face

questions and recording their responses. The personal interview was carried out by the

use of interview schedule-that is administering already prepared questions on

respondents. The researcher also prepared a questionnaire containing well organized

questions which was personally administered.

In both, the researcher used structured and unstructured questions.

The secondary sources of information used were the relevant textbooks,

Magazines, journals circulars, news-papers, statistical year books and annual report of the

company.

3.4 SAMPLING TECHNIQUES/ SIZE

This is concerned with the procedure used by the researcher in selecting

population elements which where used to estimate population characteristics or

parameters. The seven departments of the company under study were selected using

random sampling. However, not every persons in the departments concerned were

interviewed, rather some people considered more vital for the study were selected for

interview, using proportional sampling technique.

A statistical approach was used in determining both the sampling size and the

proportion of the sample. The statistical used was the formula for determining a sample

size from a heterogeneous population.

n = N

1+N (e)2

Where:

n = sample size

N = populations size

I = the constant

e = level of significant

TABLE 1

THE POPULATION PARAMETERS OF THE COMPANIES UNDER STUDY

Name of Companies number of

under study respondents

i. Megastar technical & Construction Co. Ltd 25

ii. Aleed Construction Company 22

iii. Anasami Construction Nig Ltd 30

iv. Sametech Construction 23

TOTAL 130

Applying the above formula for sample size determination.

Steps:

1. For the purpose of this study, the level of significance “e” will be 0.05 that is 95%

confidence limit.

2. Substituting values into alphabetical variable.

N = 130

e = 0.05

n = ?

3. Substituting the above into the formula:

n = N

1+N(e)2

n = 130

1+130(0.05)2

= 130 = 98

1.325

n = 98

In determining the minimum number of respondents from each of the companies

under study, BOWLEY‟S proportional allocation formula is applied thus:

Nh = n x Nh

N

Where:

nh = number of questionnaire allocated to each company

n = total sample size

Nh = number of staff in each department in the population

N = the population size

Applying this formula, we obtain the following:

1. FOR Megastar tech & Construction Co. Ltd

Nh = 98 x 25 = 19

130

2. FOR ALEED CONSTRUCTION COMPANY

Nh = 98 x 22 = 19

130

3. FOR ANASAMI CONSTRUCTION NIG LTD

Nh = 98 x 30 = 23

130

4. FOR SAMETCH CONSTRUCTION

Nh = 98 x 23 = 17

130

5. FOR C & C CONSTRUCTION CO. LTD

Nh = 98 x 30 = 23

130

it is important to note here that

N = ∑ nh = nh1+nh2 +---+nh7

= 19+16+23+17+23 = 98

3.5 METHOD OF INVESTIGATION

As for the data collection tools or instruments, the researcher prepared well

organized questions that were administered to the respondents both orally and in the

form of questionnaire

An interview schedule was prepared and the questions where asked to some key

respondents on a face to face basis.

However, others were given the prepared questionnaire to fill, all aimed at

obtaining the required information.

The respondents interviewed include the executives and senior staff of the various

departments of the company under study.

3.6 METHOD OF DATA ANALYSIS

To effectively analyze and interprete the findings of the study, the researcher

considered the use of simple percentage and the chi-square analysis as appropriate

statistical instruments.

The hypotheses formulated were tested one after the other and the results reported

and discussed in details. However the interpretation of the data analysis depended upon

the result obtained in each case.

REFERENCE

Baridam, D.M, (1990): Research Methods in Administrative Sciences Belk publishers.

River State, Nigeria.

Jacobs D. et al (1972). Introduction to research in Education Holt Rinehart and Winston

Inc. New York.

Kidder, L.H. (19991): Research Methods in social Relative holt, Rinehart and Winston,

New York.

Taro Yamane, P (1970): statistics, An introductory Analysis, Haper and Row, New York

1970, pp.379.

