HOW BUDGETING AND BUDGETARY CONTROL LEADS TO A BETTER

ORGANISATIONAL PERFORMANCE – A CASE STUDY OF ADV TELECOMS

AUSTRALIA

WRITTEN BY:

DICKSON SIMEON
UNIVERSITY OF ATLANTA, USA.

Dissertation submitted in partial fulfilment for the degree of

Doctor of Business Administration (Managerial Science)

School of Business and Managerial Science

University of Atlanta, USA
Abstract
A function statement which is prepared in advance and prior to the predetermined time

period is known as a budget and budget planning in an organization. The given

objectives are followed during the decided period of time or that particular accounting

year. The establishment of budget and budget control plays a vital role in the wellbeing

of an organization by resulting is advantageous sustainable environment and provide

efficient control system in the direction of the organization. This study concentrates on

the telecom industry using ADV Telecoms Australia as a case study. This dissertation is

a perception of budgeting and identifies the better budget plan and the budgetary

control measures for the assessment of the company and current market and financial

status of ADV Telecoms Australia. The purpose of this thesis is about ordering the

assessments and providing solutions based on the budgeting and budgeting control

systems for the organization if any problem arises during the accounting year. A set of

self-designed questionnaire as survey feedback was sent to the set of collective

members, staff and experts of the organization for their expert views and suggestions

based on the questions asked. The data sets are processed for generating effective

results and those results exhibit the exact situation of the organization’s financial

conditions and also indicate the suitable budget and budgetary control plan to be

adopted by the organisation’s top echelons. The results also indicate few suggestions to

the managerial level of the organization for human power management and consider

the ethical issues in the organization.

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Acknowledgement

My greatest thanks goes to Almighty God Who has given me the strength, good health and courage

to get to this stage of my life. I will also give my in-depth thanks to my parents - Mr. Simeon Nwosu

(late) and Mrs Mercy Nwosu , brothers and sisters, my beautiful and loving wife - Vivian Simeon,

and son - Anthony Simeon for all their invaluable support and understanding throughout the

doctoral program.

A special thank you to my bosom friend and brother Mr. Ralph Okonkwo who gave me support

throughout the program. Also my good friend and brother Mr. Felix Nwaobilor, Thi, Louise, Robert

and many others whose help remain indelible in my mind.

I will also give thanks to my research supervisor and lecturer Dr D Salgado, and Ms Glenda Jemison

(Director of Academics and Students Support Services, University of Atlanta).

My special thanks also goes to all staff at ADV Telecoms Australia most especially the financial

director for allowing me use their organization’s information, books, journals, financial documents,

and their co-operation towards providing invaluable assistance for my questionnaire administration.

Dickson Simeon

University of Atlanta, USA

July, 2013.

