BUDGET AND BUDGETARY CONTROL SYSTEM, ITS LINK TO THE PERFORMANCE OF AN ORGANIZATION

BUDGET AND BUDGETARY CONTROL SYSTEM, ITS LINK TO THE PERFORMANCE OF AN ORGANIZATION

CHAPTER I

INTRODUCTION

Following the uncertainties prevailing in the Ghanaian business environment today, managers and stakeholders must be poised and prepared to compete favourably under these rapidly shifting conditions. In order to survive under these environmental complexities and vagueness managers and stakeholders of both private and public sectors need sharp tools, proven management techniques to forecast the major changes which are likely to affect the business while they choose future direction and dimension of resources needed to attain selected goals.

Budgetary control as a proven management tool helps organization management, and enhances improved performance of any economy in different ways. Its primary function is to serve as a guide in financial planning operators; it also establishes limits for departmental excesses. It helps administrative officials to make careful analysis of all existing operations, thereby justifying expanding, eliminating or restricting present practice. Budgeting and control entails a distinct pattern of decisions in an organization which is capable of determining its objectives, purposes or goals, and how these goals are achieved by establishing principal policies and plans. However, the inability to recognize the problem concerned and fixing a boundary off investigation creates an obstacle for the successful implementation of budgeting and control. Some organizations only look for narrow ranges of alternatives which they arrive at from their past expenses and present situation, other management levels even avoid long-term planning and budgeting in favour of today’s problems thereby making the problems of tomorrow more severe. The foregoing reflects on the need for organizations to set up a formal mechanism for scanning its environment for opportunities and give early signs of future problems, this course of action will improve the system of budgeting and control, resulting in an appropriate expectation of improved performance, in the manufacturing sector as seen in this study.

1.1  BACKGROUND OF THE STUDY AND PROFILE OF THE ORGANIZATION

Various researches on budgets and budgetary controls have clearly shown that organizations need to pay serious attention to budgetary processes, budgets, and budgetary controls. In light of these various issues facing organizations as a result of poor/mismanaged budgetary control systems/budgets, the researcher went ahead to research more on the topic, and came out with various recommendations and findings to help curb the problems organizations have with their various budgetary control systems.

Interviews and casual discussions with managers, employees, government agencies etc, formed the initial and informal stages of this study. When enough materials were gotten and reviewed by the researcher, it later developed into a full and complete academic research. Various issues affecting budgetary processes, budgets and budgetary control are fully addressed in this study.

This study was mainly undertaken to help organizations in Ghana to grow, thereby also helping the economy of Ghana to grow, because when enterprises and businesses do well, the economy will definitely do well.

1.1.2 PROFILE OF THE ORGANIZATION

The bank has over its 30 years of existence achieved a lot, notable amongst which are:

• The establishment of hire purchase and leasing business in Ghana.
• The promotion and formation of the first Discount House in Ghana.
• Handled the share issues of 8 out of 10 companies when there was no Stock Exchange in Ghana in the 1970's.
• The initiation of the preparatory work in the establishment of the Ghana Stock Exchange (GSE).
• The sponsorship and registration of about 50% of the companies on the GSE.
• The arrangement and the formation of the mortgage company (which is now the HFC Bank Limited)
• Served as an advisory body in the acquisition of SSB Bank by Societe' Generale; and the merger of Ashanti/Anglo Gold.

1.2  STATEMENT OF THE PROBLEM

In recent times, companies have performed poorly due, to the fact that they lack effective and efficient budgets, and budgetary control systems to adequately and judiciously allocate resources to meet organizational goals, and maximize performance. A study conducted by Boquist (2001) observed that companies continue to blunder and fail because they have flawed budgetary planning and control systems, which they apparently fail to recognize. Some firms sense weakness of their budgetary analysis but viewed them as individual problems rather than systematic deficiencies. They misdirect efforts and produce greater frustration. As a result, corporate strategy and capital allocation become misaligned and remain so, despite disapproving financial performance.

Some business organizations do not even know the link between budgetary control and performance, and this affects their performances negatively. Various organizations ranging from small scale businesses to large scale businesses, fail to recognize the power of budgets and budgetary control over performance outcomes. These organizations go ahead without paying more attention to improving their performances through their budgets.

1.3  RESERCH OBJECTIVES

The objectives for this study are:

1.      To identify the link/relationship between budgetary control and organizational performance.

2.      To identify the problems associated with budgets and budgetary control in an organization.

3.      To identify ways to improve organizational performance through budgetary control measures.

1.4  RESEARCH QUESTIONS

In order to achieve the above objectives the following research questions will be used:

1.      What relationship exists between budgetary control and organizational performance?

2.      What are the problems associated with budgets and budgetary controls in your organization?

3.      How can organizational performance be improved through the use of budgetary control measures?

1.5  SIGNIFICANCE OF THE STUDY

The addition of knowledge is basically the aim of every research and this research work seeks to achieve just that. More importantly, this research is necessary in understanding how the budgetary control is established, and also how it affects organizationalperformance.

It is a tool which measures managerial performance of an organization and promotes good morale and harmony in the organization. It enable the organization verify whether or not the plans of the organization are understood by all members, and put into effect corrective measures where deviation or under deviation is occurring.

Since budget is a tool for planning, and financial planning is of almost significance to a business man, it enables the organization project the future consequences of present decisions in order to avoid surprises and understand the link between present and future decision.

I.6 SCOPE OF THE STUDY

The research would be concentrated on the Merchant Bank branch in Koforidua, the capital town of Eastern Region.  The research would cover the budgetary processes and polices of Merchant Bank and how its performance is influenced and maximized.

1.6  LIMITATIONS

In undertaking this research, the researcher encountered the following problems;

1. The time used to undertake the study was limited. The time was loaded with other academic activities and as a result limited time was made available the study.

2. Also, response from the employees of the bank through the questionnaire provided by the researcher was also a bit slow. This is because of reasons such much work load on the part of the management and employees of the bank.

1.7 CHAPTER SCHEME

The project will be organized around following chapters;

Chapter one gives an introduction to the research work. It gives the basic information about the company and the research being undertaken. This chapter therefore consists of the background of the study and organizational profile, statement of the problem, objectives, research questions, significance of the study, scope of the study, and limitations encountered by the researcher.

Chapter Twoconsists of the literature review and the theoretical framework

Chapter three gives details of the research methodology. The research methodology represents the various ways and methods which the researcher used in order to gain his information.

Chapter Fourgives the analysis and interpretation of the information gathered by the researcher.

Chapter five gives the findings and conclusion of the researcher. Here, conclusions will be drawn based on the findings and their implications will also be given.