CHAPTER FOUR

4.2 PRESENTATION AND ANALYSIS OF DATA

In this chapter, the data collected from the different respondents are analysed. In

studying the impacts of poor budgetary implementation in Megastar Technical and

Construction Company Limited, the researcher administered Ninety Five questionnaires,

each of which was made up of ten questions, meant to collect information regarding the

budgetary implementation strategies existing in the company concern.

Out of the Ninety-Five questionnaires administered, eighty were returned duly

filled. The percentage of the numbers completed and returned was 84% (80/95 x 100),

which for the purpose of this study is an acceptable percentage and enough for

meaningful decision.

The analysis of this collected data was done in sections, thus; Section one deals

with the analysis of the retrieved questionnaires. While in section two, the formulated

hypothesis were tested and the major conclusions of the findings reported and explained

in section three.

However, the analysis of the data collected will be based on eighty questionnaires

retrieved from respondents comprising the company executives, their budgeting and

accounting employees/officers.

4.2 ANALYSIS OF QUESTIONNAIRES

RESEARCH QUESTION ONE

The first question of questionnaires was in relation to the positions and duties of

the respondents, which was meant to assess the reliability of the information obtained.

The question asked was- what is your position in the company?

NOTE: For the purpose of this study and the tables given:

A = Details of responses.

B = Percentage of respondents

TABLE 4.1

VARIOUS POSITIONS HELD BY THE RESPONDENTS

OPTIONS A B(%)

a. Chief accountant 15 15.3

b. Financial controller 10 10.2

c. Internal audit staff 25 25.5

d. Accounts clerk 30 30.6

e. Cashier 18 18.4

TOTAL 98 100%

Source: Survey Data, August, 2012

From the response gathered regarding the positions held by the respondents and

the duties they perform in their various departments, the researcher believed that the

information collected could be relied upon for necessary facts and decision making.

QUESTION TWO

Question two was also drafted to assess the reliability of the information sought

and obtained, since it focuses on the educational background of the respondents. The

question asked is; what is your educational qualification? The responses are presented in

table two below.

TABLE 4.2

EDUCATIONAL QUALIFICATION OF THE RESPONDENTS

OPTIONS A B(%)

a. Postgraduate 30 30.6

b. Graduate 40 40.8

c. WASSE/NECO/GCE 18 18.4

d. FSLC 10 10.2

TOTAL 98 100%

Source: Survey Data, August, 2012

From the above table, 30.6% of the respondents were holders of post graduate

diploma to Doctorate degrees, 40.8% have their degrees and degree equipments, while

18.4% are holders of WASSCE/NECO/GCE O‟ level certificates. Then 10.2% represent

holders of first school leaving certificate. The literacy level is generally high and as such,

the information gathered should be regarded reliable.

QUESTION THREE

What are the causes of poor operational budgeting practices in your company?

TABLE 4.3

RESPONSE TO THE CAUSES OF POOR OPERATIONAL BUDGETING

PRACTICES IN THE COMPANY.

OPTIONS A B(%)

a. Manipulation of budgets by corrupt

officials

30 30.6

b. Deviation from budgetary principles and

standards

26 26.5

c. Insufficient budget personnel‟s 22 22.5

d. All of the above 12 12.3

e. Non of the above 8 8.2

TOTAL 80 100%

Source: Survey Data, August, 2012

From the above table it is clear that poor operational budgeting practices emanates

from manipulations of budgets by corrupt officials, deviation from budgetary principles

and standards and lack of budget personnel‟s are the major causes for they have the

higher percentages of 30.6%, 26.5% and 22.5% respectively.

QUESTION FOUR

What are the major causes of poor budgetary implementation in your company?

TABLE 4.4

RESPONSES TO CAUSES OF POOR BUDGETARY IMPLEMENTATION

OPTIONS A B(%)

a. Late release of budget and the year‟s plan to

align with the year‟s economic operation.

31 31.6

b. Late release of funds by the responsible

officials.

27 27.6

c. Instability of the monetary unit/value. 23 28.5

d. d. Role conflict between budget staff and the

line personnel

17 17.3

TOTAL 98 100%

From the above table, it can be observed that all the points are very sensitive to the cause

of poor budget implementation practice in Megastar Technology and Construction Co.