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ABSTRACT.......................................................................................................................................... 2
ACKNOWLEDGEMENT....................................................ERROR! BOOKMARK NOT DEFINED.
CHAPTER 1: INTRODUCTION ...................................................................................................... 8
1.1. BACKGROUND INFORMATION ........................................................................................................... 8
1.2. STATEMENT OF THE PROBLEM ............................................................................................................11
1.3. PURPOSE OF STUDY ...............................................................................................................................12
1.4. OBJECTIVES OF THE STUDY ..................................................................................................................12
1.5. RESEARCH METHODS ...........................................................................................................................13
1.5.1 Research Questions ......................................................................................................................... 13
1.6. SIGNIFICANCE OF THE STUDY...............................................................................................................14
1.7. SCOPE AND LIMITATIONS ......................................................................................................................14
1.8. OUTLINE .................................................................................................................................................15
1.9 CONCEPTUAL FRAMEWORK ..................................................................................................................16
1.9.1. Perceived revenue performance............................................................................................... 16
1.9.2. Perceived expenditure performance ...................................................................................... 17
1.9.3. Perceived value for finance performance............................................................................. 17
1.10 ETHICAL CONSIDERATIONS ................................................................................................................17
1.11. COMPANY PROFILE .............................................................................................................................18
1.11.1. ADV telecom in Australia.......................................................................................................... 18
CHAPTER 2: LITERATURE REVIEW .........................................................................................21
2.1. INTRODUCTION ......................................................................................................................................21
2.2. BUDGETARY GOALS ...............................................................................................................................23
2.3. FACTORS AFFECTING BUDGET DESIGN ................................................................................................25
2.4. BUDGETARY GOAL CHARACTERISTICS ................................................................................................26
2.4.1. Budgetary Participation.............................................................................................................. 26
2.5. BUDGET GOAL CLARITY........................................................................................................................27
2.6. BUDGETARY FEEDBACK ........................................................................................................................28
2.7. BUDGETARY EVALUATION....................................................................................................................28
2.8. BUDGET GOAL DIFFICULTY ..................................................................................................................29
2.8.1. THE DANGERS OF NOT HAVING A BUDGET .......................................................................................29
2.8.2. Common mistakes in budgeting ............................................................................................... 30
2.9. PROBLEMS WITH BUDGETING ..............................................................................................................31
2.10. TO IMPROVE BUDGET PERFORMANCE THERE ARE SIX STEPS TO FOLLOW UP ...............................35
2.11. ADVANTAGES OF BUDGETARY CONTROL .........................................................................................36
2.11.1. Maximizing returns for the organization.......................................................................... 36
2.11.2. Quality of communication is improved............................................................................... 36
2.11.3. Co-ordination................................................................................................................................. 36
2.11.4. Specific Aims................................................................................................................................... 37

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 2.11.5. Tool for Measuring Performance .......................................................................................... 37
2.11.6. Economy........................................................................................................................................... 37
2.11.7. Determining Weakness.............................................................................................................. 38
2.11.8. Disciplinary Action ...................................................................................................................... 38
2.11.9. Consciousness ................................................................................................................................ 38
2.11.10Reduces Finances......................................................................................................................... 38
2.11.12. Introduction of Incentive Schemes..................................................................................... 38
2.12. PLANNING AND BUDGETING ..............................................................................................................39
2.12.1. Budgeting ........................................................................................................................................ 39
2.12.2. Budget Functions ......................................................................................................................... 41
2.12.3. Planning........................................................................................................................................... 43
2.12.4 Planning Process ........................................................................................................................... 44
2.13. PARTICIPATION ...................................................................................................................................44
2.14. ENVIRONMENTAL MONITORING AND CONTROL .............................................................................46
2.14.1. Monitoring ...................................................................................................................................... 46
2.14.2. Control .............................................................................................................................................. 48
2.14.3. Feedback and Control ................................................................................................................ 49
2.14.4. Types of budget............................................................................................................................. 50
2.15. BUDGETING PROCESS .........................................................................................................................51
2.15.1. The principle stages include.................................................................................................... 52
2.15.2. Participation .................................................................................................................................. 53
2.15.3. Feedback and Control ................................................................................................................ 53
2.15.4. Perceived Budget Performance.............................................................................................. 53
2.15.5. Revenue performance ................................................................................................................ 54
2.15.6. Expenditure Performance ........................................................................................................ 54
2.15.7. Valuation for financial performance................................................................................... 54
2.16. RELATIONSHIP BETWEEN BUDGETING PROCESS AND BUDGETING PERFORMANCE .....................54
2.17. PARTICIPATES IN PREPARATION OF THE ANNUAL BUDGET ............................................................55
2.18. ZERO BASED BUDGETING (ZBB) AND ACTIVITY BASED BUDGETING (ABB).............................57
2.18.1. Activity-Based Budgeting (ABB) ........................................................................................... 57
2.19. BEYOND BUDGETING (BB) ...............................................................................................................61
2.19.1. Leadership Principles................................................................................................................. 61
2.19.2. Process/Performance Management Principles............................................................... 62
2.19.3. Developments in Budgeting..................................................................................................... 63
2.20. Purpose/Importance of Budgeting .......................................................................................... 64
2.20.1. Fixed and Variable Budgeting................................................................................................ 65
2.21. VIREMENT .......................................................................................................................................66
2.22. BUDGET COMMITTEE .........................................................................................................................67
2.23. BUDGET CENTERS ..............................................................................................................................68
2.24. BUDGET MANUAL ...............................................................................................................................68
2.25. Behaviour Aspect Of Budgeting................................................................................................. 69
2.26. PADDING THE BUDGET .......................................................................................................................71
2.27. BUDGET PREPARATION......................................................................................................................74

