Budgetary Control – Budgeting As a Control Strategy

Budgetary Control – Budgeting As a Control Strategy

Budgetary Control – This study is meant to look in to how the budgeting system serves as a control in the banking institution  in general with particular reference to the Union Bank Plc and also how the system contributes to the effectiveness and efficiency of the banking sector.

Anderson and Rawn (1988) ascertained that the budget can be a powerful tool for motivating people to achieve the organizations objectives or it can be a positive hinderance”. It analyses the effects of budgeting on people and shows how it can lead to either bad or good consequences according to the way it is applied in various types of organization.

Fremgren (1973) defined budget as a “Comprehensive and coordinate plan expressed in financial terms for the operations and resources of an enterprises for some specific period in the future.”.

To Pandey (1985) a budget is a plan of the organizations manipulation of relevant variable (controllable and uncontrollable) and reduces the impact of uncertainty.  It activate the management into influencing. It activate the management into influencing the environment in the interest of the organization.

(IMA (1990) budget is a plan qualified in monetary terms, prepared and approved prior to defined period of time, usually showing planned income to be generated and / or expenditure to be incurred and the capital to be employed to attain a given objective.  A budget is thus a standard with which to measure the actual achievement of people, department, firm etc to be effective, the budget must be well coordinated with related management and accounting system.

Also Read: Budget and Budgetary Control – The Effectiveness on Local Government System

Copeland and Dasher (1978) a good budget is a standard cost system which will proved data for reports according to responsibility.  Executives are responsible for the preparation and management of their own budget segments.  To be effective company official must participate in planning the budget and must understand their responsibilities in making the budget control.

Koontz (1980) Budgeting has come of age.  It is becoming increasing important for some reasons, however accountants and managers seem reluctant to give it the respect it deserves still there has been a steady increase in the prominence of budgeting in both non- profit and profit seeking organization such as the banking institution in Nigeria Union Bank in particular.

Budgeting has long been recognized as the accepted procedure for profit planning and many of the most successful companies have applied it with good results over a period of years.  The period generally adopted for budgeting in one year and this usually coincides with the financial year of the bank.

Dreary (1985), the performance of management is judged by the profit earned in the financial year and an annual budgets enable management to focus  its attention and efforts on all the factors that on influence sales, services rendered and profit.  The essence of budgeting is o be closed to the events and a year is generally considered to be the ideal period.

Morse (1981) in introduction an effective budgeting procedures management has to make penetrating critical and uncompring study of the business to determine its strengths and weakness in relation to what it is trying to achieve first of all it has to test the validity of its objective in relation to the  skill and resources of the business and to the particular competence required for its service and market . budgeting profitability for a future period. The budget has not only to take account of competition but it has to consider, the short term effects of all other factors that can influence the trading prospects for the period under review for example economic conditions and government constraints.

Time dimension must be added to a budget. A budget is meaningful only when it is related to a specific period of time. The budget estimates will be relevant only for some specific period.

PURPOSE OF BUDGETING

The process of preparing and using budgets achieve management objectives is called budget Campbell (1985) more specifically a comprehensive profit planning and control  or budget is a  systematical and formalized approach for stating and communication the firms expectations and control responsibilities of management in such a way as to maximize the use of given resources.

Welsch (1996) budget is the only comprehensive approach to managing so far developed that if utilized with sophistical and good judgment fully recognizes the dominant role of the manager and provides a framework.

The major purpose of budgeting as ascertained by Pandey (1981) are:

1. To state the firms expectation goal in clear formal terms to avoid confusion and to facilitate their attainability.
2. To communicate expectation to all concerned with the management of the bank implemented.
3. To provide a detailed plan of action for reducing uncertainting and for the proper direction of individual and group efforts to achieve goals.
4. To coordinate the activities and efforts in such away that the use of resources in maximized.
5. To provide a means of measuring and controlling the performance of individual and units and to supply information on the basis of which the necessary corrective action can be taken.

 ROLES OF THE BUDGET

The roles of budget according to campbell (1985) could be seen as follows:

1. An instrument of economic planning as a means of assessing probable development in the material economy and if regulating taxation and government expenditure to off set threats of inflation and economic recessions.
2. The management or administrative tool.  The management process is spread over the entire cycle.  Ideal, it is the link between the target set and the activities undertaken.
3. An instrument of control.  This refers to the management of accomplishments in physical and financial terms and the comparison of the result with planned targets.
4. A mans of converting a development plan into programme for action
5. A medium of information between the government and the governed hence the announcement of the budget at the beginning of the financial year fiscal and monetary policies and allocation of available or expected resources.

BUDGETARY CONTROL

          Heltham (1983) the term budgetary control is applied to the system of management control and so far as possible planned a head and the actual results compared with the precast and planned ones.