Ltd. Late release of budget, late release of fund, instability of monetary unit and role

conflict between budget staff and line personnel respectively have 31.6%, 27.6%, 28.5%

and 17.3%. It means that all points raised are sensitive to poor budgetary implementation

in the companies under study.

QUESTION FIVE

What are the impacts of poor budgetary implementation in your company?

TABLE 4.5

RESPONSE TO IMPACTS OF POOR BUDGETARY IMPLEMENTATION

OPTIONS A B(%)

a. Lack of motivation and job satisfaction. 15 15.3

b. Reduced output and fall in organization

growth.

35 35.7

c. Laissez- faire attitude to work. 13 13.3

d. Reduced profit. 25 25.5

e. Disincentive for investment 10 10.2

TOTAL 98 100%

Source: Survey Data, August, 2012

From the above table, the impact of poor budgetary implementation is felt mostly

in reduced output and fall in organization growth (35.5%) and reduced profit (25.5%).

Lack of motivation and job satisfaction is also felt in the workers for it has 15.3%

because of poor budget implementation.

QUESTION SIX

Is management in your company run out of funds in critical areas within implementation

stage in the past four years?

This question is specifically asked to find out the existence and the extent of budget

deficit in the company.

TABLE 4.6

RESPONSE TO THE FREQUENCY OF MANAGEMENT RUNNING OUT OF

FUNDS IN CRITICAL AREAS DURING IMPLEMENTATION.

OPTIONS A B(%)

Yes 66 67.3

No 32 32.7

TOTAL 98 100%

Source: Survey Data, August, 2012

As can be noticed from the above, 67.3% (66) respondents indicate having

frequent budget shortages, while 32.7% (32) respondents say they do not notice

management running out of funds in critical areas.

QUESTION SEVEN.

What do you think were the possible causes of your company running out of funds in

critical areas?

TABLE 4.7

RESPONSE TO THE MAJOR CAUSES WHY THE COMPANY RUNS OUT OF

FUND IN SOME AREAS.

OPTIONS A B(%)

a. Budget distortion. 36 36.7

b. Inflation. 32 32.7

c. Political interference. 15 15.3

d. Corrupt practices/tendencies 15 15.3

TOTAL 98 100%

Source: Survey Data, August, 2012

From the above responses to the research question seven, budget distortion and

inflation are the major causes of shortages since 36.7% (36) and 32.7% (32) of the whole

respondents associated their responses to budget distortion and inflation respectively.

QUESTION EIGHT

Where budget variances investigated as they occur and corrective actions taken?

TABLE 4.8

RESPONSE TO WHETHER BUDGET VARIANCES WERE INVESTIGATED AS

THEY OCCUR AND CORRECTIVE ACTIONS TAKEN.

OPTIONS A B(%)

Yes 38 38.8

No 60 61.2

TOTAL 98 100%

Source: Survey Data, August, 2012

The research question 8 which its responses was discussed in the above table was

drafted to measure the effectiveness of budgetary processes as it affects the company

under study. From the response of those that responded, 38.8% (38) respondents agree

with investigating variances as they occur and taken corrective measures as required.

This is not very significant to compare with the number 61.2% (60) of the respondents

that confirmed they do not investigate variances or corrective measures taken.

QUESTION NINE

Is the budget of your company over the years strictly prepared in accordance with the

budgetary principles and standards?

TABLE 4.9:

RESPONSES TO THE ADHERENCE OR NOT TO THE BUDGETARY

PRINCIPLES AND STANDARDS

Options A B (%)

Yes 33 33.7

No 65 66.3

Total 98 100%

Source: Survey Data, August, 2012

The information gathered in question nine showed that 66.3% (65) of the

respondents attest not conforming to the budgeting principles and standards. This implies

that only 33.7% of the respondents agree to keeping budgets in line with the budgetary

principles and standards.