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 2.28. BUDGET PLANNING (REVENUE) ........................................................................................................75
2.28.1.Method............................................................................................................................................... 76
2.29. CONCLUSION .......................................................................................................................................77
CHAPTER 3: RESEARCH METHODOLOGY..............................................................................79
3.1. INTRODUCTION ......................................................................................................................................79
3.1.1. Hypothesis 1: The more formalized the budgeting process, the better the firm
performance.................................................................................................................................................. 80
3.1.1.1. Hypothesis 1 is divided into sub-hypotheses. They are listed as follows .81
3.1.2. The Formal Budgeting Process................................................................................................. 82
3.1.2.1. The formal process of budget planning ..................................................................82
3.1.2.2. Budget goal characteristics .........................................................................................83
3.1.2.3. Budgeting Sophistication .............................................................................................85
3.1.2.4. The Formal Process of Budgetary Control.............................................................86
3.2. RESEARCH DESIGN ................................................................................................................................87
3.2.1. Study Population............................................................................................................................. 87
3.3 SAMPLE SIZE AND SAMPLING DESIGN. .................................................................................................87
3.4 DATA COLLECTION INSTRUMENTS .......................................................................................................88
3.5. FACTOR ANALYSIS OF THE BUDGETING PROCESS & CONTROL.........................................................93
3.6. ORGANIZATIONAL PERFORMANCE ......................................................................................................94
3.6.1 Perceived Revenue Performance............................................................................................... 94
3.6.1.1. Frequency Percentage ...................................................................................................94
3.7. CORRELATION ANALYSIS ......................................................................................................................95
3.8. REGRESSION ANALYSIS .........................................................................................................................96
3.9. CONCLUSION ..........................................................................................................................................97
CHAPTER 4: PRESENTATION AND ANALYSIS OF DATA....................................................97
4.1. INTRODUCTION ......................................................................................................................................97
4.2. DATA COLLECTED .................................................................................................................................98
4.3. FACTOR ANALYSIS AND BUDGETARY CONTROL.................................................................................98
4.4. DATA COLLECTED .................................................................................................................................99
4.5. FACTOR ANALYSIS AND BUDGETING CONTROL .............................................................................. 105
4.6. A QUESTIONNAIRE ADMINISTERED................................................................................................... 105
4.6.1. Questions related to the Formal Process of Budget Planning? ................................ 105
4.7. BUDGETING SOPHISTICATION ........................................................................................................... 107
4.8. ANALYSIS OF DATA ............................................................................................................................. 107
4.8.1. Frequency Percentage ............................................................................................................... 107
4.8.2. Regression Model......................................................................................................................... 108
4.9. CORRELATION ..................................................................................................................................... 108
4.10. REGRESSION ..................................................................................................................................... 109
4.11. ADMINISTRATION OF BUDGET LEADING TO BETTER PERFORMANCE.......................................... 109
4.12. PRESENTATION OF DATA ................................................................................................................ 110
4.12. BUDGETARY CONTROL .................................................................................................................... 123

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 4.13. DATA COLLECTED............................................................................................................................ 123
4.14. ADMINISTRATION OF BUDGET LEADING TO BETTER PERFORMANCE...................................122-124
CHAPTER 5: CONCLUSION ....................................................................................................... 123
5.1. DISCUSSIONS OF FINDINGS ................................................................................................................ 123
5.2. RECOMMENDATIONS ...................................................................................................................126-127
5.3. CONCLUSION ....................................................................................................................................... 126
5.4. SUGGESTION FOR FURTHER STUDY ................................................................................................... 127
5.5. CONTRIBUTION TO KNOWLEDGE ...................................................................................................... 129
5.5.1. Revenue............................................................................................................................................ 128
5.5.2. Expenditure.................................................................................................................................... 129
5.5.3. Market conditions........................................................................................................................ 129
5.5.4. Additional knowledge ................................................................................................................ 129
REFERENCES..........................................................................................................................131-138
APPENDIX................................................................................................................................138-151

