ABSTRACT
The need for participation by staff or subordinate managers in the budgetary processes and the use of budgeting as an effective control tool in any organization cannot be over emphasized. This topic was chosen because of the need for increased participation in budgetary processes in order to nip in the bud the continued adverse budget variance and non implementation of budget figures. Obviously, full participation by users and implementers of budget details aid in speeding and actualizing management functions and organizational goals. Regrettably, this very important tool is not effectively put to use by some line managers and departmental heads, thereby jeopardizing the cumulative impact of budget, threatening good performance which lead to decline in liquidity of cash budgets in most Nigerian organization. In view of the foregoing, this research work investigated into the significant impact of participation in budgetary system and its implementation in optimizing total product liquidity and attaining corporate goals of Nigeria Bottling Company Plc Owerri and Emenite Ltd Enugu. This study investigated whether both companies apply participatory budgetary procedures in their operations, that is, whether process of democratic deliberation and decision-making, in which not only line managers and departmental heads but also senior staff and subordinate budget users contribute in the budgetary process of allocating part of corporate organizational resources designed to achieve corporate goals and if so, to what extent does this help in the planning, controlling, decision making and attaining. In carrying out this task, the researcher had to carry out surveys through the use of questionnaires and oral interview with two key officers of both companies, also the use of product moment coefficient of correlation was used in testing the formulated hypotheses and the use of frequency table for analyzing the collected data. After carrying out the research, the researcher arrived at some findings. The major findings showed that, the Nigeria Bottling Company Plc Owerri and Emenite Limited each installed a participatory budgetary system among other managerial tools. Furthermore, it was discovered that the system in both companies is laden with a number of errors like lack of cash budget, which gave rise to most of the problems associated with the ineffective operations of the company. In consideration of most of the findings, it was concluded that effective participation in budgeting and its implementation is the key to optimizing product quality, enshrining control and actualizing corporate goals of manufacturing companies. Finally, the researcher observed that the Nigeria Bottling Company Plc has a better budgetary process that is responsible for her efficient management. However, the researcher recommends that there should be annual cash budget and the involvement of supervisors and operatives in the budgetary process, while the structural process of budget plans, deliberation and approval should be followed before drawing the master budget. On Emenite Ltd, the researcher recommended that there be continuous staff training on budgetary system, especially, on budget implementation process; while adverse variances should be given more prominence, if the recommendations are carried out, participatory budgeting will become on effective control tool for proactive management.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The need for continuity and hitting break even point have made modern business organization face with unimaginable competition surrounded with precarious decision which threaten the going concern concept of the business.
These have made it possible for the need to build in the comedy of system concept; where synergy is advocated and participation of sub units remain primeval in planning or budgeting. To this end, business managers in the private, public, profit and non-profit making concerns, including the households now indicate sources of available materials and allocate through budgeting, the most efficient way of meeting a future needs.
A budget may be prepared for an organization as a whole or for its sub units. A budget that represents or embraces the entire organization is termed as master budget. A budget is that futuristic action/ profit plan stated in quantitative terms within a time frame. Budgets express the degree of efficiency and effectiveness which management, putting all available scarce resources to best use, intends to attain, in pursuit of corporate goals Nzelibe (1990), sees budget as a technique for allocating working capital in terms of raw materials and manpower needed in the most effective and economic manner. Again, Hand (1985), stated that budgeting entails the setting of targets. It is a technique which is widely used in business and which affects all levels of management. The budget of a business is like a household budget which provides for estimated income (wages, salaries and other incomes) and for anticipated expenditure (food, school fees, clothing, rent etc) within a specified period.
Before the downturn of world economy, (Nigeria inclusive), the Nigerian businessmen had been having negative ideas about the concept of budgeting. In Nigeria, budget is usually associated with the public service. Hence, the annual budget statements of federal, state and local governments reflect details of various sources and allocation of funds to defense, transport, agriculture, education and the like. It usually affects the economic life of every individual in the nation. This situation has therefore influenced many private sector managers as some have come to regard budget as a tool reserved for the public sector only.