QUESTION 10

What are your suggestions as to the solution of the problems of poor budgetary

implementation in construction companies?

Table 4.10

RESPONSE ON HOW THE PROBLEMS OF POOR BUDGETARY

IMPLEMENTATION IN CONSTRUCTION COMPANIES BE SOLVED

OPTIONS A B (%)

a. Allowing company executives the full

responsibility and authority to decision

making

30 30.6

b. Segregation of duties and clear definition

of policies and objectives

18 18.4

c. Strengthening cooperation among the

executives and the line staff

18 18.4

d. Overhauling of the budgeting system 14 14.2

e. Early release of budget so that major

activities will go on according to plan

18 18.4

Total 98 100%

Source: Survey Data, August, 2012

Question ten was designed to obtain suggestions from the respondents on their

views on how this looming problem of poor budgetary implementation practices could

solved.

Responses to the question showed that all the options from the question should be

adopted. A closer analysis of the responses showed that emphasis should be laid most on

allowing company executives the full responsibility and authority to decision making and

early release of budget so that major activities will go on according to plan.

4.3 TESTING OF HYPOTHESIS

The hypothesis testing is carried out so as to form an opinion and drew inference

from the test. At the end the proved data will be accepted while unproved is rejected. This

testing will be done through the use of chi-square analysis and simple percentages.

HYPOTHESIS ONE

H0: There is no significant relationship between poor budgetary implementation and late

release of funds by responsible officials in construction companies

HA: There is a significant relationship between poor budgetary implementation and late

release of funds by responsible officials in construction companies.

TABLE 4.11

OBSERVED AND EXPECTED FREQUENCIES OF THE SAMPLE RESULT ON

HYPOTHESIS ONE

Response Respondents

Accts dept

Respondents

operation

department

Respondent

admin

department

Total %

Opinion (P1) (P2) (p3)

Yes 0i:27

ei(25.31)

20

(21.51)

15

(15.18)

62 63.3

No 0i:15

ei(14.69)

12

(12.49)

9

(8.82)

36 36.7

Total 40 34 24 98 100%

From the above table, the expected frequencies for the cell are calculated as ei=

(Row total ) (column total )

Over all total

The expected frequencies so calculated as shown in parenthesis under their

corresponding observed frequencies as in table 4.11 above. The test statistic for testing

hypothesis (i) is based on chi-square formula given by x02 = ∑ (0i-ei)

2

ei

where:

0i = expected frequency

X02= calculated chi-square value

Xe2 =chi-square value from chi-square distribution table.

X= level of significance =5% =0.05

d.f= degree of freedom = n-1

hence the critical value is:

xe2 0.05 = 5.991 with 2-degree of freedom

DECISION RULE: The null hypothesis formulated is rejected if the computed chi-

square distribution (x02) is less than the chi-square distribution (xe

2), other wise it is

accepted

The calculation of chi-square is shown below

X02 = Σ (0i-ei)

2

Ei

X02= (27-25.31)

2 + (20-21.51)

2 + (15-15.18)

2

25.31 21.51 18.18

+ (15-14.69)2

+ (12-12.49)2 + (9-8.82)

2

14.69 12.49 8.82

X02 = 0.1128+ 0.1060+0.0021+0.0065+0.0192+0.0037

=0.2503

X02=0.2503, while xe

2 =5.991 at 5% level of significance with 2-degree of freedom.

Hence, x 02 < x e

2 that is 0.2503 < 5.991

REMARK: Since the computed chi-square (0.2503) is less than the critical value xe2

0.05, that is 0.2503< 5.991, we reject the null hypothesis. Hence we conclude that there is

a significant relationship between poor budgetary implementation and late release of

funds by responsible officials in construction companies.

Rejection Region

with area

x=0.05 Accepta

nce

A chi-square distribution

HYPOTHESIS TWO

H0: Poor budgetary implementation does not hamper the growth of construction

companies.

