Full Project – THE EFFECT OF BUDGETING AND BUDGETARY CONTROL ON ORGANIZATION 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?
3. What tools to be adopted in assessing the organization performance in terms its fair return on the capital investment?
4. Going by these problems, the study then consider budgeting and budgeting control on organization performance in local government?

1.3 OBJECTIVE OF THE STUDY

The objective of the appraisal and evaluation of business organization in the following areas:

1. To itemize the impact of budgeting and budgeting control in local government.
2. To exemplify by using budgeting and budgeting control by management for planning, control and decision making.
3. To know what is budgeting and budgeting control and why it is of interest and to whom.
4. 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 local government. Our analysis would however be limited to Ojo local government.

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 local government.
   1. It will help management to to understand ways in which budgeting could be a powerful tool for planning, control and decision making.
   2. It will reveal how rational allocation of resources can be ensured.
   3. 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
3. Finance

As a result of these, the researcher will limit the evaluating of budgeting and budgeting control in Ojo Local Government.

1.7   HISTORICAL BACKGROUND OF CASE STUDY

Ojo local government was created in May, 1989 under the military administration of General Ibrahim Gbadamosi Babaginda, as the president of the Federal Republic of Nigeria, under the military governor of General Raji Rasaki. Before the creation of Ojo local government, out of the old Badagry local government, the area was adjudged the most popular in the federation going by the National Population Censor conducted in Nigeria in 1991. The population as at that time was put at 1.01 million. Ojo local government was divided into two segments, the revenue and the upland. It is in habited by mainly the Aworis, who are very accommodating and progressives.

In 1996, under the military administration of General Sanni Abacha, two local governments were carved out of the old Ojo local government; Amuwo Odofin and Ajeromi Ifelodun local government. It is on record the administration of Alhaji Jakande as the executive governor of Lagos state, Ojo local government that did not have the backing of the federal government under President Shehu Shagari, was created in 1980 with Alhaji Ajakaiye as the chairman from 1980-1983. However, the military governor of General Muhammaed Buhari and Tunde Idiagbon scrapped the local government when they struck in 1983 and the new council returned to Badagry local government.

Today, two local government have been carved out of the old Ojo local government; Iba local Council Development Area and Oto Awori Council Development Area with this development there were boundary adjustment. As of today, Ojo local government shares boundaries with Oto-Awori on its south west; it is bounded in the East by Oriade local government in the North by Iba local council development and in the south by the lagoon. It also shares boundary with Amuwo Odofin local government between Ojo

Military Barracks and the Trade Fair complex. The local government has a total land mass of 18sq km with about 300/0 of it constituting the Revenue Area. Today part of this Revenue Area is being shared with Oto-Awori Local Council Development Area.

Despite the fact that the indigenous inhabitations are the Aworis, OJ today is natural habit as of the Igbos, who deal in electronics and general materials at the popular Alaba international market created in 1973 within the local government are and the Hausa who deal in rams cows.

The Ojo indigenes are mainly farmers, mat weavers, fisher men, hunters and petty traders. But some of them today are big time businessmen, educationists and great politicians. The hither to sleepy town of Ojo, is today flourishing with business activities that can be compared to major town in Lagos State.

There is no doubt that the fact that revenue Area of Ojo Local Government needs special attention in the area of electricity, a bridge to link the upland with the reverine and other basic infrastructural facilities. Tahe communities include; Irewa, Taffi­-Hausa, Taffi-Awori, Itogbesa, on the other hands, the upland has caught up with the best modern cities in the world with an express road to link neighbouring country, companies, market and higher institutions, the settlement include Ojo, Ira Ajangbadi, Sabo-Oniba, Ilufe, Igbede, Agric, Arufa, Olugbemi, Muwo and others.

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?
3. 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

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

Hi: Budgeting and budgeting control is a motivational factor

1.10         DEFINITION OF TERMS

• Ø Budget: A budget IS a summary statement of plans expressed in qualitative term
• Ø Budgeting: This is the process of preparing a summary statement of plans expressed in monetary quantitative terms.
• Ø Decision Making: Involve selection from among alternative course of action or most preferred choice out of many alternative
• Ø 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.
• Ø Control: The process of setting goal and objectives In advance and determining ways to achieving it.
• Ø Plans: A set of things to do in order to achieve something usually done in advance.
• Ø Planning: This is the process of setting goals and objectives in advance and determines way of achieving it.
• Ø 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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