Budgetary Planning and Control as a Tool for Increasing Productivity. Action Learning project in Financial Management

TABLE OF CONTENTS

Abstract

List of Figures

List of Tables

Chapter One:
1.1 Background of Study
1.2 Statement of Problem
1.3 Purpose of the Study
1.4 Research Objectives
1.5 Research Questions
1.6 Theoretical Framework
1.7 Significance of Study
1.8 Limitation of Study
1.9 Research Method
1.10 Conclusion

Chapter Two: Literature Review
2.1 Introduction
2.2 Essentials of Budgeting
2.3 Types of Budget
2.4 Budgeting Steps
2.5 Budgeting Process and Human Behaviours
2.6 Budgetary Slack
2.7 Budgetary Control and Measurement
2.8 Tools for Measuring Performance
2.9 Limitations of Budgetary Control and Budgeting
2.10 Budget Performance Evaluation

Chapter Three: Research Design and Methodology
3.1 Introduction
3.2 Research Design
3.3 Population of Study
3.4 Sample and Sampling Techniques
3.5 Research Instruments
3.6 Validity of Research Instruments
3.7 Reliability of Research Instruments
3.8 Data Administration and Collection
3.9 Methods of Analysis of Data
3.10 Limitation
3.11 Conclusion

Chapter Four: Results
4.1 Introduction
4.2 Presentation of Results
4.3 Findings
4.4 Summary of Findings
4.5 Discussion of Results

Chapter Five: Evaluating and Generating Solution Alternatives
5.1 Introduction
5.2 Options
5.3 Selection and Recommendation of Options
5.4 Conclusion

Chapter Six: Implementation Plan
6.1 Introduction
6.2 Implementation Plan
6.3 Critical Success Factors
6.4 Implementation Challenges and Solutions
6.5 Conclusion

Chapter Seven: Reflection
7.1 Introduction
7.2 Evaluation of Research Results against the Researcher's Expectation
7.3 The Actual Problem and How it was Addressed
7.4 Conclusion

References

Appendices

Sample Questionnaire

Abstract

Budgeting is an essential component of financial success. Companies are currently leveraging budget and budgetary control today to plan business operations across all the business divisions. Finance is budgeted, production is budgeted, human resources are budgeted, and this practice extends to all the elements of operations. Budgets are an integral part of management control systems. If administered expertly by managers, it promotes coordination and communication among subunits within the company, motivates managers and other employees and provides a framework for judging performance and facilitating learning. The budgeting process should involve all levels of management. This is very important when lower-level managers participate in the budgeting process because they have more specialised knowledge and first-hand experience running the business day-to- day. Automating the process will encourage wider participation and drive more vital ownership and ease of control by delegated authorities, improving business efficiency and productivity. To test this position, fifty employees of XXX were engaged via a quantitative survey to establish the budget management regime in the firm and propose recommendations that will optimise the process and deliver better employee and corporate performance. Forty-seven respondents contributed their opinions, analysed using the Microsoft excel statistical bar chart, and an automated budget system was recommended to XXX to actualise employee involvement in the budget process. The system will enable better tracking and adjustment of budget performance across the enterprise leading to higher corporate productivity.

Keywords: Budgeting, Budgetary Control, Automating, Corporate Productivity,

List of Figures

Fig 2.1 - Top-down Budgeting Process

Fig 2.2 - Bottom-up Budgeting Process

Fig 2.3 - Parallel Budgeting Process

Fig 2.4 - Steps of Budgeting Process

Fig 2.5 - Budgetary Control Steps

Fig 4.1 - Responses to Survey question 1

Fig 4.2 - Responses to Survey question 2

Fig 4.3 - Responses to Survey question 3

Fig 4.4 - Responses to Survey question 4

Fig 4.5 - Responses to Survey question 5

Fig 4.6 - Responses to Survey question 6

Fig 4.7 - Responses to Survey question 7

Fig 4.8 - Responses to Survey question 1

Fig 4.9 - Responses to Survey question 1

Fig 4.10 - Responses to Survey question 1

Fig 4.11 - Responses to Survey question 1

Fig 4.12 - Responses to Survey question 1

Fig 4.13 - Responses to Survey question 1

Fig 4.14 - Responses to Survey question 1

Fig 4.15 - Responses to Survey question 1

Fig 4.16 - Responses to Survey question 1

List of Tables

Table 1 - Implementation Cost for Option 1

Table 2 - Implementation Cost for Option 2

Table 3 - Decision Matrix Table

Table 4 - Scale of the Options from the Decision Matrix

Table 5 - Solution Implementation Analysis

CHAPTER ONE

1.1 Background of the Study

Lambe, Lawal and Okoli (2015) stated that budgeting is a crucial strategy instrument for public management and management of firms; it is an important financial activity in private businesses and voluntary groups. CIMA, 2000 (Chartered Institute of Management Accountants) sees a budget as a financial or qualitative statement prepared and approved before a defined period to attain a specified objective. Egbunike (2014) believes that a budget is a thorough and organised plan described in financial terms for a firm's operations for some specific period in the future. Lucey (2003) defined a budget as a quantitative expression of a plan of action developed for a company to carry out certain functions such as sales and production or financial resources items such as cash, capital expenditure, workforce hiring and others.