HA: Poor budgetary implementation hampers the growth of construction companies

The information obtained from respondents based on the sample of study in

respect of hypothesis (ii) is presented in table below.

TABLE 4.12

OBSERVED AND EXPECTED FREQUENCIES OF THE SAMPLE RESULT ON

HYPOTHESIS (II)

Response Respondents

Accts dept

Respondents

operation

department

Respondent

admin

department

Total %

Opinion (P1) (P2) (p3)

Yes 0i:26

ei(25.4)

18

(16.6)

14

(16)

58 59.2

No 0i:18

ei(17.6)

12

(11.4)

10

(11)

40 40.8

Total 43 28 27 98 100%

The expected frequencies for the cells in table 4.12 is calculated thus.

Ei: = (Row total) (column total)

Over all total

The expected frequencies so calculated are shown in parenthesis under their

corresponding observed frequencies as shown in table 4.12 above

The statistical test for testing hypothesis (ii) is based on chi-square formular give

by x02 =∑ (0i-ei)

2

Ei

with level of significance at 5% (0.05), and 2- degree of freedom as n-1=(3-1) = 2. hence,

the critical value is x2e 0.05=5.991 with 2-degree of freedom

DECISION RULE: The null hypothesis formulated is rejected if the computed chi-

square distribution (x02) is less than the chi-square distribution (x

20), other wise, it is

accepted.

The calculation of chi-square is shown this:

X02 = ∑ ( 0i-ei)

ei

x02 = (226-25.4)

2 + (18-16.6)

2 + (14-16)

2

25.4 16.6 16

+ (18-17.6)2 + (12-11.4)

2 + (10-11)

2

17.6 11.4 11

=0.0142+ 0.1181+ 0.25 + 0.0091 + 0.03158 +0.0909 = 0.5139

Therefore x02 = 0.5139, while x

2e = 5.991 at 5% level of significance with 2-degree of

freedom

Hence, Ho2 < x

2e ie 0.5139< 5.991

Remark: Since the computed chi-square (0.5139) is lees than the critic al value x2e

(0.05), that is 0.5139 < 5.991, we reject the null hypothesis as we conclude that poor

budgetary implementation hamper organizational growth.

A chi-square distribution

Xe2 = 0.05 Fig 4.12

Rejection Region

with area

x=0.05 Accepta

nce

region

HYPOTHESIS THREE

H0: Poor budgetary implementation problems cannot be improved in construction

companies to enhance viability of project.

HA: Poor budgetary implementation problems can be improved in construction

companies to enhance viability of project.

The information obtained from respondents based on the sample of study in

respect of hypothesis (iii) is presented in table below.

TABLE 4.13

OBSERVED AND EXPECTED FREQUENCIES OF THE SAMPLE RESULT ON

HYPOTHESIS (III)

Response Respondents

Accts dept

Respondents

operation

department

Respondent

admin

department

Total %

Opinion (P1) (P2) (p3)

Yes 0i:25

ei(22)

20

(19.6)

15

(18.4)

60 61.2

No 0i:14

ei(14)

12

(12.4)

12

(11.6)

38 38.8

Total 36 32 30 98 100%

The expected frequencies for the cells in table 4.13 is calculated thus.

Ei: = (Row total) (column total)

Over all total

The expected frequencies so calculated are shown in parenthesis under their

corresponding observed frequencies as shown in table 4.13 above

The statistical test for testing hypothesis (iii) is based on chi-square formular give

by x02 =∑ (0i-ei)

2

Ei

with level of significance at 5% (0.05), and 2- degree of freedom as n-1=(3-1) = 2. hence,

the critical value is x2e 0.05=5.991 with 2-degree of freedom

DECISION RULE: The null hypothesis formulated is rejected if the computed chi-

square distribution (x02) is less than the chi-square distribution (x

20), other wise, it is

accepted.

