THE IMPACT OF BUDGETING AND BUDGETARY CONTROL IN CONSTRUCTION PROJECT DELIVERY IN NIGERIA
ABSTRACT
This research project examined the impact of budgeting and budgetary control in construction project delivery in Nigeria. The study tried to find out how industries make budget and uses budget to achieve the objectives of the firm. It also sought to ascertain the importance of budgeting and budgetary control to a construction firm.
It also identified the limitation to the application of sound budgeting and budgetary control system in a construction firm. in constructing this research project, the researcher on data collection through observation, interview and questionnaire. The objectives of chapters one of this research project is to introduce the topic which the need fro the research is of the problem, the scope and limitation were given. The objectives of chapter two is to present a piece of the extensive literature review carried out in order to reveal the expressed opinion of notable authors and scholars as regards, to the relevance of the budgeting and budgetary control to an organization. Chapter three present the research design and methodology. Chapter four and five present the analysis of the research and result, conclusion and recommendation respectively. These chapters reviewed that budgeting and budgetary control is a sound management system which has the potentials to drive a construction firm into prime position in the construction sector of the economy.
TABLE OF CONTENTS
CHAPTER ONE
1.0 Introduction
1.1 Background of the study
1.2 Statement of the problem
1.3 Purpose of the study
1.4 Significance of the study
1.5 Research questions
1.6 scope or delimitation
1.7 Limitation
1.8 Assumption
1.9 Definition of terms
CHAPTER TWO
2.0 Literature review
2.1 Types of budget
2.2 Essential of budgeting
2.3 Budgeting control
2.4 Budgeting control in the building process
2.5 Objectives of budgetary control
2.6 The processes of budgetary control
2.7 Administration of budgetary control
2.8 Benefits of budgetary control
2.9 Planning programming budgeting system
2.10 Budget and standard costing
2.11 Budgeting and project cost control
2.12 Cost forecasting and cost control
CHAPTER THREE
3.0 Introduction
3.1Design of the study
3.2 Area of the study
3.3 Population of the study
3.4 Sample of the study and sampling techniques
3.5 Method of data collection
3.6 Method of data analysis
CHAPTER FOUR
4.0 Data presentation and analysis
CHAPTER FIVE
5.1 Summary
5.2 Conclusion
5.3 Recommendations
References
Questionnaire
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUUDY
In Nigeria, building construction has gone through a lot of setback due to unplanned program of works, and the proper utilization of the available capital or resources of the project and this ahs caused the abandonment of project. Building projects form an important ingredient in the development process of communities, nations and regions of the world.
Ability to conceive and implement building project successfully is important after the measurement of a nation’s wealth. The construction industry in the last decades and the environment in which it operates has changed significantly.
The changing process is increasing continuously and it seems to be a nearer ending and lactic process. With the changes in constructions procurement process, one thing has not changed, which is the important of cost control (budgeting and budgeting control). According to Alan (1977), budgeting is a critical decision making process which involves the allocation of limited financial resources to meet constructional goals and objectives.
Budget can equally be defined as a formation statement of management expectation on output, cost and other financial transaction. According to Anyaogu (1999) the word “budget” was defined as an expression in financial and quantitative term of an organizational plan of action prepared in advance of the period to which it related and with the aim of attaining a certain objectives.
It is a management documents that serves as a control medium over the spending activities of an organization. Budgetary control was originated in the 1920s as a means of planning and control. Organizations wanted to see the possibility and the outcome of their plans and forecast, budget were prepared for this purpose at this period however, the impact of budgetary control was not fully understood by organizations.
Budgeting and budgetary control are two (2) techniques which top management adapted to achieve its task of planning, co-operating, directing and controlling in an organization.
In a lecture delivered in an annual workshop of the Nigeria institute of quantity surveyors (NIQS) Wahab (2000) said while budgetary planning is concerned with setting targets at the onset of a project, and budgetary control is concerned with checking actual performance with those targets and where effective remedial action is necessary to ensure that the project remains with budget at all time.
The exercise embraces the entire construction process which it cycle covers the pre- design, poof design, detailed and constructions phase.
1.2 STATEMENT OF THE PROBLEMS
The impact of budgeting and budgetary control in the construction industry cannot be over looked, but the problem is how effective do they use it to achieve the organizational goal.
In the course of planning, many firms prepares budget as a techniques that will pick on them to achieved the objectives of their business but still after preparing the budget as a techniques that will help them in the planning, controlling and co- ordinations of their activities to achieve the goal, the problem mentioned to be solved in the budget remains the same due to the inability of the firm to control their contract cost annually to rhyme with their annual budget.
To this affect the questions is, is budgeting important or useful to a construction company in the areas of planning, controlling and co-ordinating of their activities, since after all the effort in preparing budget and the objectives of the organization remains unachieved? Is there no co- committee to integrate the effort of all the functional staff who prepares the budget and explains the deviation arising from the budget.