Lucey (1983) state that the plan of operatic is the best that can be devised in the particular circumstances and reasons with remedies are immediately sought to correct any adverse tendencies in the actual results.

Budgetary control is the establishment of budget relating the responsibilities of executives to the requirement of a policy and the continuous comparison of actual with budgeted results, either to secure by individual action the objectives of that policy or to provide a basis for its revision.

Caplan (1971) Budgetary control relates expenditure to that person who incurred the expenditure, so that actual expenses can be compared with budgeted expenses, thus affording a convenient method of control.

In some large firm like Union Bank plc Budgetary control as a part of a corporate planning has been developed since the startment of the bank and is a strategy which co-ordinate setting of firms objectives preparing budgets and plans establishing strategies preparing policy statements and monitoring results.

Glenn and Welsch (1996) ascertain that budgetary control provides a basis for:

1. Direction of sales effort
2. Administrative control
3. Production planning
4. Control of stocks
5. Price fixing
6. Expenses control

Budgetary control is fundamentally planning based with the manifest advantage of planned production.  It has nationally developed along the lines of comparing actual achievement, with plan finally, it must never be forgotten that the control finally, it must never be forgotten that the control and management of a business are achieved through individual person with the assistance of figures and not by figures themselves.

OBJECTIVES OF BUDGETARY CONTROL STRATEGY

          The following have been stated by the institute of Banker’s journal (1998) June edition to be the objectives of budgetary control.

1. To map out the objectives and goal aimed at
2. To co-ordinate activities and secure co-operation
3. To contraries control with delegated responsibility and authority
4. To check the progress towards the objectives and provide warning of danger.
5. To show where success or failure and achievement has occurred and where standard have been attained
6. To emphasize the corporate objectives of the company

OPERATION OF BUDGETARY CONTROL

In accordance with the banking acts (1976) as amended to date, the head of each department or section will receive a copy of the budget appropriate of his activity. Each month he will receive a copy of the departmental budget report.  The head of the department receiving the report can see immediately where he has over or under spent his budgeted allowance.  It must be emphasized that speed of presentation and corrective action if necessary is essential in budgetary control.

Unless monthly period in question adverse costs many go undetected for a considerable time and will be much more difficult to locate.  Budget report will be issued for each department or budget centre than summarized reports issued for division of he business.  A report to management concerning all significant variable will be presented explaining how the various accrued and any corrective action may have been

LIMITATION OF BUDGETARY CONTROL

It is true that budgetary control has many impressive and far-reaching advantages but it is also has certain limitation and pitfalls which must be considered;

1.       Cyert (1983) Looking at planning, budgeting or forecasting one will simply agree that there is none of these terms that can be regarded as a science but there is a certain among of judgement involved.  In this case, a revision or modification of estimate should be made when variations forms the estimate warrants a change of plans.

2.       Sule (1981) the system requires the control, it takes times without number, man agreement has become impatient and lost interest because it expects too much be explained by the responsible officials, guide them where necessary, train and educate them in the fundamental steps, methods and purpose of a budgetary control has failed because some of the members of management have paid hip-services to its executives.

3.       Carnall (1981) to install budgetary control it takes times without number, man agreement has become impatient and lost interest because it expects too much within a short times when as the strategy must be explained by the responsible officials, guide them where necessary, train and educate them in the fundamental steps, methods and purpose of a budgetary control strategy.

4.       Stedry (1963) budgetary control strategy does not eliminate nor take over the role or administration hence the executive should not feel confined to a particular area, rather, it should be designed to provide a detailed information which will guide them to operate with strength and vision towards the achievement of the organizations objectives.

ADVANTAGES OF USING BUDGET AS A CONTORL STRATEGY.

Harold and Thomas (1986) has ascertained the following as a more significant advantage:

Budgeting compels management to plan for future, the budgeting process forces management to look ahead and become more effective and efficient in administering the business operations.

Budgeting facilities control by providing definite expectation in the planning phase than can be used as a frame of reference for judging the subsequent performance.

Berelson and Steiner (1964) states that budgeting helps to co-ordinate interpret and balance the efforts of the overall objectives of the banks.

Argyris (1973) budgeting increases the morals  and thus, the productivity of the employee by seeking their meaningful participation in the formulation of plans and policies.  Budgeting measures efficiency and inefficiency and also indicates the progress in attaining the Bank objectives.

—-This article is not complete———–This article is not complete————

This article was extracted from a Project Research Work Topic

“BUDGETING AS A CONTROL STRATEGY

(A CASE STUDY OF UNIONBANK OF NIGERIA PLC ENUGU OGUI ROAD)”

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Budgetary Control – Budgeting As a Control Strategy