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Chapter 1: Introduction
1.1. Background Information
Budgetary control and budgeting are tools that measure management performance of a

company and promotes sound morale financial harmony within the organization. It

makes possible for an organization to verify if or not the plans of the company are

properly comprehended by all members of staff and implement corrective measures

wherein under deviation or the deviation is occurring. As budgeting is an approach for

planning and financial planning is highly important to an organization, it becomes

imperative for an organization to view the future outcomes of current decisions so as to

prevent surprises and comprehend the connection amid current and future decision.

Budgeting and budgetary control have attained high focus among organizations in the

present day and thus offer high prospects which this research study examines.

Control systems grounded on financial measures are highly adopted in economic

organisations. The principal patterns for assigning financial accountability within

organizations could be grouped as follows: revenue center, standard finance centers,

discretionary expense centers, investment centers and profit centers (Bruns &

Waterhouse, 1975; Vancil, 1973). The sequence of this categorization is from narrowest

to widest with respect to the decision-making discretion allowed or needed of the

supervisor. The supervisor of a standard finance center holds authority over lesser

financial variables as compared to the supervisor of an investment center. Moreover,

the choice for a design for allotting financial accountability should be an important

objective of the organizational framework, which is described in the context of

delegation of authority and also the specialization of endeavour and organizational

approach.

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By way of budgets, operations of distinct parts of a company could be controlled and

coordinated. A control system normally integrates techniques and measures that

conform to the accountabilities delegated to supervisors under the firm’s structure.

When the decision-making group is decentralized and fractions of a company turns out

to be more independent, managers would be accountable for more financial variables as

well as the financial control systems would be more multifaceted in the sense that they

would fit in higher variables (Burns & Waterhouse, 1975).

Organizational framework is perceived as being something which depends on the

dependent on the given backdrop and situation for the company where it functions,

taking in characteristics like its size, dependence and technology. Two variables,

perceived control and control system complexity are viewed as intervening to impact

budget-associated behaviour encompassing the extent of such behaviour, the nature of

behaviour and lastly, the quality and contentment with relation to the level the budget

is viewed as efficient in attaining organizational objectives and better performance

(Bruns & Waterhouse, 1975).

Budget-related behaviour reflects on the activities, interactions and activities of

managers with each other and their tasks which have either a direct or an indirect

relation to the budget systems. Budget-associated attitudes are described as affective

feelings of supervisors towards budgets as well as budget-associated behaviours of

themselves and the others. Moreover, the budgets are essentially plans against which

the organizational performance might be evaluated. To a large level, the utilization of

budgets for control reasons is believed to be dependent on the capability to plan with a

comparatively high level of sureness and to assess output or role outcome with a

comparatively high level of correctness (Bruns & Waterhouse, 1975). A budget not just

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specifies an objective (i.e., X units of fabrication at an expected overall finance), but it

might also state the means for attaining the objective (i.e. labour, material and other

inputs at average finances). In terms of decision-making, the budget illustrates both an

objective function along with decision options. The budget might be viewed as a way for

decentralizing particular kinds of operation decisions. Nevertheless, as the decision

alternatives and objective function are detailed, the decisions in front of the “budgetees”

are highly structured (Bruns & Waterhouse, 1975).

