THE EFFECT OF BUDGETARY CONTROL ON PLANNING AND DECISION MAKING

1.0 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.

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know Effect of Budgetary Control on Planning and Decision Making in an Organization in an Organization.

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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. Lack of effective budget analysis and feedback about budgetary problems can result to the government ministries and agencies inability to meet their targeted goals.
3. Traditional budgets do not interrelate financial outlays with physical targets.
4. No budgeting technique can actually solve government budget problems but a perfectly working planning programming and budgeting system (PPBS) has the potential for improving the effectiveness of how available funds are utilized (Omopariola 1984).

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1.3 Aim and Objectives of the Study

The aim of the study is to examine Effect of Budgetary Control on Planning and Decision Making in an Organization in an Organization using Ojo Local Government in Lagos State as a Case Study. In achieving this aim, the following specific objectives were laid out as follows:

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.

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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 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.

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1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Does budgeting and budgeting control enhance planning and decision making efficiently?
• Does budgeting and budgeting control ensure rational allocation of resources?
• Does budgeting and budgeting control a motivational tool for staff?
• 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 organization performance in terms its fair return on the capital investment?

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1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: Budgeting and budgeting control does not enhance planning and decision making efficiently
• H1: Budgeting and budgeting control enhances planning and decision making efficiently

Hypothesis Two

• H0: Budgeting and budgeting control does not ensure rational allocation of resources
• H1: Budgeting and budgeting control ensure rational allocation of resources

Hypothesis Three

• H0: Budgeting and budgeting control is not a motivational factor
• H1: Budgeting and budgeting control is a motivational factor

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1.7 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.
3. It will help management to to understand ways in which budgeting could be a powerful tool for planning, control and decision making.
4. It will reveal how rational allocation of resources can be ensured.
5. It will serve as a tool for further research studies.

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1.8 Scope of Study

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 using Ojo Local Government in Lagos State as a Case Study.

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1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
3. Research material: availability of research material is a major setback to the scope of the study.
4. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
5. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

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1.10 Definition Of Terms

Budget: A budget is a summary statement of plans expressed in qualitative term

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.