Obviously, a firm’s budget details how funds will be spent on labour, raw materials, capital goods, etc and also how the funds for these expenditures will be generated. Just as the federal budget can be used as a device to ensure that the various ministries departments limit their expenditures to specific amount, the corporate budget can also be used as a device for formulating the firm’s plans and for exercising control over the various departments.
One can therefore infer from the above that budget is an indispensable tool for a household, an individual, a firm, government or its departments that wants to spend its resources in the most economic way. Most private sector businessmen in Nigeria as mentioned above are ignorant of the importance of budgets. This ignorance cuts across all classes of our business community especially within the classes of those without appreciable business education or sufficient knowledge of the rudiments of modern management.
The resultant effect of this is that most companies do not prepare budgets at all, while those that do; do not prepare good ones. Consequently, the degree of budget utilization and adherence is abysmally low, thereby creating an unfortunate situation. Budgets are therefore seen as crucial tools stating a course of operation for a business and are also critical in management control. Budgets are therefore essential for control as they enable a firm to check deviations between planned and actual achievements. When these deviations are systematically analyzed, management gains insight into the causes of the deviations and can then take positive corrective measures.
Schoolammer and Kuriloff (1979) posit that the importance of comprehensive and systematic cost control in an enterprise can hardly be overstated, but the management of a small enterprise must guard a cost control system that is unduly expensive or cumbersome. Cost control through budgeting must not be seen as an end in itself, rather it is only a means to ensure that objectives are met.
The importance of budgeting as a managerial tool and effective internal control measure needs to be appreciated by managers and shareholders. Therefore whether the future is certain or uncertain, business managers must plan and budget through managerial process to nip on the bud dysfunctional attitude on implementation of budget contents by staff managers, and minimize risk of unfavourable variances. The managerial process can be viewed as the total management effort operating in particular endeavour that includes the basic management functions (planning, organizing, coordinating and controlling) to accomplish specific objectives. Suffice to say that one of the most important approaches that have been developed for facilitating effective performance of these management functions is “Participatory Budgeting” which entails that managers of various cost centres should be actively involve in the development of their own budget which they should accept responsibility. This describes the reason behind Horngren (1995), definition of budget as “a plan of action and framework of judging performance”, while Lucey (2002) advocated genuine involvement of line managers in all aspect of the budgetary process as the basis for successful budgeting. In this age of proactive and qualify management, Participatory budgeting remains a virile control tool for achieving corporate goals.
1.2 STATEMENT OF THE PROBLEM
The major problem of this study is that most top management unilaterally formulate plans and communicate to the functional managers for implementation, thereby seeing budgeting as only plan of action that contain subjective aims of the top management. Also, such inherent problems associated with the implementation
of budget proposals such as low degree of acceptability could be seen as an impediment where it is obvious that good budgetary system provides a framework for evaluation and control in any organization.
Some inefficient and bad managers look at budgeting with great suspicion. Consequently, energy and time are usually wasted trying to work against budget proposals. At times, sources for budget setting are secondary ones, like where budgets are drawn by top level managers and few accounting staff. The result is that such budgets are defective abinitio and not much could be done to salvage it, except it is withdrawn and re-written. The like of this, is where most modern managers do not operate budgeting system as an effective means of planning, controlling, motivation, co-ordination and decision making. This defect is most pronounced in Nigeria where 90% of the businesses in the country are sole- proprietorships. Kindleberger and Herick (1997) affirmed that “Entrepreneurs, middle level managers and genuine decision making have all be singled out for attention as the scarcest resources in the low income countries”.
In view of the above facts, there is need for improving business management strategies in developing countries through budgeting. The reasons for the non- operation of participatory budgeting as a managerial control tool include the following
i. The general ignorance and misconception of the essence of budgeting.
ii. The management style, where decision has always being personalized by top management and bureaucratic tenets are lacking, thereby leading to dysfunctional behaviours of line mangers.
iii. Some big organizations cannot afford to employ qualified accountants or other managerial staff to design and operate the budgeting system in any such organization.