For the reason that budgets are likely to construct the decision-making surroundings,

budgets would seem to be principally well-suited like control devices under the similar

kinds of operating situations which are also widespread within decentralized but

structured companies. Additionally, the application of budgets for control reasons and

the structuring of procedures might be jointly reinforcing. A comparatively predictable

and stable environment that would permit decentralization with structuring of

procedures results in conditions agreeable to the utilization of budgets, and budgets

additionally structure activities (Bruns & Waterhouse, 1975). Because of this, it is

perceived that the extent of budget-associated behaviour is high within companies that

are decentralized and well thought-out. Since the roles and regulations are properly

defined within a decentralized but structured company, structuring of operations and

perceived control are supposed to be linked positively. The individual within a

structured situation might see himself/herself and others as holding higher control in

their spheres of defined accountability. For these reasons it is considered that budget-

related behaviour tends to be administrative in nature instead of interpersonal. As the

subordinate managers hold less control and might perceive themselves as holding less

control within centralized companies, any effort to hold individuals accountable for

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directly fulfilling a budget is less expected to satisfy with much success and might result

in negative outlook towards budgets (Bruns & Waterhouse, 1975). Further, to the level

that budget are adopted as control means within centralized companies it is believed

that they would be utilized in a more interpersonal way as compared to in decentralized

but well thought-out company.

1.2. Statement of the Problem

In recent times, companies have functioned poorly due to the fact that they are devoid

of effective and competent budgets and budgetary control systems to precisely and

sensibly distribute resources to assemble organizational aims and enhance

performance. A study carried out by Boquist (1997) viewed that companies kept on

blundering and failing because they have defective budgetary planning and control

systems, which they obviously failed to identify. Some firms sense flaws of their

budgetary analysis but observed them as individual problems rather than methodical

deficiencies. They misdirect labours and generate greater frustration. As a result,

corporate scheme and capital allotment become crooked and remained so despite

condemning financial performance.

Some business organizations do not even acknowledge the link between budgetary

control and performance and this influences their functions negatively. Different

organizations varying from small scale businesses to large scale businesses fall short to

identify the power of budgets and budgetary control over functioning results. These

organizations move without concentrating more attention to enhancing their

performances via their budgets.

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1.3. Purpose of study

 To promote self-study in all sections of a ADV Telecoms’ operations.

 To gather all members of management to “put their heads” to the basic question of

how the business should be carried out, to make them of a synchronized team

functioning in unison towards precisely defined objectives.

 To popularize the planning process and make available a sense of direction to each

member of the organization.

 To power a definition and crystallization of organization’s policies and aims.

 To enhance the effectiveness with which people and capital are engaged.

 To reveal areas of potential development in the company’s operations.

 To motivate the study of association of the entity to its external economic

environment for enhancing the effectiveness of its direction.

 To direct and organize business functions and units to achieve stated targets of

performance.

 To make easy the control process, by differentiating actual results with a plan, and

furnish feedback to the employees about their functioning.

1.4. Objectives of the Study

To satisfy the reason of this research, the following aims will be addressed:

1. To analyse the budgeting process and control of ADV Telecoms.

2. To set up the association between the budgeting process and budget performance.

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1.5. Research Methods

The three methods adopted in this research, among which one was a cross-sectional

design for a sample size of 221 employees that was balanced stratified and random.

Analysis of variance to determine the distribution of population showed a percentage

variance of 60%, Varimax principal component analysis with determination of

Eigenvalues and percentage variances to evaluate budgeting control, and finally a self-

managed questionnaire prepared for respondents with a view to analyse how positive

were the respondents to in realizing their budget revenue anticipations. Correlation

analysis, regression analysis, and Cronbach alpha were used to evaluate the responses

from respondents.

1.5.1 Research Questions

1. What is the budgeting and control process of ADV Telecoms?

2. What is the partnership involving the budgeting process and performance of the

corporation?

3. What links exists amid organizational performance and budgetary control?

4. What are the difficulties related to budgets and budgetary controls inside an

organization?

5. How could organizational performance be enhanced through the applying of

budgetary control measures?

6. What impact does budgetary control in wearing job performance?

7. Do budgetary decisions decide the future destiny of a business?

8. By which particular ways does control and planning impact the business?

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1.6. Significance of the Study

The analysis will benefit senior leadership team of ADV Telecoms and its other regional

offices around the world to discover a means to fix the problem of poor organizational

performance. The study will make recommendations that will go a long way in

improving the grade of the budgeting process that would enhance budget performance

in the organization’s (ADV Telecoms) industrial segment. The research study is going to

be used by other investors to analyse the linkage and relationships between budgeting

process and performance. The study will benefit other academicians and researchers to

put it to use for further research.

