BUDGET AND BUDGETARY CONTROL SYSTEM, ITS LINK TO THE PERFORMANCE OF AN ORGANIZATION

BUDGET AND BUDGETARY CONTROL SYSTEM, ITS
LINK TO THE PERFORMANCE OF AN ORGANIZATION

 

CHAPTER I

 

INTRODUCTION

Following
the uncertainties prevailing in the Ghanaian business environment today,
managers and stakeholders must be poised and prepared to compete favourably
under these rapidly shifting conditions. In order to survive under these
environmental complexities and vagueness managers and stakeholders of both
private and public sectors need sharp tools, proven management techniques to
forecast the major changes which are likely to affect the business while they
choose future direction and dimension of resources needed to attain selected
goals.

Budgetary
control as a proven management tool helps organization management, and enhances
improved performance of any economy in different ways. Its primary function is
to serve as a guide in financial planning operators; it also establishes limits
for departmental excesses. It helps administrative officials to make careful
analysis of all existing operations, thereby justifying expanding, eliminating
or restricting present practice. Budgeting and control entails a distinct
pattern of decisions in an organization which is capable of determining its
objectives, purposes or goals, and how these goals are achieved by establishing
principal policies and plans. However, the inability to recognize the problem
concerned and fixing a boundary off investigation creates an obstacle for the
successful implementation of budgeting and control. Some organizations only
look for narrow ranges of alternatives which they arrive at from their past
expenses and present situation, other management levels even avoid long-term
planning and budgeting in favour of today’s problems thereby making the
problems of tomorrow more severe. The foregoing reflects on the need for
organizations to set up a formal mechanism for scanning its environment for
opportunities and give early signs of future problems, this course of action
will improve the system of budgeting and control, resulting in an appropriate
expectation of improved performance, in the manufacturing sector as seen in
this study.

1.1  BACKGROUND OF THE STUDY AND PROFILE
OF THE ORGANIZATION

Various
researches on budgets and budgetary controls have clearly shown that
organizations need to pay serious attention to budgetary processes, budgets,
and budgetary controls. In light of these various issues facing organizations
as a result of poor/mismanaged budgetary control systems/budgets, the
researcher went ahead to research more on the topic, and came out with various
recommendations and findings to help curb the problems organizations have with
their various budgetary control systems.

Interviews
and casual discussions with managers, employees, government agencies etc,
formed the initial and informal stages of this study. When enough materials
were gotten and reviewed by the researcher, it later developed into a full and
complete academic research. Various issues affecting budgetary processes,
budgets and budgetary control are fully addressed in this study.

This
study was mainly undertaken to help organizations in Ghana to grow, thereby
also helping the economy of Ghana to grow, because when enterprises and
businesses do well, the economy will definitely do well.

 

 

 

 

1.1.2 PROFILE OF THE ORGANIZATION

The bank
has over its 30 years of existence achieved a lot, notable amongst which are:

• The establishment of
  hire purchase and leasing business in Ghana.
• The promotion and
  formation of the first Discount House in Ghana.
• Handled the share issues
  of 8 out of 10 companies when there was no Stock Exchange in Ghana in the
  1970’s.
• The initiation of the
  preparatory work in the establishment of the Ghana Stock Exchange (GSE).
• The sponsorship and
  registration of about 50% of the companies on the GSE.
• The arrangement and
  the formation of the mortgage company (which is now the HFC Bank Limited)
• Served as an advisory
  body in the acquisition of SSB Bank by Societe’ Generale; and the
  merger of Ashanti/Anglo Gold.

1.2  STATEMENT OF THE PROBLEM

In
recent times, companies have performed poorly due, to the fact that they lack
effective and efficient budgets, and budgetary control systems to adequately
and judiciously allocate resources to meet organizational goals, and maximize
performance. A study conducted by Boquist (2001) observed that companies
continue to blunder and fail because they have flawed budgetary planning and
control systems, which they apparently fail to recognize. Some firms sense weakness
of their budgetary analysis but viewed them as individual problems rather than
systematic deficiencies. They misdirect efforts and produce greater
frustration. As a result, corporate strategy and capital allocation become
misaligned and remain so, despite disapproving financial performance.

Some
business organizations do not even know the link between budgetary control and
performance, and this affects their performances negatively. Various
organizations ranging from small scale businesses to large scale businesses,
fail to recognize the power of budgets and budgetary control over performance
outcomes. These organizations go ahead without paying more attention to
improving their performances through their budgets.

1.3  RESERCH OBJECTIVES

The
objectives for this study are:

1.      To
identify the link/relationship between budgetary control and organizational
performance.

2.      To
identify the problems associated with budgets and budgetary control in an
organization.

3.      To
identify ways to improve organizational performance through budgetary control
measures.

1.4  RESEARCH QUESTIONS

In
order to achieve the above objectives the following research questions will be
used:

1.      What
relationship exists between budgetary control and organizational performance?

2.      What
are the problems associated with budgets and budgetary controls in your
organization?

3.      How
can organizational performance be improved through the use of budgetary control
measures?

1.5  SIGNIFICANCE OF THE STUDY

The
addition of knowledge is basically the aim of every research and this research
work seeks to achieve just that. More importantly, this research is necessary
in understanding how the budgetary control is established, and also how it
affects organizationalperformance.

It is a tool
which measures managerial performance of an organization and promotes good
morale and harmony in the organization. It enable the organization verify
whether or not the plans of the organization are understood by all members, and
put into effect corrective measures where deviation or under deviation is
occurring.

Since budget
is a tool for planning, and financial planning is of almost significance to a
business man, it enables the organization project the future consequences of
present decisions in order to avoid surprises and understand the link between
present and future decision.

I.6 SCOPE OF THE STUDY

The
research would be concentrated on the Merchant Bank branch in Koforidua, the
capital town of Eastern Region.  The
research would cover the budgetary processes and polices of Merchant Bank and how
its performance is influenced and maximized.

1.6  LIMITATIONS

In
undertaking this research, the researcher encountered the following problems;

1.
The time used to undertake the study was limited. The time was loaded with
other academic activities and as a result limited time was made available the
study.

2.
Also, response from the employees of the bank through the questionnaire
provided by the researcher was also a bit slow. This is because of reasons such
much work load on the part of the management and employees of the bank.

1.7 CHAPTER SCHEME

The
project will be organized around following chapters;

Chapter
one gives an introduction to the research work. It gives the basic information
about the company and the research being undertaken. This chapter therefore
consists of the background of the study and organizational profile, statement
of the problem, objectives, research questions, significance of the study,
scope of the study, and limitations encountered by the researcher.

Chapter
Twoconsists of the literature
review and the theoretical framework

Chapter
three gives details of the research methodology. The research methodology
represents the various ways and methods which the researcher used in order to
gain his information.

Chapter
Fourgives the analysis and
interpretation of the information gathered by the researcher.

Chapter
five gives the findings and conclusion of the researcher. Here, conclusions
will be drawn based on the findings and their implications will also be given.