The calculation of chi-square is shown this:

X02 = ∑ ( 0i-ei)

ei

x02 = (25-22)

2 + (20-19.6)

2 + (15-18.4)

2 + (14-14)

2 + (12-12.4)

2 + (12-11.6)

2

22 19.6 18.4 14 12.4 11.6

=0.4091+ 0.0082+ 0.6283 + 0+0.00129 + 0.0138 = 1.0723

Therefore x02 = 1.0723, while x

2e = 5.991 at 5% level of significance with 2-degree of

freedom

Hence, Ho2 < x

2e ie 1.0723< 5.991

Remark: Since the computed chi-square (0.5139) is lees than the critic al value x2e

(0.05), that is 0.5139 < 5.991, we reject the null hypothesis as we conclude that poor

budgetary implementation hamper organizational growth.

A chi-square distribution

Xe2 = 0.05 Fig 4.13

Rejection Region

with area

x=0.05 Accepta

nce

region

REFERENCE

Reginaled L.J. and Trentin H.G (1971) Budgeting: key to planning and control, practical

Guide lines for manager U.S.A American management association Inc.

Smith J.L et al (1983), Accounting principles. New York. Mcgraw hill book Company

William P. (1974) Accountancy, pitman Publ. 39 Parker Street London PP 3154.

Nwabuokei P.O. (1986) Fundamentals of Statistics, Koruma Books, Enugu. Pp197.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS.

5.2 SUMMARY OF FINDINGS

Budgeting is very important in management decision making; its role in the

contemporary business life of any organization cannot be over-emphasized. The

budgetary procedure in megastar technical and construction company limited has not

been following the normal procedure to implement a budget. The study revealed that

inadequacy or poor budgetary implementation practices are as a result of:

i. Deviation from the budgeting principles and standards.

ii. Manipulation of budget by corrupt officials

iii. Instability of the monetary unit of value.

iv. Role conflict between budget staff and line personnel

v. Manipulation of budget priorities by unrestricted transfer of funds from one category

of expenditure to another often resulting to shortage in critical areas of the budget

vi. Over-exertion of the external control on the major policy decisions of the

organization and

vii. Late release of the stated budget (funds).

These observations were in line with the earlier assumptions, thereby proving all

the hypothesis of the this study.

5.2 CONCLUSION

On the basis of findings in this research work, the following far conclusions were

reached. Efficient budgetary implementation practices are so important that its role in the

efficiency of any business establishment cannot be over-looked. For any business

establishment to thrive, it must adopt a procedural method of estimating for actions it

intends to achieve in future (budgeting) and work persistently in line with it (budget

implementation).

Based on the result of the findings, it has been identified that the budgetary

implementation practices in construction companies (megastar technical and construction

company limited) is not commendable. Laissez- faire attitude of budget official

(personnel‟s towards work), manipulation of budgets by corrupt officials, non adoption of

budget standards and principles, role conflict between budget staff and line personnel,

budget abandonment as an ordinary paper work that should be carried out for formality,

over exertion of external control on major policy decision were all evident in megastar

technical and construction company limited. This proved that there are very poor

budgetary implementation practices in the company.

The study also proved that all the hypothesis developed at the early part of this

research hold true. Hypothesis (i) tested on poor budgetary implementation practices as a

result of late release of funds by responsible officials, hold true and the second hypothesis

was tested on how poor budgetary implementation practice hampers the organizational

growth and it was also tested and found to be true.

With the forgoing the researcher still believe that strict adherence to

recommendations suggested will improve the state of affairs of the company and make it

viable in future.

5.3 RECOMMENDATIONS

Based on the findings, the following recommendations are made;

I. TIMELY RELEASE OF BUDGET: owing to the problems of late release of budget

especially in a highly inflationary economy, the researcher recommend that budgets

should be made available before the inception of the period which it serves. This will

check over and or under spending which has always been occurring.

II. EFFICIENT MONITORING: It is recommended that a committee be set in each

department to check how budget has been implemented as the month or year goes on.

The report of this committee should be submitted to the company executives monthly

or yearly as the case may be.