1.3 OBJECTIVE OF THE STUDY
The research work on participatory budgeting as a veritable control tool for attaining managerial functions and organizational corporate goals, A case study of Nigerian Bottling Company Plc Owerri and Emenite Ltd was embarked upon so as to establish the following objectives.
i. To evaluate whether participatory budgeting is key part of management system in the NBC Plc Owerri and Emenite Ltd Enugu.
ii. To evaluate the need for budgeting system and to reveal that participation in budgetary process is a prerequisite to attaining corporate goals.
iii. To evaluate the usefulness of budgetary system as a control tool to checking and measuring variance and expose the salient reasons for adverse budget variance in the two manufacturing company.
iv. To expose how a company can optimize liquidity position and improve total product quality through adequate budgetary system and implementation.
1.4 FORMULATION OF RESEARCH QUESTIONS
In an effort to find the solution to the problems of participatory budgeting as an effective tool for attaining managerial functions and organizational corporate goals, this research work sought answers to the following research questions:-
(a) Do Nigeria Bottling Company Plc Owerri and Emenite limited Enugu operate participatory budgetary systems of management?
(b) Do the Divisional Managers, senior staffs and supervisors, participate in the budgetary process and how do they make inputs towards attaining corporate goals?
(c) How does implementation of the budgetary system value serve as a yardstick to optimizing liquidity position and improving total products’ quality of the two companies?
(d) Is the budgetary system successful in operation as to provide efficient and effective control tool for checking and measuring variance in the two companies?
1.5 FORMULATION OF RESEARCH HYPOTHESES
The hypotheses to be tested are:
Ho: Participation in budgetary system and its implementation have no significant impact in optimizing total product liquidity and attaining corporate goals of Emenite Ltd Enugu and Nigeria Bottling Company Plc Owerri.
Hi: Participation in budgetary system and its implementation have significant impact in optimizing total product liquidity and attaining corporate goals of Emenite Ltd Enugu and Nigeria Bottling Company Plc Owerri.
Ho: Budgetary control process is not an effective managerial tool for checking, measuring and comparing variance and appraising responsibility centre managers of the two companies.
Hi: Budgetary control process is an effective managerial tool for checking, measuring and comparing variance and appraising responsibility centre managers of the two companies.
1.6 SIGNIFICANCE OF THE STUDY
According to Charles Worth, “Research arises when there are problems to solve, peculiarities of puzzles about phenomena or the question of attaching meaning to them”. Therefore, since an excellent budget will enhance the flow of accountability, productivity and maximization of profit the Researcher hopes that both the Nigerian Bottling Company Plc Owerri and Emenite Limited Enugu, will benefit from a well conducted study of this nature. No doubt, this study will help the top management of both firms to realize their corporate objectives.
This work may also be useful to members of the academic community like students and researchers, for they may find something of interest in the whole study. However, those future researchers may review this work, criticize it, avoid mistakes and come up with better, richer and wider work.
1.7 SCOPE AND LIMITATIONS OF THE STUDY
This researcher work does not embrace the entire subject matter of budgeting and the attendant variance analysis. The emphasis is not the establishment of budgets and extraction of the related variances, rather, on the application of participatory budgeting as an effective control tool for attaining managerial functions and organizational corporate goals, with particular reference to the Nigerian Bottling Company PLC Owerri (a drink and beverage producing company) and Emenite Ltd. Enugu, (a building material and water pipes manufacturing company). The budgetary system and its complementary subjects of standard costing, variance analysis accounting and performance evaluation are so wide an area to be deal exhaustively in a limited and constrained project work of this nature.
Further limitation has risen due to the fact that there is an extent a company can go in showing an outsider or an inquisitive researcher, its classified financial (and other) documents. The fear that such documents could be abused or used against them by competitors is so obvious. The most outstanding fear of these companies is that the researcher might turn such documents into the hands of tax authorities and /or competitors. This notwithstanding, it must be admitted that the Nigerian Bottling Company PLC Owerri and Emenite Limited Enugu have both co-operated more than most company would do. One will not expect every document from the companies for the purpose of this and similar works. Time, money and other logistic constraints, coupled with the Nigerian battered economy, all combine to make it impossible for a student to embark on an extensive and wide field research work.
1.8 DEFINITION OF TERMS
1. BUDGET: A budget can be defined as a quantitative expression of plans in monetary terms prepared and approved which is narrowed towards how to employ available capital input to generate a given objective(i.e. income) and expenditure to be incurred during the same period. In profit oriented businesses, a budget is strictly a profit plan.