A budget estimates the revenue and expenses over a specified future period utilised by governments, businesses, and individuals. Personal budgets are developed to guide the appropriation of funds by individuals compared to the income values and the planned projects. Corporate budgets are essential for operating at peak efficiency, balancing working capital, profit and other financial ratios.

Aside from earmarking resources, a budget can also aid in setting goals, measuring outcomes, and planning for contingencies (Ganti, 2021). Companies, nonprofit organisations, and governments use several budget types. Responsibility budgets assess an individual segment or manager's performance. Capital budgets evaluate the strategic capital projects like the land or equipment purchase. A budget shows management's operating plans for the coming periods and formalises management's plans in quantitative terms. It forces all levels of management to think ahead, anticipates results, and prevent possible poor results. Budgets may also motivate individuals to strive to achieve stated goals.

Omolehinwa (2002) sees a budget as an organisation plan expressed in financial terms and subject to the limitations imposed by the participants and the environments, indicating how the organisation's available resources may be utilised to achieve the organisation's objectives. According to Brown and Howard (2002), a predetermined management policy statement for a defined period provides a standard for comparing results achieved. It is also defined as a financial and quantitative statement prepared and approved before being actualised during that period to attain a given objective.

Budgetary Control is a method of managing enterprise costs through budget preparation. Budgeting is thus only a part of budgetary control. Budgetary control, according to CIMA (1998), is the creation of budgets relating the duties of leaders to the policy requirements and the unceasing comparisons of actual postings with budgeted figures, either to secure by an individual or collective action, the objectives of that policy or to provide a basis for its revision. Planning cannot be successfully done without establishing an effective and efficient control regime. A functional budget must be closely linked with a control system tagged budgetary control. The budgetary control process includes the preparation of various budgets, continuous comparison of actual performance with budgetary performance and revision of budgets in the light of changed circumstances.

A system of budgetary control should be flexible to accommodate learnings from the market. There should be ample flexibility to provide individual and corporate programmes and passion. Budgetary control is essential for making the organisation more efficient across functions. It is an essential tool for 6 | Page

Budgetary Planning and Control as a Tool for Increasing Productivity in XXX Infrastructure Services Limited controlling costs and achieving the overall objectives. A budgetary control system enables business managers to run operations efficiently. It can be used to control expenditure per time, primarily when units and departments are assessed to be performing at sub-par levels. Budgetary control shows the deviations to the management for proper remediation and change of strategy. Consequently, budgeting and budgetary control are needed to evaluate an organisation's performance. The budget development process and the implementation framework will contribute massively to the fortunes of companies vis­a-vis resources application and management.

XXX Infrastructure Services Limited is a privately owned company incorporated in 2004. The company has a service portfolio that offers Enterprise infrastructure management, outsourced IT support services, supply services, and application development services. The staff complement of XXX consists of 280 engineers who are outsourced to various firms. In contrast, the Head office consists of 70 staff with a Management team of 12, of which 3 are the Executive Management. The company's vision is to be the foremost world-class total IT solution company. The mission is to ensure customers and stakeholders derive maximum return on investment by providing prompt IT solutions of the highest quality. The company is strong on innovation built on consistent research to build value-adding solutions. The company's core values are teamwork, excellence, accountability, integrity and innovation.

XXX Infrastructure Services Limited was established as a spin-off from the Tranter group's IT unit and started operating independently as a registered entity. Today, the Combined Management Experience of over 120 years empowers the company to innovate at every level and ensure that we continue to enhance businesses. XXX is an information technology company operating in the Information and Communications Technology industry. It specialises in IT Infrastructure Management and Optimization, Business Automation, Outsourced Technology Management, and rendering Support Services to its clients and partners. XXX partners with top OEMs worldwide, including Manage Engine (headquartered in India), which XXX partnered with as the sole distributor in 2013. XXX consistently sources and develops solutions to help small, medium, and large organisations utilise IT to achieve their business goals as a company driven by innovation.

