Full Project – THE EFFECT OF BUDGETING AND BUDGETARY CONTROL ON BUSINESS PERFORMANCE

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The increasing complexity of business operation and the ever-changing conditions of the business environment-social, economic, technology and political factors make it increasingly difficult for a company to consistently earn a profit that constitutes a fair return on the capital investment. The internal operation of a firm using financial tools has been a very long time; management has to have a plan of action as a means of monitoring profit and financial control.

Budgeting is the accepted basis for profit, planning and financial control. It has been practice effectively and profitably by many progressive companies who generally regard it not simply as a procedure but as one of the more important of process of management. Budgeting is one of the management tools that force manager to perform according to a given level of expectation.

The process of preparing the budget forces the executive to become better administrator. It puts planning in the first key and budgeting primary attention directing because it helps managers to focus in the operating problem early enough. For effective planning or action, budgeting is usually been as an integral of various plans and providing feedback for the actual result. Budgeting has many purposes. The primary purpose of budgeting is conducted under favourable conditions, there is no doubt that a firm which budget will tend to perform rather better than a similar one that does not budget.

Budgetary control is control technique which when the compares of the planned state of affairs with actually state of affairs and the continuous devising of means of correcting the deviation. It involves the use of available technique such as operational research, computer science and so on, to ensure that the budget is realistic as possible. The budget is without doubt, the most widely used control device in both business and government circle. The budget is drawn up for control purpose, that is an attempt to control the direction that the firm taking. Indeed, it is used extensively to many people, the word budget is synonymous with control still, and the preparation of budget originates as a part of planning process. Some companies in other to avoid the negative reaction that are many a time associated with the concept of control. Refer to their budgetary controls as either profit plan or profit path. The aim of budgetary control is to provide a formal basis for monitoring the progress of the organization as a whole of its component parts towards toward the achievement of the objectives specified in the planning budget.

Budget planning budget control is part of the overall system or responsibility accounting within an organization. A vast number of organization and company are getting involved in budgeting and budgeting control in Nigeria, and this is taking different forms, but the one that seems to be gaining more recognition is based on the concepts and ideas developed in budgetary control.

1.2   STATEMENT OF PROBLEM

Some problems are identified to why public sector organization make deficit budget. These problems include:

1. Inability to evaluate and assess the viability of the organization.
2. What tools to be employed in comparing organization or actual performance with the planned or future performance and how tools can be implemented a good deviation and control?

• What tools to be adopted in assessing the business performance in terms its fair return on the capital investment?

1. Going by these problems, the study then consider budgeting and budgeting control on business performance in firm?

1.3   OBJECTIVE OF THE STUDY

The objective of the appraisal and evaluation of budgeting and budgetary control on business performance. Theobjectives are:

1. To itemize the impact of budgeting and budgeting control in firm.
2. To exemplify by using budgeting and budgeting control by management for planning, control and decision making.

• To know what is budgeting and budgeting control and why it is of interest and to whom.

1. To look into ways of encouraging human support for budgeting control.

1.4 PURPOSE OF STUDY

The purpose of this study is to identify the effectiveness or otherwise in the presentation of budgeting and its control in firm. Our analysis would however be limited to Dangote Cement.

The study also determining ways and means of improving the operation and effectiveness of the system for as much as the success or failure of budgeting and budgeting control depend on the acceptance by the people in the organization. Consequently, consideration is given to why employees react the way the they do, the use, the usefulness of budgets in making budgets more successful and acceptable can be considered within a particular situation facing modern day business circle.

1.5 SIGNIFICANCE OF THE STUDY

The outcome of this study cannot be overemphasized. These are:

1. The effectiveness of budgeting on achieving their corporate goals.
2. The study will help in the formulation of corporate policies concerning firm.

• It will help management to to understand ways in which budgeting could be a powerful tool for planning, control and decision making.

1. It will reveal how rational allocation of resources can be ensured.
2. It will serve as a tool for further research studies.

1.6 SCOPE AND LIMITATION

The researcher intends to cover budgeting and budgeting control as it relates to the private sector and special consideration been given to in the manufacturing or industrial sector.

The expected limitation form a thorough analysis includes the following:

1. Time
2. Respondents

• Finance

As a result of these, the researcher will limit the evaluating of budgeting and budgeting control in Dangote Cement.

1.7   HISTORICAL BACKGROUND OF CASE STUDY

Dangote Cement Plc engages in the preparation, manufacture, control, research and distribution of cement and related products. It has operations in Nigeria, Benin, Ghana, Senegal, South Africa and Zambia. The company owns cement import terminals in Lagos, Port Harcourt and Ghana through which it imports and bags bulk cement. Dangote Cement was founded on November 4, 1992 and is headquartered in Lagos, Nigeria.“

Established in May 1981 as a trading business with an initial focus on cement, the Group diversified over time into a conglomerate trading cement, sugar, flour, salt and fish. By the early 1990s the Group had grown into one of the largest trading conglomerates operating in the country.

In 1999, following the transition to civilian rule and after an inspirational visit to Brazil to study the emerging manufacturing sector, the Group made a strategic decision to transit from a trading based business into a fully fledged manufacturing operation. In a country where imports constitute the vast majority of consumed goods, a clear gap existed for a manufacturing operation that could meet the ‘basic needs’ of a vast and fast growing population.

The Group embarked on an ambitious construction programme, initially focused on the construction of flour mills, a sugar refinery and a pasta factory. In 2000 the Group acquired the Benue Cement Company Plc from the Nigerian government and in 2003 commissioned the Obajana Cement Plant; the largest cement plant in sub-Saharan Africa.

1.8   RESEARCH QUESTIONS

The research intends to test the following research questions in the course of this project.

1. Does budgeting and budgeting control enhance planning and decision making efficiently?
2. Does budgeting and budgeting control ensure rational allocation of resources?

• Does budgeting and budgeting control a motivational tool for staff?

1.9 RESEARCH HYPOTHESES

The hypothesis would be formulated as null and alternative

1. Ho: Budgeting and budgeting control does not enhance planning and decision making efficiently

Hi: Budgeting and budgeting control enhances planning and decision making efficiently

2. Ho: Budgeting and budgeting control does not ensure rational allocation of resources Hi: Budgeting and budgeting control ensure rational allocation of resources
3. Ho: Budgeting and budgeting control is not a motivational factor

Hi: Budgeting and budgeting control isa motivational factor

1.10         DEFINITION OF TERMS

• Budget: A budget IS a summary statement of plans expressed in qualitative term
• Budgetary control: Budgetary control is financial jargon for managing income and expenditure. In practice it means regularly comparing actual income or expenditure to planned income or expenditure to identify whether or not corrective action is required.
• Budgeting: This is the process of preparing a summary statement of plans expressed in monetary quantitative terms.
• Decision Making: Involve selection from among alternative course of action or most preferred choice out of many alternative
• Budgetary Control: This IS the control technique of planning In advance of the various functions of a business so that the business as a whole can be controlled.
• Control: The process of setting goal and objectives In advance and determining ways to achieving it.
• Plans: A set of things to do in order to achieve something usually done in advance.
• Planning: This is the process of setting goals and objectives in advance and determines way of achieving it.
• Responsibility Accounting: This is the term used to describe a system of decentralization of authority with performance of the decentralized units measured in term of accounting results.

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Full Project – THE EFFECT OF BUDGETING AND BUDGETARY CONTROL ON BUSINESS PERFORMANCE