1.7. Scope and limitations

An excellent budget process is a lot more compared to preparation of a legal document

that appropriates funds for some line items. Good budgeting is really a broadly defined

process that is political, managerial, planning, communication, and financial dimensions.

This definition recognizes the broad scope in the process of budgeting and supplies a

base for improvement in the budgeting process.

In undertaking this research, the researcher encountered low response problems from

the employees of the company through the questionnaire given to them. This was due to

reasons arising from serious workload from the organisation and other exigencies.

The study was basically on financial related matters; some respondents were not willing

to provide the necessary information calling it ‘classified', however having an

introduction letter and assurances that data will be held confidentially, 188 staff

members responded.

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It absolutely was an active period (beginning & end of the financial year issues) for the

potential respondents to the questionnaires and which means response rate was

grossly affected. Usage of information was an arduous task since all the financial

information were confidential, thus reliance was on respondents' perceptions drawn

from primary data and also, the dependence on subjective budget performance

variables instead of more objective indicators of budget performance.

1.8. Outline
This study is divided into five parts.

Chapter one is the introductory part which shows the statement of the problem, the

research questionnaire, the significance of the budget study, the purpose of the study

and the objectives of study, including the scope and limitation of budget study. The

chapter continues with an overview of ADV Telecoms.

Chapter two reviews the relevant texts and relevant journal, articles and other

publications as they relate to the concept of how budgeting and budgetary control leads

to better organizational performance

Chapter three explains the research methodology, an approach adopted for executing

study and for analysis of budgeting process and control of ADV Telecoms. It explains in

detail the study design, sample population, sampling ways, data accumulation, data

supply, amount of variables, legality, consisting of instruments, and data dispensation,

analysis of population and budgeting control process.

Chapter four summarized the data collected, techniques used for evaluating them, and

questionnaire administered for evaluating respondent’s answers. Data collected is

organized and presented in chapter 4 and techniques used are specified.

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Chapter Five is the concluding part which embraces the summary of findings,

suggestions for further studies, recommendations based on the findings as well as the

conclusion of the study.

1.9 Conceptual Framework

The budget performance perseverance were measured in the terms of the perceived

revenue performance, perceived expenditure performance and value of finance

performance.

Fig: Conceptual Framework

1.9.1. Perceived revenue performance

This was measured by the perceptions of staff in regard to planned/budgeted revenue

being realized, planned activities at the beginning of the financial year being

accomplished within the specified time frame, majority of planned activities during

budgeting being implemented and units/projects consistently realizing their annual

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budgeted revenue expectations. Perceived revenue performance was rated on a five –

point Likert type scale (strongly agree to strongly disagree).

1.9.2. Perceived expenditure performance

This was measured by staff perceptions with respect to the occurrence of significance

under or over 10% expenditure variances in the majority of the unit’s or the

department’s budget line items and expenditures made within the original budget

provisions. The expenditure performance and perseverance was rated on a five – point

Likert type scale (strongly agree to strongly disagree).

1.9.3. Perceived value for finance performance

This was measured by staff perceptions in regard to organizational resources being

effectively and efficiently utilized, quality of goods and services conforming to

specifications at the planning stage and organizational commercial transactions

achieving value for finance. Perceived value of finance performance was rated on a five

–point Likert type scale (strongly agree to strongly disagree).

The study used a Model developed by Brier and Hirst (2000) but focused on only levels

of participation and level of feedback and control, other variables notably

organizational politics, motivation ownership and their effect on budget performance

that the study did not examine would warrant further study.

1.10 Ethical Considerations

Ethical approval is sought from the university’s director of academics. All participants

in this research are informed verbally and in writing about the study and their

participation will be purely on a voluntary basis. Written consent to participate is

obtained from those who volunteer and respondents or participants may withdraw

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from this research work at any time. Raw data, including questionnaires, videos, and

documented transcripts shall be secured for the decided period of time according to the

requirements of the university research ethics committee.