The focus of this study is to examine the current budgeting and budgetary control systems in XXX to identify new strategies that could be introduced into the framework to position the organisation for greater business performance and productivity.

1.2 Statement of Problem

Budgets are developed for diverse functions and activities in firms. They are designed to provide a basis for staff assessment, corporate growth, system effectiveness and efficiency for resources deployment in the best possible way to gain revenue, profit and brand advantages. Some budgets are formed by management and passed down to the employees, while another leadership involves some or all employees in budget planning and development to drive ownership and responsibility. Both approaches are productive, with more scholars favouring the bottom-up approach. This study will test the type of budgeting process at XXX and the employees' views on the process. If required, it will also focus on tweaking the structure to boost employee commitment and company performance.

1.3 Purpose of Study

The purpose of the research is to review the budgeting process of XXX and the impact it has had on the organisational performance and proffer solutions that could improve the performance.

1.4 Research Objectives

The objectives of this study are:

- Review the budgetary development approach and process for XXX
- Measure the impact of staff budget ownership on performance.
- Establish the extent of revenue and expense budget performance
- Establish the level of compliance with budget provisions
- Identify budgeting strategies that will boost corporate performance.

1.5 Research Questions

1. What is the current role of staff in developing XXX's budget?
2. How does budget ownership assist staff to achieve set goals?
3. What is the level of budget performance at XXX?
4. What level of extra-budgetary requests operate at XXX?
5. what additional inputs will raise budget performance at XXX?

1.6 Theoretical Framework

Robinson and Last (2009) state that a budgeting system is a strategy or tool used by firms as a framework for their expenditure and revenue distribution. To ensure the firm's resources are conserved, an organisation must develop an effective budgeting system. These metrics will ensure that outputs and service outcomes meet the intended targets. According to this theory, a sound budgeting system must address the efficiency and effectiveness of the organisation's expenditure. A good budget is determined by the income level generated by an organisation. The organisation must set up proper controls that ensure that the budget is properly maintained and allocated. Proper resource allocation and management are prerequisites to fulfilling an organisation's existential business objectives.

1.7 Significance of Study

This study will be significant to the researcher's organisation in the following areas:

- This research will enable staff across all grades to appreciate the usefulness of budget as a tool for enterprise planning and control.
- To pontificate the value of supply of accurate data to the budget planning cycle.
- To show how budgeting can enhance performance by throwing up efficiency areas and areas of resource wastage for proper resource management
- To express the quantum values derivable from a functional budgeting and control system.

1.8 Limitation of Study

- Pointing to a limitation, the research is focused on an organisation, and the learnings could be restrictive and not usable in other companies.
- Likelihood of bias in the responses due to the emotional and other connections that the sampled staff could exhibit.

Scope/Delimitation

The research covered numbered staff in the organisation. The research will not cover customers and external parties to the organisation.

1.9 Research Methodology

The research design deployed for the study is a quantitative survey to a population of 50 staff of XXX The research instruments were structured questionnaires given to the fifty respondents.

1.10 Conclusion

This chapter has laid the foundation for the research. The organisation has been introduced, and its structure and business sector of interest discussed. The research approach, the theoretical framework, the study's significance, and the research plans have been described. The subsequent chapters shall focus on the literature review, the body of the research, the analysis of results and other deductions and recommendations to the organisation.

CHAPTER TWO

Literature Review

2.1 Introduction

Companies have adopted various tactics for planning, implementing, and controlling tasks in today's business world. Planning to have a comprehensive outlook about a plan of action, implementation to convert ideas and strategies into valuable work for revenue mobilisation or value addition, and control to ensure compliance as specified. Budgeting is a planning tool that involves establishing predetermined goals, reporting actual performance results, and managing the performance variance or surplus. Budgetary control systems have been considered an essential tool for financial planning. The purpose of budgetary control is to forecast revenues and expenditures. This is achieved through constructing a model of how our business might perform. It dictates how the system or people have complied with set budget terms to achieve results (Churchill, 2001).

Budgets are detailed financial plans that quantify future expectations and actions relative to acquiring and utilising resources (Larry & Skoulsen, 2014). Budgets do not guarantee the success of an enterprise, but it is a mainstream tool for the prevention of failure. It is a strong veritable tool for planning and control to guide expenditures and revenue management for projected returns. It is always better for businesses or other entities to have a well-structured operational and financial plan to achieve financial success. Budget cuts across the key strategic business markers with identified and required twists to achieve the best outcome within defined and unforeseen constraints. Human resources, fixed asset upgrades, production system turnaround, marketing plans, and sales support costs are key budget elements determining budget volume. Analysing the parameters mentioned previously and others would position the business to determine production volume, sales projection and revenue targets to generate liquidity and profit.

