The Role of Budgeting on Decision-Making in a Manufacturing Company
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This study seeks to explore the Role of Budgeting on Decision-Making in a Manufacturing Company with specific focus on MULTIPRINT SERIGRAPHIE S.A. The main objective will be to evaluate the Role of budgeting in the decision-making process of MULTIPRINT SERIGRAPHIE S.A. The specific objectives of this study will be: To examine the types of budgetary systems used at MULTIPRINT SERIGRAPHIE S.A., To assess how MULTIPRINT SERIGRAPHIE S.A. deals with uncertainty during its decision-making process, To examine why there exist laxity in MULTIPRINT SERIGRAPHIE S.A.’s budgetary control and To make recommendations to MULTIPRINT SERIGRAPHIE S.A. on how to improve its budgeting and decision-making processes. The total population for this study consisted of the two hundred (200) employees of MULTIPRINT SERIGRAPHIE S.A. and Convenience sampling was used to obtain a sample size of 45 employees out of this total population. Also, this study will adopt both the descriptive and case study research designs which will enable the use of questionnaires as research instruments for primary data and past audited financial statements for secondary data. The data will be analysed quantitatively through the use of SPSS (version 20) and then inserted on tables and figures. Both descriptive and inferential statistics were used for data analysis. The statistical tools were aligned with the objective of the research in such a way that frequency tables, percentages, means and standard deviations were computed and substantively interpreted. Inferential statistics like Pearson product moment correlation coefficient, regression analysis and Analysis of Variance (ANOVA) were used to determine if a significant relationship exists between the independent variable (budgeting) and the dependent variable (decision-making). The findings indicated that there is a statistically significant relationship between budgeting and decision making. The study has concluded that, management should have a deep sense of commitment towards the issue of budgeting, if decision-making is to be enhanced. Finally, future research can be conducted to cover all areas on budgeting and to determine the role budgeting plays on decision-making, most especially in manufacturing firms and in other types of firms operating in different sectors of the economy.
The subject of decision making has received significant attention from scholars in various areas of business and strategic management. Decision making has implications on an organisation’s health and ultimately its survival (Onduso, 2003). Every organisation has its objectives, extensive literature regarding firm’s objectives and places much emphasis on the maximisation of shareholders’ wealth. Managers are thus concerned with making decisions that will maximise shareholders’ wealth as it connotes future prospects, reflects steady growth and provides a risk shield. (Naser & Moktar, 2014) argues that high performance reflects management ability to make decisions.
Generally, businesses operate using several resources including human, capital and others. Financial resources are one of the key elements in achieving organisational objectives and goals (Drury, 2008). However, in order to achieve the objectives, budgets have to be prepared effectively and adhered to. According to (Hongreen, 2007), a budget is a quantitative expression of plans.
Budgeting is one of the most effective tools used for planning and controlling business organisations (Lazarrich, 2014). The budgeting process may be quite formal in a large institution with committees set up to perform the tasks, on the other hand in a very small firm, the owner may write down the budget on a piece of paper or just budget in his or her head about the items he or she can remember easily.
A properly managed budget can promote sustainable growth in many business organisations. The action that follows managerial decisions normally involves several aspects of business such as the marketing, production, purchasing, sales, accounting and finance functions.
Thus, it is important that the management should coordinate these various interrelated aspects of decision making. If the management fails to do this, there is a danger that managers may each make decisions that they believe is in the best interest of the organisation when in fact together they are not; for example the marketing department may introduce a promotional campaign that is designed to increase sales demand to a level beyond the production department can handle.
The various activities within a company should be coordinated by the preparation of plans of actions for future periods. These detailed plans are usually referred to as budgets (Drury, 2008).
Budgets are among the major tools of implementation of the objectives and policies of the organisation. In other words, budgets provide the basis for decision making in the organisation. Budgets play an important role not only to the organisation but also to individuals on how to spend in relation to the resources available. Budgets further play other managerial roles such as planning, controlling, communicating and motivation. A well formulated budget system enables the organisation to reach its goals more successfully (Drury, 2008). Organisations use the budget to plan and coordinate the following year (Arwidi, 1991). To motivate employees, allocate resources and coordinate operations within an organisation are, and have been the primary purposes of the budget. Budgeting is aimed to facilitate responsibility distribution and is used to evaluate performance (Libby & Lindsay, 2003).