1.11. Company Profile

1.11.1. ADV telecom in Australia

When ADV Telecoms started its Australian and regional offices slightly over six years

ago, little did they know that they will become a household name in the VoIP telephony

industry in Australia and around the world.

ADV Telecoms is one of the leading international telecommunication companies

specializing in voice SIP termination, prepaid and branded calling cards, broadband

telephony (residential and business), hosted IPPBX and very recently

telecommunication billing and soft switches. Since inception, ADV Telecoms’ strategic

advantages are their expertise, creativity and technical abilities. Their core competence

is their ability to provide quality and affordable telecommunication services to end

users around the world. They have a tendency to still develop and build new concepts

of VoIP in providing quality and affordable telecommunication services to their highly

esteemed corporate and residential clientele across the globe at the most finance

effective finances.

ADV Telecoms’ headquarters is in Australia and have regional offices in USA, Canada

and UK. They tend to continue to expand their reach across the globe so normal users

can relish the advantages of their cheap and quality services. They carry billions of

telecommunication minutes for mobile carriers, long distance carriers, local access

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carriers and post-paid service suppliers over their network for VoIP running into. The

company has many years of experience in VOIP solution and integration.

ADV Telecoms’ has forcefully acquired a degree of technical excellence, gratitude and

public standing equivalent to that pleasured by the more familiar brands. ADV

Telecoms had also set up a solid base in the Australian and international markets. In

2010-2011 revenues topped well over $171 million.

ADV Telecoms attainment in Australia has been notable, it functions with every major

telecommunications company in Australia and overseas and pride with over 500 staff

directly and many more indirectly. In line with the enhancing digitalization of society,

the telecom industry is ready to embark on new and exhilarating developments. Much

of this novelty began in the rising markets of USA and Canada.

Just as consumers are dealing with their mouse for a touch screen, digital era is taking

the world by storm on the tail of the mobile era. Technological variations through

digitization will be a dynamic force behind the ICT industry during the rest of this

decade. In the current digital generation, ‘digital citizens’ shall be authorized to go

beyond the local and national borders to create a new world.

The digital decade is variable based on the changes occurring in life of people and

functions therefore generating vast business opportunities and a new industry

ecosystem. Major population around the globe have a Digital ID like in a few of the social

networking such as Google/Twitter/Facebook/LinkedIn and this shows the union of

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information technology, communication technology, and the consumer electronic

industries to form the Information and Communication Technology industry.

The digital world is changing into a reflection of the material world. It has no

boundaries and altering, sometimes overthrowing, the rules we are aware of. Improving

both digital communications and skills is a precondition for development and success

that Australia and the world cannot afford to miss.

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CHAPTER 2: LITERATURE REVIEW
2.1. Introduction
Oorganizations performing extremely well depends greatly on budgeting as well as

budgetary control measures in order to enhance performance, through sufficient

resource allocation (Hansen, 2003). Budgeting and Budgetary control, both at

operational and management level evaluates what is going to go into the future and

decides on the goals and objectives that needs to be carried out. Moreover, budgetary

control as a verified management tool aids company management, and perks up

improved outcome of an economy in distinct manners (Anthony and Govindarjan,

2003). Its main purpose is to serve like a guide within financial planning; it also sets up

boundaries for divisional extremes. It helps the planners to carry out a proper

assessment of all prevailing operations, as a result giving reason for eliminating,

expanding or restricting the present practice.

Additionally, budgeting and budgetary control involve a way of decision making within

a company that serves the company in determining its goals, purposes or objectives,

and the manner in which these objectives are established by setting up key plans and

policies (Chong and Chong, 2002). Nevertheless, inability accomplished recognizes the

concerning issues and putting a boundary off analysis forms an obstruction for the

effective implementation of control (Hansen, 2003). Few companies just try to identify

a few arrays of choices that they infer from the previous experiences and current

conditions. Also at different levels of the organization, the management prevents long-

term planning along with budgeting favourably for present day’s issues thus making the

outcomes of tomorrow more complex.

