Budgeting as an Essential Practice in the Actualization of Goals in a Business Organization

Budgeting as an Essential Practice in the Actualization of Goals in a Business Organization

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Chapter one on Budgeting as an Essential Practice in the Actualization of Goals in a Business Organization

INTRODUCTION

Background of the Study

Wants are numerous while resources are limited but there is every tendency to waste or under-utilise the limited resources by the human factor involved in the production of goods and services. With various companies competing with one another, only few that are able to produce at least possible cost will survive the growing competition in the market. Therefore, it is paramount for every serious business undertaken to produe at that possible minimum cost so as to remain in business and also achieve the corporate objectives of profitability and stability. In view of this, there is every need to do a realistic planning of the activities of the firm taking into consideration the limiting factors and the long term objectives of the firm. In order to achieve this, budgeting – a tool of planning and control becomes indispensable. Budgeting is ubiquitous and has long been considered as a necessary tool in managing a company. A budget has been defined by Chartered Institute of Management Accountants (CIMA), as “a financial or qualitative statement prepared and approved prior to a defined period of time for the purpose of attaining a given objective. It may include income, expenditure and the employment of capital”. CIMA also defined budgetary control as “the establishment of budgets relating the responsibilities of executives to the requirements of a policy and the continous comparisons of actual with budgeted results, either to secure by individual action the objectives of that policy or to provide a basis for its revision. Horngreen (1982) defined a budget as “a quantitative expression of a plan of action and an aid to coordination and implementation”. The Oxford Advanced Learners‟ dictionary defined budget as an estimate or plan of the money available to somebody and how it will be spent over a period of time. Both Horngreen and the dictionary emphasised the word plan, but planning itself is found in all aspect of human endeavour, hence planning is a blue print of business growth and a road map for development that helps in deciding objectives, qantitatively and qualitatively. It involves setting a goal on the premise of the objectives and keeping of the resources. The process of planning requires that managers of business to act as if they are fortune tellers and attempt to predict the future course of action to be adopted. Such prediction of the so-called fortune tellers will determine whether or not the objectives of the firm will be met.

for functions such as sales and production, or for financial and resource items such as cash, manpower, purchases, capital expenditures, etc. used in view of the fact that they are scarce, in every sector of the economy, when compared against needs. The growing complexity of the business environment and the cut-throat competition in market places makes budgeting an invaluable managerial tool. Management must know where it wants to be at the end of a prescribed period and how it intends to get there. It is not just enough to know what share of the market a company wants to capture, it must also plan how to achieve that objective. Unfortunately, many business undertakings have not come to terms with this indispensable financial tool that has over the years guided a number of successful businesses. The situation becomes more precarious with the Small and Medium Scale Enterprises (SMEs) and assumes a frightening dimension in single or sole proprietorship concerns. The position clearly is that these businesses operate without any clear financial plan that shows where they presently are in physical terms and where they would desire to be in the future. More or less, they have no plan in terms of their anticipated financial incomes and expenditures. Budgeting to an individual might not be a formal plan but his or her activities could be based on some degree of budgeting and reflect some level of planning if control is to be exercised. Business and other organizational activities of firms must be well planned so that the firms may operate effectively and efficiently utilizing all resources economically to achieve the desired results. Government at various levels must budget for the revenues to be generated and the expenditures to be incurred using its scarce resources to cater for the general wellbeing of her citizenry. Budget indiscipline on the part of any of the three components of the economy would surely lead to a lot of problems.

Statement of the Problem

Business failures in Nigeria are traceable to a number of issues connected with budgeting. These are mentioned hereunder in passing:

· Outright failure to draw up budgets before operations.

· Drawing up unrealistic budgets.

· Failure to comply with budgets, where there is one.

· Inability to finance budgets because of constraints.

· Lack of clarity and consistency in budgeting procedures, responsibilities, and timescales.

· Failure to follow-up and analyze variances.

The fear, therefore, is that if the situation is allowed to persist there will be high rate of business extinctions due to poor financial performance. This research sets out to investigate budget and its impact on organizational success in some selected manufacturing companies in Delta State, Nigeria.

 Objective of the Study

The main objective of this study is to find out the essentiality of budgeting on the actualization of organization goals. Specifically the study intends to:

1.     To analyze the impact of budgeting in achieving organization goals

2.     Investigate the challenges of budgeting

3.     Find out the importance of budgeting

4.     Proffer solution to those problems

 Research Question

1.     Is there any significant impact of budgeting in achieving organization goals

2.     What are the challenges of budgeting

3.     What the importance of budgeting

4.     What solution can be proffered to those problems

Research Hypothesis

Ho: there is no significant impact of budgeting in achieving organization goals

Hi: there is significant impact of budgeting in achieving organization goals

Significance of the Study

The present research work has numerous importance, some of which are considered in this context.

1. The research work has encouraged organizations and business establishment on the need to ensure that their administrators and managers adopts comprehensive

Budgetary practices.

2. It has the significance of promoting the implementation of household budgetary practices for sustainable family living.

3. It provides the basis for improved economic and business practices at individual, organizational, state and national level.

4. The research work has created the opportunity for prospective and present investors to be able to predict the possible future economic situations, for effective adaptation in the business.

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