Budgetary control is the process of developing a spending plan and periodically comparing actual expenditures against that plan to determine if it or the spending patterns need adjustment to stay on track. This process is necessary to control spending and meet various financial goals.
Organizations rely heavily on budgetary control to manage their spending activities, and this technique is also used by the public and the private sector as well as private individuals, such as heads of household who want to make sure they live within their means (Dunk, 2009). Budgetary controls enable the management team to make plans for the future through implementing those plans and monitoring activities to see whether they conform to the plan, effective implementation of budgetary control is an important guarantee for the effective implementation of budget in the organization (Carr & Joseph, 2000).
Traditionally, budgeting has always been viewed as a way of limiting expenditure, hence a great part of management’s time is devoted to the allocation of fund. However, empirical evidences in today’s globalized world, suggest that budgeting goes beyond merely showing expected revenue and project expenditure. Rather, a budget protects and controls the way management reacts to proposals brought before it, while also examining the present and future cost as well as benefits associated with such a proposal.
In achieving this though, it must not lose sight of the environment in which it operates. This same principle goes with the preparation of a budget, such that in preparing a budget, management of businesses must realize that it is indeed a part of the economic system and as such, can influence as well as be influenced by activities within the economic system (Lambe, 2014).
The rapid changes in today’s business environment renders a rigid approach to budgetary control obstacles. It is no longer helpful to compare actual results with forecasted results anything up to fifteen months previously (Pandy, 2002). This demands a more time immediate time frame of information reporting. Thus, there is a need to integrate strategic management and budgeting.
The place of budgeting in a business is very important as its benefits and consequences on the decision-making process are enormous. Vague generalisations of what the future may hold for an organisation may not be good enough for assembling a budget (Obara, 2013). Business entities must put their predictions into definite and concrete forecasts (Tracy, 2003). Also, budgeting motivates managers and employees by providing useful yardsticks for evaluating performance and equally provide useful information for superiors to evaluate business performance and inform financial allocation strategies across various components of the firm (Hongreen, 2003).
Over the years, companies have undertaken various attempts aimed at improving its budgetary process with the objectives of imposing greater fiscal discipline on management agencies of both public and private companies (Anderson, 2008). This has resulted to improved, detailed and well laid budgeting legal processes which the top executives use as a tool to allocate revenue across the organisation (Hongreen, 2000).
Budgeting and decision making are key processes in every business organisation. How to improve (make informed and accurate decisions) is an issue that concerns every manager. The high level of technology and process systems required by the fast growing and manufacturing industries in Cameroon typically involves large financial investments. This therefore implies that businesses need to consider comprehensive, adequate and system informed budgets to enable them make ACURAT (Accurate, Cost effective, Understandable, Reliable, Timely) decisions.
According to (ICAN, 2020), a typical budgeting process consists of seven steps which are; Provision and Communication of budget guidelines to managers, Identification of principal budget factor, Preparing the financial budgets, Review of the financial budgets, Review of functional budgets by the budget committee, Preparing the master budget, Submitting the master budget to the BOD, Communication of budgets for implementation and Control process. This implies that every organisation that misses out any of these steps is at risk of preparing an unrealistic budget. This is the case with MULTIPRINT PLC which follows all the first five steps but has demonstrated laxity in the area of Control process, which has led to some wrong, misinformed decisions in management (Unnecessary acquisition).
Specific research studies extensively on the relationship between budgeting and decision making are scanty. In the case of Cameroon, very limited research work has been done which is not comparable to those firms in the developed world and Eastern and Southern African Countries, where the empirical studies have been conducted and as a result, the researcher believes there might be differences in the results.
It is upon this scanty nature of literature on the relationship between budgeting and decision making that this study is based.
What is the role of budgeting in the decision-making process of MULTIPRINT PLC?
What types of budgetary systems are used in MULTIPRINT PLC?
Why is there laxity in the budgetary control of MULTIPRINT PLC?
The main objective of this study is to evaluate the Role of budgeting in the decision-making process of MULTIPRINT PLC.
The specific objectives of this research are:
- To examine the types of budgeting systems used at MULTIPRINT PLC.
- To examine why there exist laxity in MULTIPRINT PLC’s budgetary control.