THE EFFECT OF BUDGETARY CONTROL ON THE PERFORMANCE OF A BUSINESS

THE EFFECT OF BUDGETARY CONTROL ON THE PERFORMANCE OF A BUSINESS

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CHAPTER ONE
1.0 INTRODUCTION.
The rapid environmental changes that companies face today affect not only production system, equipment changes and new technology usage but also organizational performance and management philosophies, therefore this report will consist of the background to study, the statement of the problem, purpose of the study, scope, objectives and the significant the study has on business organizations as far as budgetary control and performance are concerned.
1.1 Background to the study
Budget and Budgeting are concepts traceable to the Bible days, precisely the days of Joseph in Egypt. It was reported that nothing was given out of the treasure without a written order. History has it that Joseph budgeted and stored grains which lasted the Egyptians throughout the seven years of famine.
Budgets were first introduced in the 1920s as a tool to manage costs and cash flows in large industrial organizations.
John (1996), states that it was during the 1960s that companies began to use budgets to dictate what people needed to do. In the 1970s performance improvement was based on meeting financial targets rather than effectiveness companies then faced problems in the 1980s and 1990s when they were not willing to spend money on innovations in order to stay with the rigid budgets, they were no longer concerned about how customers were being treated, only meeting sales targets became essential.
It is a requirement as per Serena Group of Hotels Finance policy that each unit has got to prepare budgets from where financial statements prepared on a monthly basis can be compared with. However effective budgetary control has been a problem. What is forecasted monthly is not actually met. In business
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organizations, budgeting are formally associated with the advent of industrial capitalization for the revolution of the eighteenth century, which presented a challenge for industrial management.
However, budgeting at the early state of its development was concerned with preparing and to permit correct performance evaluation and consequently rewards.
Information that management accounting control system helps managers, by monitoring company‟s changing environmental circumstances, to compare opportunities and threats in the market so that they can obtain added value against competitors because it is important in facilitating the preparation of budgets, since budgeting and accounting are closely related (Bromwish,1990).
Budgets are known to have an important role to transmit the expectation of top management to lower levels. According to Bremser (1988) budgets are used to communicate top management‟s expectations to managers and employees. According to Lucey. (1993), it is a quantitative expression of plan of action prepared in advance of the period to which it relates, expressed in money terms approved prior to the period.
Lucey (1993) further urges that performance is influenced by many factors which includes planning and coordination, clarification of authority and responsibility, effective communication both internal and external, control of resources available, both human and non human and motivation of both the lower and middle management.
If the actual numbers delivered through the financial year turn to be close to the budget, this actually demonstrates that the organization‟s management understand its business and has been successfully driving it in the direction they had planned. On the other hand, if the actual results diverge wide from the budget, this sends out an „out of control‟ signal. For this reason, budget based control means manager‟s evaluation according to budgetary goals.
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In this context, budgeting benefits and its possible negative effects on attitudes and behaviors of managers on performance are still among the subjects of strategic management control systems that are being researched presently nearly all large businesses reforecast their forecast their activities, as months pass, the actual income achieved and expenses incurred can be compared to the budget and forecast
1.2. Statement of the problem.
Many business firms recognize the need to have a developed and comprehensive budgetary control system in order to minimize budget variances, costs and maximize efficiency. Budgetary control is as crucial as cash itself and any theft, waste, excessive use or stock out could lead to the business‟s poor performance. Kampala Serena Hotel has acknowledged that its performance is influenced by budgetary control systems. This is evidenced by a budgetary deficit of shillings Fifty three million point four (53,458,363) for the last half of the year of financial statements, July-December, 2010. It is against this scenario, that the researcher picked interest in analyzing the effect of budgetary controls on business performance.
1.3 Purpose of the study
The purpose of the study will be to establish the effectiveness of budgetary controls on performance of Kampala Serena Hotel particularly in the administration of revenue and operating costs through activity planning, coordination and communication between departments, help to allocate resources, motivation to objectives, assessment and control of results and performance evaluation of departments or managers.
1.4 Research objectives
1.4.1 Main objective
The general objective of the study will be to analyze the role of budgetary control on the performance of business organizations.
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1.4.2 Specific objectives
1 To establish the levels of budgetary controls in Kampala Serena Hotel.
2. To establish the levels of performance in Kampala Serena Hotel.
3. To establish the relationship between budgetary control and performance in Kampala Serena Hotel.
1.5 Research questions
1. What are the levels of budgetary controls in Kampala Serena Hotel?
2. What are the levels of performance in Kampala Serena Hotel?
3. What is the relationship between budgetary controls and performance in Kampala Serena Hotel?
1.6 Scope of the study
This will be looked at in three dimensions:
1.6.1 Study scope
The study will be limited to the performance as a dependent variable and budgetary controls as an independent variable. The researcher will consider strategies used towards budgetary controls and the way they are manipulated to influence the performance of the organization.
1.6.2 Geographical scope
The study will be carried out in Kampala, at Kampala Serena Hotel situated on plot 16/18 Nile Avenue, one of the Serena Group of Hotels in East and Central Africa.
1.6.3 Time scope.
In terms of time scope, the study will cover the period between January, 2010 to March, 2011.
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1.7 Significance of the study
The study was intended to establish the correlation between budgeting and budgetary controls with business performance to assist managers improve their operational efficiency.
The study will also intend to facilitate the researcher acquire skills on how to conduct research findings and generate solutions to business problems encountered in business life and also enable him fulfill the requirement for the award of a Bachelors Degree of Commerce of Makerere University.
Lastly, the study will also intend to add to the existing literature on budgeting and business performance, to help future researchers interested in the subject matter and as a basis for further reference.

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