CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Since we live in an age which is marked by uncertainties in business prospects, it is in a setting of this nature that the budget is of great importance. Nearly everybody budget to some extent, even though many who prepare and use budget do not recognize that what they are doing is budgeting. Most people make estimate of the income to be realized over some future period of time. As a result of this planning, spending will be limited to some predetermined allowable amount. (Garrison, 2000:297). In achieving an improved level of corporate performance, the management team must be motivated to strive to achieve the standard required by the budget.
These cannot be achieved if the managers did not participate in the budgeting process and apply the best control measures. Thus, in order to survive under these environmental complexities and vagueness, managers and stakeholders of organizations 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 (Akintoye, 2008:1).
Budgetary control as proven management accounting tool (Chandler, 1990:245) 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. It also establishes limit for departmental excesses. It helps administrative officials to make careful analysis of all existing operations, thereby justifying, expanding, eliminating or restricting present practice (Musselman and Hughes, 1981:2). Its serves a number of purposes, these include: planning, controlling, coordinating, communicating, motivating and the performance of management (Drury, 2004:591). Each of this purposes or functions contribute to the overall improvement in the performance of an organisation. The Chartered Institute of Cost and Management Accountants Comprehensively defines the budget as “a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planned income to be generated and or expenditure to be incurred during the period and the capital to be employed to attain a given objective”. (CIMA, 1992:31).
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 problem thereby making the problems of tomorrow more severe (Steward, 1993:8). 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 apriori expectation of improved performance in the companies as seen in this study.