THE IMPORTANCE OF BUDGETING IN DECISION MAKING IN AN ORGANIZATION
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Two of the basic functions of managers are those p1anning and control.
Planning is the most essential thing that determine the goals and objectives of an organization, and best way in which these goals can be accomplished.
Control, on the other hand includes all these activities that ensure actions of the organization are towards the stated goals.
In order to ensure that the company achievers its aims and objectives with in the minimum cost, the company will make a projection of its cost and revenue through a budget which controlling the cost and ensure that corrective actions are taken when ever cost are incurred by means of budget control.
Lucey 1997 defines budget as “a plan quantified in monetary terms prepared and approved prior to time usually showing planned income to be generated and planned expenditure to be incurred during the period and the capital to employ to achieve the given objectives.
Budget control is defined by the institute of cost and management account in 1966 edition as “the establishment of budget relating to responsibilities of executive to the requirement of a policy and the continuous comparison between actual and budgeted result whether to ensure by individual action of the objective of that policy to provide a basis for its revision.
Simeon Ibitayo defined budgetary control as “the process of comparing the actual result with the planned performance and highlighting variance therefore which can be analyzed by cause and responsibility.
Batty 2006 defines budgetary control as “a system which uses budget as a means of planning and controlling all aspects of production and selling commodities or service”, budgetary control, therefore relates to the use of budget as control device where by predetermined plans or standard output, income and expenditure are compared with actual attainment so that, if necessary, corrective action may be taken before it is too late.
The aim of any business organization is to maximize profit and this is usually achieved by effectively planning for the accumulation and control of its cost.
A company can project what profit or loss it would make at the end of a particular accounting period by preparing a master budget. The master budget would normally undergo series of amendments, but ones it is finally approved, it becomes the target for the company during the budget period.
It also shows the effect of estimated profit and loss account for the budget period and estimated balanced sheet as at the end thereof.
In any organization where budgeting is used as a means of attaining effective management performance, that is used in decision making, many alternative plans have to be considered and the most profitable one will adopted.
For instance where the chosen plan result in great expectation, then the available resource has been made use of effectively and this show a positive link with organization plan. Cost of performance is employed through the operation of budgetary control system which also head to departmental operational statement for comparing budgeted and actual results.
The overall plan is represented in the budget that is what profit and return on investment are expected to be obtained are example of matter to a covered. The dully activities are scheduled and make up the weekly, quarterly and yearly budget.
At this junction, the executive are appointed to cost center to carry out the required policy so comparison can be made between actual budget and budget results.
The internal statement will be prepared to show actually budget and budgeted result, which may require explanation for any deviation that may occur, though this technique efficiency will be increased with minimum use of capital to maximum profit.
The decision to be made about a budget is to choose between goals and average expected performance.
The way in which these goals can be used in the part of budget is to separate the control information and planning information into two, one for controlling the operation and the other to plan the available resources of the firm on the whole.
Budgetary control is a system of controlling cost which includes the preparation of budgets, coordinating department or establishing responsibilities.
In this way, responsibilities of fulfilling the budget plan can be delegated to the manager in charge of each budget center so that budget center will be the same as the subsidiary budget. (Sales, production. purchasing) and responsibilities for fulfilling budget will rest with the manager involved e.g. sale manager, purchasing manager etc. top manager still has overall responsibilities in particular for the efficient use of available capital based on actual performance with that budgeted and acting upon result to achieve maximum profit.
- AIMS AND OBJECTIVES OF THE STUDY
Many organizations are in ruin today, also many countries are economically stagnant, because they don’t know the importance of budgeting. Hence, this project work is written to open the eyes of such organizations and countries to employee the study to curb the problem.
Therefore, the aims and objective of this research work is to take a brief look at the following:
- To identify the planning and control system
- To know the kind of problems encountered in carryout these goals.
- To look into where are variance and the reason for such variance
- To recommend possible improvement
1.2 SCOPE OF THE STUDY
The scope of this project work is to examine what budgeting and its process are all about and how can its effectiveness enhance decision making in an organization with a particular reference to the case study Okin Biscuit Limited Offa, Kwara State.
1.3 SIGNIFICANCE OF THE STUDY
The importance of this research work helps to analysis the problems encountered and provide solution to those problem facing organizations.
This project work is of great benefit to outside public concerning the effectiveness and efficient of their business.
1.4 STATEMENT OF THE PROBLEM
The budget is a financial which set out estimate of government expenditure and revenue for the coming years. It is a document indicating the total and composition of government expenditure and the source from which such expenditure are expected to be financed in the course of the years.
It is prepared by the ministry of finance and presented to the legislature bodies for approval. In a document system it was unlawful to spend money without the approval of the parliament.
– When revenue exceeds expenditure than the budget referred to as a surplus budget
– In another way when expenditure exceed revenue anticipated then the budget is referred to as a deficit budget.
– If government spends more than it rises, where does the shortfall money comes from?
– If government rises more than it spends where does surplus go to?
Budget could be used to stabilize the economy. This is because the variation in government expenditure and taxation is inherent in budgeting decision and this can be used to correct economy problems such as inflation, unemployment low level of aggregate demand, etc in a particular nation.
Budget could be used to manage and control government expenditure. This will allow accountability as well as efficient use of government resources in an economy.
1.5 LIMITATION AND PROBLEM OF THE STUDY
In the area of limitation to the research work this can be traced to financial resource, time constant and limited cooperation among the group.
Obviously, a lot of problems have been faced along the course of study to mention but few.
The major constraint on this research work is the non availability time to conduct an indebt research. Truly, it has not been easy but never-the-less makes use of the little available time.
Also, the unwillingness to management to allow the research gain access too many information needed like books, records and thus not all owing them to verify the correctness of the data made available to them.
Another problem is the limited financial resources available which hinder sampling. However, despite all these constraint enough data was collected for meaningful analysis.
1.6 HISTORICAL BACKGROUND OF THE CASE STUDY
Okin Biscuit Limited was incorporated in 1978, clearing of land and building construction was done in September 1979, while plant and machinery were imported by December, 1979.
The organization started operation fully in June 1980 with more than two hundred and fifty workers and with about 2 million as capital outlay. It has celebrated it 25th anniversary of fully operation in the year 2005. The organization is sited along Ajasa-Ipo Road at about five kilometers (5kms) to Ajase-Ipo Township from Offa.
It covers a total land area of about thirty five hectares half of which has been developed with building and administrative area in 1980, when the organization, began operation, it started production of variation of Biscuit such as Cabin, Gem, Coaster, Shot Cake etc.
Before the end of 1980 machinery of Okin Foams (division of Okin Biscuits Limited) arrived and production of form began in the year 1987.
In the last 30 years, Okin Biscuit growth is so drastic that it has as staff about 100 people, talking of their welfare, and staffs of this industry enjoy optimum care from the industry and staff welfarism is the watch-word of the industry. This could be evidenced by the wages being paid to them of recent the last minimum basic salary with other welfare packages like over time allowance among others.
It is worthy of note that this industry has since its 3O years of corporation contributed largely to the improvement standard of Offa people and its environs, based on the fact that it’s the only industry that has succeeded in employing about 1000 people, both from within and outside Offa town (this includes graduates and other categories of people)