2. BUDGETING: It is a process of preparing in advance within a stated time frame, a summary statement of plans stated or expressed in quantitative terms which it utilized with good judgment would enhance the attainment of organizational goals.
3. BUDGETARY PROCESS: Budgetary process is an integral part of planning and control, which involves all levels of management. Thus, the full budgetary process is an excellent example of management by exception in action/
2. BUDGETARY SYSTEM: Budgeting system (or budgeting) is a management system used for effective cost planning and budgetary control. Budgetary planning is thus the process of preparing detailed short-term cost plans (budgets) for the functions, activities and departments of an organization.
3. BUDGETARY CONTROL: It is the ability to adequately review budget and to enforce modification therein. It is the process of comparing actual results with planned results and reporting the variation.
4. STANDARD COSTING: Standard costing is a technique which establishes predetermined estimates of the cost of products and services and compares with this predetermined cost.
5. VARIANCE ANALYSIS: The process by which the total difference between actual cost and standard cost is broken down into its different elements.
6. GOAL CONGRUENCE: It is a situation whereby the goals of individual and group should coincide with the goals and objectives of the organization as a whole.
7. BUDGET CENTRE: A budget centre is “a section of the organization for which separate budgets can be prepared and control exercised”.
8. PARTICIPATORY BUDGETING: This means involving all the various level of managers who are responsible for budget implementation to take part actively in the planning process.
9. ORGANIZATIONAL GOALS: This is an overall objective of an organization, for example profit maximization goal, cost minimization goal etc.
10. CAPITAL BUDGET: Capital budget represents the estimated expenditure on fixed assets during a budgets period. It shows the planned changes in property, plant and equipment.
11. CASH BUDGET: It is the summary of expected cash receipts, expected cash payments and the estimated cash balances during the Budget period. The cash budget may show that there is to be a deficiency of cash in some future period in which cash overdrafts or loans will have to be arranged or activities curtailed; or alternatively the budget may show that there is likely to be a cash surplus, in which case appropriate investment or use for the surplus can be planned rather than merely leaving the cash in a current account.
12. FIXED BUDGET: Fixed budget is a budget, which is designed to remain unchanged irrespective of the volume of output or turnover achieved. It is a single budget with no analysis of cost.
13. FLEXIBLE BUDGET: This is a budget, which by reorganizing the differences in behaviour to fluctuations in output, turnover or other variable factors such as the number of employees, is designed to change proportion with such fluctuation. It is therefore a budget that is designed to adjust the permitted cost levels to suit the level of performance actually realized.
14. MASTER BUDGET: It is a summary of all the operational budgets of an organization, included in one statement, the sales, production, equipment, expenses and cash budgets of a firm. It has three principal components. An operating budget. A cash budget and a capital expenditure budget.
15. PRODUCTION BUDGET: Production budget is an estimate of the quantity of goods (expressed in units or tones) to be manufactured within a
budget period. The production budget determines what is to be produced, the quantity and when to produce them.
16. SALES BUDGETS: It is an estimate of goods to be sold and revenue to be derived from such sales within a specific budget period. It shows a breakdown of sales units, value and total sales values.
17. ZERO BASED BUDGET: A zero based budget is a situation where all activities are re-evaluated each time a budget is formulated. Each functional budget starts with the assumption that the function does not exist and is at zero cost. It is different from incremental budgeting system amounts stated in particular budget are mere extrapolations of past amounts incurred.
18. WORKING CAPITAL: The working capital is the combined (or net) amount of current assets and current liabilities of a company. It is measured by the difference between the sum of the values assigned to current assets and the sum of the values assigned to current liabilities.
19. BUDGET COMMITTEE: Is a committee set up to oversee the administration of the budgetary process.
20. BUDGET MANUAL: Is a document usually prepared by the accountant which contains procedure involved in the budgeting.
This material content is developed to serve as a GUIDE for students to conduct academic research
PARTICIPATORY BUDGETING: AN EFFECTIVE CONTROL TOOL FOR ATTAINING MANAGERIAL FUNCTIONS AND ORGANIZATIONAL CORPORATE GOALS.
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