Effects of Budgeting and Budgetary Control on the Performance of Middle Management

Chapter One of Effects of Budgeting and Budgetary Control on the Performance of Middle Management

INTRODUCTION

A budget is a “financial and/or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued during that period for purpose of attaining a given objective. It may include income, expenditure etc.

The establishment of executives to requirement of a policy, and the continuous comparison of actual with budgeted result. A budget is thus a standard with which to measure the actual achievement of people, departments, firms etc.

In large firms, a system of budgetary control is used. Budgetary control is operated with a system of standard costing because both are interrupted but not interdependent. Budgetary control can be operated without standard costing, but budgetary control is certainly facilitated where standard costing is in operation. one the other hand, it would be difficult to operate a system of standard costing if budgets where not in use.

The behavioural aspect of budgeting is that researcher have failed to adequately expatiate on over the years, in which the research is focused.

BACKGROUND OF THE STUDY                              

Nestle was founded in 1866 by Henri Nestle having its headquarter in vevey, Switzerland, and today the world biggest food and beverage company employing around 265,000 people and having factories or operations in almost every country in the world which Nigeria is one of them.

Nestle being a manufacturing company take consonance of budgeting and budgetary control in order to achieve the budgeted plan of the organisation. Also in a large company like this (i.e Nestle), the budget is usually the responsibility of a budget committee.

Normally the Chief Executive is the chairman of the committee, but the responsibility for operating the system is undertaken by a budget offices, and other representative from different apartment.

The company, strategy is guided by several fundamental principles, its existing products grow through innovation and renovation while maintaining a balance in geographical activities and products lines.

STATEMENT OF THE PROBLEM

Two much attention is paid to the techniques of budgeting but greater importance are the behavioural aspects i.e the process accepted to those who have to operate it.

–              does it motivate them?

–              does it have any effect on their performance or productivity?

–              do they feel threatened by it?

In some organisation, taking the above questions into consideration will result to improvement in the effectiveness of the communication within the organisation. It is an important avenue of communication between the top and middle management as regards the firm’s objectives. Then when the budget is finalized, it communicates the agreed plans to all staffs involved.

Also, the involvement of middle management with the process of budgeting control and the establishment of clear targets against   which performance can be evaluated has been found to be a good motivation. Favourably planned budgeting ensures proper participation, congruence is encouraged and motivation increases.

Budgeting provides clear guidelines for mangers and supervisors and it is a major way in organizational objectives are translated into specific tasks and objectives related to individual managers.

However, failure to involve middle management in the process of budgeting and budgetary controls will result to the following:

–              poor performance of the middle management;

–              poor motivation of the worker;

–              Lack of feeling of job security on the part of the staff;

–              Bad handled budgetary systems with undue pressures

OBJECTIVES OF THE STUDY

For the purpose of this research, the objective will involve:

–              filling a gap in human knowledge;

–              examining  the effects that budgeting system have on the performance of middle management;

–              finding out whether budgeting and budgetary controls really motivate the middle management of an organisation;

–              finding out the problems that staff may have concerning budgets and budgetary control.

STATEMENT OF HYPOTHESES

For the purpose of this research work, the hypothesis to be tested are:

a)       Hi:     That budgeting system and standard setting have

effects on the performance of middle management staff.

Ho:    That budgeting system and standard setting does not have effects on the performance of middle management staff.

b)      Hi:     That involvement of middle management staff in the

process of budget making and setting standard motivates and influence the performance of staff.

Ho:    That the involvement of middle management staff in the process of budget making and setting standard does not motivate and influence performance of staff.

SIGNIFICANCE OF THE STUDY

Until recently, most researchers on budgeting and budgetary control focused on the financial aspect. Infact too much attention is paid particularly by accountants to the mechanics of budgeting and in the process neglecting the far more important aspect i.e behavioural aspect.

This study is therefore needed to draw attention to this important aspect of budgeting. Moreover, the contribution of this research work is to enable the manufacturing organisation take into consideration the abilities of their staff when setting the standards and making budgets.

In addition to that, this study is designed to contribute to the existing ways of staff motivation of specially manufacturing organisation which will find this study useful because it is designed to encourage the participative concept in management.

Lastly, students and other prospective researchers will also find this study useful in filling a gap in their knowledge since it is designed to contribute more to the existing knowledge on the behavioural aspect of budget and budgeting control.

SCOPE AND LIMITATION OF THE STUDY

Every organisation consists of three levels of management, which are:

The top management consists of organizational directives, chairman of the company, managing director etc. The middle management include divisional managers, production controllers, lead of department etc. while lower management comprises of work supervisor, work foreman etc. for the purpose of this research work, only the middle management will be focused on and examined in relation to budgeting and budgetary control.

However, other limitation to this study are financial constrain and time constrain which are very limited.

DEFINITION OF TERMS

1)           BUDGETING: A budget is a statement of planned actions in monetary terms indicating revenue to be generated, expenditure to be incurred and capital items to be financed so as to achieve a given objective for a particular period (usually a year).

2)           BUDGETING CONTROL: This is when some form of monitoring and control are exercised on planned action (budget). The control starts from the point of preparation of the budget to approval, implementation comparison with actual and feedback with recommendation for remedial or control action.

3)           STANDARD COST: This is the expected cost define at the beginning of a period and use to measure performance at the end of the period.

4)           VARIANCE ANALYSIS: This refers to the measurement of deviation of actual cost from planned actions or expected cost and the breakdown of such deviation by cause and responsibility so that remedial action can be taken or opportunities can be capitalized upon.

REFERENCES

John Ndidi Augustine Nwafa (Snr. John) 2005 Understanding of cost Accounting.