1.3 PURPOSE OF THE STUDY
The purpose was to limit the expenses on some item such as advertising research and development which where considered as luxury items. Nothing was done to control construction cost through the establishment of periodic.
The purpose of the study is to find out the need for budgeting in the construction company. This study is fashioned to know it.
• Budgeting control can be used in company actual contract sum with the expected expenditure.
• Budgeting control as a continued monitoring system can be sued to expect new event in a construction company and react quickly to changes.
• Budgetary control, through its check and balance method can be used in making and controlling profit plan in a construction firm.
• Budgetary control can be used to monitors the cash flow of the project.
1.4 SIGNIFICANCE OF THE STUDY
The significant cannot be over emphasized this research ahs been useful for being able to find out that there is need for budgeting in a construction firm. Budgeting is a way of managing, it is a management tool. It also has a lot of importance to contract in the building construction industry, although it’s a means not an end itself.
The benefit of budgeting in a construction firm includes planning, co- ordination, classification of responsibility, improved communication, increased in control avert the abandonment of capital construction projects and the motivation of personnel.
Budgeting also increase the morals thus the productivity of the labour force by seeking their useful participation in the formulation of plans and policies by bringing a harmony between individuals goal and the company’s objectives.
It also helps the firm in resources optimization, capital and human, it aids the most profitable channels.
1.5 RESEARCH QUESTION
Whilst budgets may be an essential part of any marketing activity, they do have a number of disadvantages; particularly in perception terms. The following research were made to guide the study.
• Bad labour relations
• Inaccurate record keeping
• Department conflict arise due to
• Dispute over resources allocation
• Department blaming each others, if target are not attained.
• It is difficult to reconcile personal/ individuals and corporate goals or objectives.
1.6 SCOPE OR DELIMITATION
This study is based on budgeting strategies of small construction firm and their budgeting procedure, the process of this research did not cover much location but his immediate environment (Owerri) to facilitate his work
Although, the study was successful; some problems were encountered. These problems include impossibilities faced as to get in touch to firms, companies and person who should supply the needed information the words construction is also limited to the building industry as construction comprises a wide range of activities.
1.7 LIMITATIONS
In using the budgeting system as a device to solve managerial problems, management must consider the following limitations:
• Management judgment: Budget is not pure science its success linger upon the precision of estimates. Estimates based on facts and managerial judgment can suffer from subject vism and personal bases.
• CONTINOUS ADAPATION: The installation of perfect system of budgeting is not possible if construction condition changes rapidly within a short period, therefore budgeting programme be adapted continuously. It has to be a continuous exercise, it is a dynamic process .
• IMPLEMENTATION: A skillfully prepared budgetary program will not improve the company’s management itself, unless it is properly implemented. For the success of the budgetary program it is important that it should be understood by all and the management and subordinate should put much effort for accomplishing the budget goals.
• MANAGEEMNT COMPLACEENCY: Budgeting is a management tool, a way of managing not the management. So the presence of a budgetary system should not make management complement.
• GOAL CONFLICT: The purpose of budgeting will be destroyed if carelessly set budget goal conflict with company’s objectives. Budget goals are the definite target to achieve the over all company’s objectives.
• EVALUATION DEFICIENCIES: If a proper evaluation system is lacking, budget will hide in efficiencies of instead of revealing them. There should be continuous evaluations of the actuation of the actual performance and standard also should be reexamined regularly.
• UNREALISTIC TARGET: Budget will lower productivity and moral if unrealistic target are set and if it is used as a pressure lactic. Budgeting may be used as a pressure device to some extent, but its extent must be carefully determined.
1.8 ASSUMPTION
They are two(2) assumptions to be made for this study and they are;
MARKET CONDITIONS: The estimators must be able to interpret the market trends in prices based upon past dates and arising circumstance. The demands great deals of skills and allowance should be trade for;
1. Contractor conditions
2. Types of clients
3. Labour availability.
4. work loads.
5. general state of the construction industry.
DESIGN ECONOMICS: This includes making allowance in the previous cost or cost analysis to take care of changes in design variable such as
1. shape
2. Height
3. Size
4. Quality factors
1.10 DEFINITION OF TERMS
BUDGET: Is a comprehensive formal plan that estimates the probable expenditure and income for an organization over a specific period.
BUDGETING: It describe the overall process of preparing and using a budget.
BUDGETARY CONTROL: Is a system of controlling cost through the preparation of budget, co-ordination of the development, establishing responsibilities relating the responsibilities of the executive to her requirement of a policy.
PLANNING: Is the methodical process which occurs first with determining the precise course of action to achieving a desired target through established production objectives.
PLANNING PROGRAMMING BUDGETING SYSTEM: This is one of the budgeting system which call for a comprehensives application of the cost benefits analysis to detailed expenditure projects applied to functional expenditure categories.
BALANC BUDGETING: This is where the budgeted revenues is equal to the budgeted expenditure
