Strategies of Effective Budgeting on Organizational Growth: A Case Study of Champion Breweries Uyo, Akwa Ibom State
CHAPTER ONE
1.1 Background of the Study
A firm needs to be managed effectively and efficiently in order to achieve its objectives. This involves proper co-ordination and control of its efforts to achieve the organizational goals.
This implies that the firm should be able to realize its set objectives by maximizing scares resources while maximizing most of it managed variables like profit, output or reserves.
A wise decision entails that a vision must be envisaged about the future by the management of the firm.
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This is to guard against the making of a faulty decision that may be harmful to the organization in the long man. The process of managing is indeed, facilitated when management charts its future course of action in advance, and take its decision in a professional manner, utilizing individuals and group effort in a rational and coordinated manner. One systematic approach for attaining effective management performance is financial planning and budgeting. Financial planning indicates a firm’s growth, performance, investments, development of products, size and location of the market, requirement, and flow of funds during a given period of time, usually three to five years (Pandey, 1999:612). It involves the preparation of the projected profit and loss account balance sheet and financial statement. Such could be regarded as a long term plan, which according to (Ama 1999:34) needs to be flexible and received constancy.
In essence, it will be a rolling plan reaching forward into the future and always involved with the years. The attachment of such long-term planning. Budgeting or profit planning accomplishes the goals of planning for the short-term horizon. It is a detailed plan of action during the period of one year or less. Both the financial planning and budget planning help a firm’s financial manager to regulate the flow of funds, which is his primary concern.
Thus, while financial planning involves the question of a firm’s long-term growth, profitability, and investment/financial decision, a budget is a short term firm’s objectives. It is comprehensive, coordinated and expressed in financial terms. It relates to the operation and resources of an enterprise for some specific periods in the future. As Pandey (1999:613) observed, a good budget has certain basic elements such as:
a. It is comprehensive and coordinated in nature: all activities and operations are considered when it is prepared. This means that budgets are prepared for a various segment of the enterprise and coordinated into a total budget. The “matter budget” for the enterprise.
b. Financial Qualification: for operational purpose, a budget is qualified in the financial term, initially, the budget may be developed in terms of varieties of qualities, but finally they are expressed in monetary units.
c. Operations and resources: planning is done for all the firm’s operations and resources, including the revenues and expenses, and other resources necessary to carry out the operations. Assets and resources of funds are also planned for.
d. Time element: the budget is meaningfully ascertained only when it relates to a specific time period.
To achieve the qualitative long-term objective of the firm, the short-term objective of goals, expressed in quantitative terms, must be related to the time period within which they have to be achieved.
The major purpose of budgeting includes the following:
a. To state the firm expectations (goals) in clear and formal terms to avoid confusion and facilitate their attainability.
b. To communicate the expectations to all concerned with the management of the firm so that they could be understood, support and implemented.
c. To provide a detailed plan for reducing uncertainty and for the proper direction of individual and group of efforts to achieve goals.
d. To coordinate the efforts and activities in such a way as to maximize the utilization of resources.
e. To provide a means for measuring and controlling the performance of individuals and united thereby supplying information and the basis of which the necessary corrective action can be taken.
Briefly, thus, the budget is designed to accomplish the functions of planning evaluating performances, coordinating activities, implementing plans, communicating, motivating and authorizing actions, (Ama 1998).
The budget process, therefore, involves of steps, ranging from setting the organization objectives and long-range plans, assessing past react and performance/internal and external data on capacities, resources economic trends/indies, market research to the preparation of quantity budgets, amendments and production of a master budget.
The process stretches to the recording of the actual result, identification of variance and the development of a solution to problems revealed by budgeting control. While the preparation of the budget is a time function, the organization and administration of budgeting is a staff function. The line executives have the responsibilities of deciding what the plans (budget) are to be, while the staff organization assists line executives in preparing a budget by providing data and technical pieces of advice and coordinating the budget of various departments to form a master budget.
Pandey (1999.239) has indicated the essentials of an effective budgeting system.
A successful and sound planning budgeting system is based on certain prerequisites which represent management attitude, organization structure and management approaches necessary for the effective and efficient application of the budgeting system.
The following are some of the essentials or fundamentals of a successful budgeting
. Top management support
b. Clear and realistic goals
c. Assignment of responsibility and authority
d. Creation of responsibility center
e. Adoption of the proper accounting system (responsibility accounting)
f. Full participation
g. Effective communication
h. Budget education
i. Flexibility
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While firms could exploit the numerous advantages inherent in an effective budget, due consideration must be given to the problems and limitations of budgeting such problems include acquisition of support and involvement of all levels of management, developing meaningful forecast and plans, especially for sales, educating individuals involved in the budgeting process, attaining flexibility follow-up and control, etc.
Limitation includes: the exactness of budgeting (estimates and use), changing conditions culminating is an imperfect system of budgeting which is the fact whereby a skillfully prepared budget does not necessarily improve management unless properly implemented, etc.
Thus, even though the organization stands to gain immensely from effective budgeting in terms of achievement of short-term goals, the level of such attainment could be deemed to depend on the extent to which the budget has been implemented.
According to plans and to the extent to which the problems and limitations of the budget have been fully recognized and incorporated into the plans. To what extents have our business executives appreciated the importance of budgets helped them to implement and achieve goals and generally contribute to the growth of the firm? We find quite a number of manufacturing firms suffer adverse conditions after a couple of years of business activity.
It could be interesting to find out how manufacturing firms have utilized there all important measures of planning in their day to day operation, and now it has on the whole contributed properly to the growth and expansion. For this purpose, some selected manufacturing firms have been earmarked for study. It is hoped that the finding from this study would be helpful as an academic exercise for expanding knowledge and practically improving management practices in our organization.
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