2.2 Essentials of Budgeting

A successful and sound budgeting system is based upon specific prerequisites. These prerequisites represent management attitude, organisation structure and managerial approaches necessary for the effective and efficient application of the budgeting system (Pandey,1994). The following elements are essential for a successful budgeting

- Top Management Support
- Clear and Realistic Goals
- Assignment of Authority and Responsibility
- Creation of Responsibility Centers
- Adoption of The Accounting System (Responsibility Accounting).
- Full Participation
- Effective Communication
- Budget Education
- Flexibility

Top Management Support

A budgeting system will be unproductive if it is not initiated and supported by top management. Top management must realise that budgeting is not an accounting statement but a vital management tool Budgetary Planning and Control as a Tool for Increasing Productivity in XXX

Infrastructure Services Limited

(Chand, 2015). The management team must understand the nature and characteristics of budgeting and have a positive attitude towards budgeting. It should consciously devote time and resources to preparing and implementing budgets. Line managers generally prepare budget estimates, but top management should coordinate and approve them upon completion. Being part of and leading the process will also resolve conflicts of various departments concerning resource allocation. The leadership team should also initiate a follow-up procedure or control system to ensure the effective implementation of budgets (Pandey,1994).

A Clear and Realistic Goal(s)

Budgeting is a journey to achieve goals and objectives. All planning engagement presupposes that objectives and goals have been clearly and explicitly established. Budgeting will not be successful and systematic if the goals to be achieved are not clear. When goals are unclear, employees will lack direction, and management's effort will be wasted. Therefore, the Budget Officer must ensure that objectives and goals have been properly laid down. Budget values should be optimal. Over-ambitious goals are impossible to attain and, as a result, have a depressing effect on the employee's morale (Pandey,1994).

Assignment of Authority and Responsibility

A sound organisational structure is essential for the success of a budgetary system. The authority and responsibility of each manager should be defined appropriately. The budgetary system should be established regarding assigned authorities and responsibilities; each manager's performance should be evaluated based on the assigned authorities and responsibilities, with the management providing a conducive environment for peak performance.

Creation of Responsibility Centers

A large firm is divided into meaningful departments, groups, or divisions to control all activities effectively. Each group has certain activities to perform, and the manager is assigned specific authority and responsibility to carry out those activities. Such sub-units of an enterprise created for control are called responsibility or decision centres. Responsibility centres enable the organisation to separate and identify for operating purposes and performance measurement. For planning and control purposes, responsibility centres are usually classified into three classes:

- Cost Center - where the manager is responsible only for costs(expenses)incurred in the sub-unit.
- Profit Center - where the manager is responsible for both costs and revenues
- Investment Center - where the manager is responsible for cost and revenue and the investment in assets used by the centre (Pandey,1994).

Full Participation

The entire employee cadres should participate in the budget development cycle. The participation should be practical and scientific, driven by solid reasoning and data. Participation increases commitment and may heighten motivation to creatively begin the modalities' mind process to achieve the numbers. It also drives ownership among implementers, making the budget figures most likely to achieve (Pandey,1994).

Effective Communication

Communication entails transmitting ideas or information from one person to another. It allows the exchange of information between parties with a capacity to build mutual trust between two or more persons by creating a comparable understanding of ideas or thoughts. It is a tool used to bring people closer in an enterprise. A sound budgeting system requires effective communication of enterprise objectives and budget goals and means of implementing budgets through the organisation. The harmonised effort generated will help accomplish those objectives and goals. Effective communication implies the transmission of information and understanding by the receivers (Chand, 2015).

Budget Education

Budget participation can be meaningful only when people at all levels of management are convinced of the relevance and value of budgets understand the characteristics of budgets and their role in the company's profit objectives (Pandey,1994). Employee budget education sessions can be organised via seminars, conferences, discussions, and executive development programs to deepen budgetary value awareness. Written materials can also be distributed to strengthen knowledge. Line managers or a designated staff skilled in budgeting can handle on-the-job budget training.

Flexibility

The budgeting system should be flexible enough to take advantage of all opportunities that arise from time to time. Budgeting allows more freedom to management at lower levels allowing for decision­making within the broad framework of budgets (Chand, 2015). Top management would exercise tight control over lower levels of management and would place demands on them to make decisions in the absence of a sophisticated budgeting system. Flexible and comprehensive budgeting permits management to re-adjust plans when a new situation arises (Pandey,1994).