The executives after receiving the report from the committee should take proactive

measures immediately based on the recommendations of the committee.

iii. GENERAL UNDERSTANDING: All employees of the company should be

enlightened on how the budget of the company is been implemented.

iv. MOTIVATIONAL TECHNIQUE

Motivational techniques should be employed to enhance the performance of the

employees since budgeting is all about meeting a target financially. The motivational

techniques may include incentives (both cash and kind), enrichment and satisfaction,

maintenance of the job environment etc and all benefits and entitlements should be paid

as when due

v. RESPONSIBILITIES OF EXECUTIVES: The executives of the company should

be more proactive by checking budget proposal from budgeting department

thoroughly so as not to approve a budget that is not all encompassing. The

executive should also be proactive in major policy issues especially during budget

planning, approval and implementation.

vi. PROVISION OF COMPUTERS: Budgeting for the company should be based on

computer so as to accommodate all departments in the organization without much

stretch. The computer will make the budgeting process easy to meet up stated time.

Accuracy will also be achieved through the use of computer.

BIBLIOGRAPHY

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New York: John Wiley and sons Inc.

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Halverson T.P and Argyris Y. (1976) Managerial Accounting: Decision Emphasis.

Chicago Science Research Association Inc.

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accounting, July 1973 pp27.

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Guide lines for manager U.S.A American management association Inc.

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Vincent, A.O et al (2010) Social Science Research: Principles, Methods and

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APPENDIX

School of Postgraduate Studies

Faculty of Business Administration

Department of Accountancy

(MBA Programme)

University of Nigeria

Enugu Campus.

30th

August, 2012.

Dear Respondent,

QUESTIONNAIRE

The questions below are designed for the staff of the seven selected departments to assist

the researcher carry out an effective research work on “The Impact of Poor Budgetary

Implementation in construction Companies using Megastar Technical and Construction

Company as a case study. All information obtained will be treated with utmost

confidentiality and for academic purpose only.

Your co-operation is highly appreciated.

Thanks.

Frank Solomon M.

Researcher

PLEASE TICK () AGAINST ANY ANSWER YOU CONSIDER APPROPRIATE

1) What is your position in the organization?

a. Chief accountant

b. Financial controller

c. Internal Audit Staff

d. Accounts Staff

e. Cashier

2) Specify please your educational qualification held.

a. Postgraduate

b. Graduate

c. WASSCE/NECO?GCE

d. FSLC

3) What are the causes of poor operational budgeting practice in your company?

a. Manipulation of Budgets by corrupt officials.

b. Deviation from budgeting principles and standards.

c. Insufficient budgeting personnel.

d. All of the above.

4) What are the causes of poor budgetary implementation in Megastar Technical

and Construction Company Ltd?

a) Late release of budget and the years plan to align with the years economic

operation.

b) Late release of funds by the responsible officials

c) Transfer of funds from one category of expenditure lead to another

d) Instability of the monetary unit/value

e) Role conflicts between budget staff and the line personnel.

5) What are the impacts of poor budgetary implementation in your company?

a) Lack of motivation and job satisfaction

b) Reduced output and fall in organization‟s growth

c) Laissez faire attitude to work

d) Rescued profit

e) Disincentive for investment

6) Is management in your company run out of funds in critical areas within

implementation stage in the past four years?

a) Yes

b) No

7) What do you think were the possible causes of your company running out of

funds in critical areas?

a) Budge distortion

b) Inflation

c) Political interference

d) Corrupt practices/tendencies

8) Were budget variances investigated as they occur and corrective actions taken?

a) Yes

b) No

9) Is the budget of your organization over the years strictly prepared in accordance

with budgeting principles and standard?

a) Yes

b) No

10) What are your suggestions as to the solution of the problems of poor budgeting

implementation in construction companies?

a) Allowing the company executives the full responsibility and authority to decide

on budget.

b) Segregation of duties and clear definition of policies and objectives

c) Strengthening cooperation among the executive and the life staff

d) Enhancing information flow

e) Overhauling of the budgeting system

f) Early release of budget so that major activities will go on according to plan.