2.3 Types of Budgets

Budgeting is suitable for planning and control. It helps businesses to identify and set goals and objectives. There are different types of budgets and budget classifications. Organisations must select the budget model and type that suits their strategy and aspiration. Fixed and variable costs may be present in any of these budget configurations.

Master Budget

A master budget refers to operating and financial budgets for a specified accounting season or time. Usually, it is used for the following calendar year or fiscal year and is designed quarterly or annually. The master budget structure varies with the business nature in size. The operating budget is used in daily operations and serves as the financial budget's raw material. Operating budgets include production, direct labour, sales, direct materials, overhead, administrative expenses, selling, cost of goods manufactured, and cost of goods sold. Financial budgets comprise a budgeted income statement with a balance sheet, cash budget, and capital expenditures budget (Vaidya, 2020).

Operating Budget

The operating budget contains the income statement elements, including revenue and expenses. Within this budget, there could be many other minor budgets like:

Production Budget: plans the production from the number of units and costs to the types of products, plant capacity, operating cycle, and other budgeting cycle factors. This budget is usually based on the sales budget and is developed by the production lead.

Sales Budget: expresses the planned sales in the count and total sum. The sales figures are calculated for the period, the sales manager's function.

Purchase Budget: This plans for the items that each department will purchase. The purchasing manager has to develop this budget to guide each department's bulk purchases.

Production Cost Budget: also termed the manufacturing cost budget, this includes the cost of raw material, direct expenses, labour, and factory overheads cost. It shows the production cost for the units associated with production.

Overheads Budget : This includes the factory overheads budget, the administrative overheads budget, and the selling and distribution budget, along with others like the plant utilisation budget and research and development budget. The factory overhead factors indirect labour, material, and other indirect expenses (Vaidya, 2020).

Financial Budget

It refers to the budget for the balance sheet elements. The financial budget comprises the expected liabilities, assets and shareholders' equity. A profitable and successful business must understand the types of budgets, their classifications, and their contribution to the top and bottom lines.

Cash Budget

It is the budget for expected cash inflows and outflows for the budgeted period. It consists of four elements.

Receipts: it lists the beginning cash balance and cash collections from customers and others. Disbursements: This area shows all cash payments as characterised by their purpose.

Cash Surplus or Deficit: the difference between the cash receipts and cash disbursements is listed either as a surplus or a deficit.

Financing: This is a list of expected loans and repayment tranches for the period, which is intended to provide a picture of expected cash flow.

Static Budget

Also known as a fixed budget, this is the budget at the expected capacity level. Because it is fixed, it is usually used by stable companies. This kind of budget can be used by departments with operations independent of capacity levels. For instance, operations of general marketing and administrative departments do not usually depend on the level of production and sales, as procurement would. The departmental managers mostly determine them.

Flexible Budget

This is also known as the expense budget; the flexible budget is the actual capacity level. This budget is dynamic and is used by organisations frequently. Flexible budgets are adjusted to sync with the actual activity of a company. These budgets can easily be prepared with a spreadsheet like Excel or other applications. The relative relevant activity range is established for the coming accounting period. Then, costs expected to be incurred over the relevant range are evaluated. The costs are mapped based on their cost behaviour, whether mixed, variable or fixed. Finally, the flexible budget for variable costs and different points throughout the range is prepared. Flexible budgets tally expenses to specific revenue levels or activity levels.

Capital Expenditure Budget

The capital expenditure budget is expected investments in capital assets plus long-range projects. Typically it is prepared for three to ten years. Investments and capital assets include fixed assets purchased such as machinery, buildings, equipment, lands, or factories. Long-term projects may be designed to manufacture new products, reduce costs, expand existing product lines (Taylor, 2021). Program Budget

This is a budget for a specific program or activity such as marketing, training, research and development, engineering, or administration. Most program budgets are designed for product lines. As program budgets are typically established for activities across multiple departments, these budgets cannot be used for control purposes.

Zero-Based Budgeting

With zero-based budgeting, management outcomes must be determined and the expenditure framework to support the outcomes developed. Combining various outcome expenditure packages creates a budget for a specific list of outcomes for the enterprise. This approach is suited for service­level entities such as the government, where the provision of services is crucial. However, it does take a long period to develop compared to a static budget (Kagan, 2021)

Management Model Budget

Regarding managerial or control issues, budgets may be:

- Top-down' (imposed).

- Bottom-up' (or participative) budget.

- Parallel' (or negotiated) budget.

Abbildung in dieser Leseprobe nicht enthalten

Fig 2.1 - Top-down Budgeting Method (Source- Louise Ross, 2008 -CIMA)

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