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Various researches on budgetary controls and budgeting have clearly demonstrated

that companies need to pay high attention on budgetary processes, budgetary controls

and budgets (Anthony & Govindarjan, 2003). In light of these various issues facing the

companies due to poor or mismanaged budgetary control systems and budgets, the

researcher went ahead to explore more on the issue and came out with several

recommendations and answers to help curb the issues companies have with their

several budgetary control systems.

Moreover, a survey carried out by Chong & Chong (2002) found that corporations

continue to fail and blunder since they have faulty budgetary planning along with

control systems that they apparently fail to become familiar with. Few companies sense

flaws of their budgetary assessment but saw them as individual issues instead of

systematic deficiencies. Further, they misdirect endeavours and produce higher

frustration. Thus, capital allocation and corporate strategy to become misaligned and

continue to be so, regardless of disapproving financial outcome.

Few business corporations do not even recognize the connection amid budgetary

control and outcome and this affects their performances in a negative manner (Anthony

& Govindarjan, 2003). Several companies ranging from large scale businesses to small

scale businesses, fail to identify the power of budgetary control and budgets on

performance outcomes. These companies go ahead without putting more focus on

enhancing their outcomes via their budgets.

Budgetary control is significant for an organization to make sure that the strategic goals

are achieved. This evaluation is practiced not only for the long term goals but also for

the short and medium term goals. Moreover, budgets are fundamentally the money or

financial expressions of action plans and an aid for coordination and execution of a

22
provided projector program to be taken up on the day to day and future plans of the

company (Chong & Chong, 2002). Budgets must be adopted by organizational heads as

a means for the process of decision making so as to reach for optimal performance for

the firm. The reporting of outcomes (actual) along with variances acts in assessing and

evaluating the organizational performance. Further, considering the above discussion

into consideration this particular research attempts to explore how budgeting and

budgetary control leads to a better organizational performance.

The literature review covers the majority of budgeting and budgeting process, its

functioning and certain variables used budgeting. It is drawn extensively from journals,

articles and books relating to budgeting and budgetary control vi's-à-is organizational

performance from reputable sources and writers around the globe.

2.2. Budgetary goals

A budget is an economic plan which sets revenue and price objectives for the

responsibility centers in a business unit, but in addition it indicates about managing,

speaking, matching, efficiency evaluation motivation. Knowledge of the budgeted

objectives is in addition to information regarding the amount to which these objectives

have now been accomplished which offers managers a ground for measuring influence,

identified problems and checking charges (Keynes, 1979).

Regarding magnitude and time, the coordination of a few functional procedures within

the company (such as: sales, finance moves, production, monetary flow etc.) can also be

attained through the task of budget planning along with the appliance. Sharing of data of

budgeted motives downward within a company notifies the people of lower

management regarding what does top management needs from them. On the other

hand, top of the management learns concerning the achievements and problems of

23
lower management through upward-flowing reports diverse budgeted objectives with

total performance. Extra budget data aids the people of upper management to evaluate

the end result of lower supervisors and distribute punishments and rewards. In that

respect, the budgets represent an essential fraction of the organization's inspirational

system created to boost managerial efficiency and attitudes (Kenis, 1979).

A lot of the negative and positive impacts of the finances are based upon the conduct,

attitudes and result of lower supervisors might be covered to the budgeting design of

top management (Kenis, 1979). The conception of budgeting design requires in such

budgetary purpose features as participation, purpose, quality, budgetary evaluation,

feedback and purpose difficulty. Indeed, top management, with the help of the control

along with the sales division, may have an effect on the amount; and kind of

involvement of the lower supervisors in budget target placing.

Viable goals result in feelings of frustration, failure, lower aspiration levels, and lastly,

goals rejection by the participants (Becker & Green, 1962; Dunbar, 1971; Kenis, 1979).

The majority of budgeting textbooks state that for motivational reasons the budgetary

objectives should be rigid but achievable. According to Hofstede (1967), tighter budget

objectives result in greater motivation; beyond a particular level, nevertheless,

tightening budget goals trims down motivation. Locke (1968) also asserted that

complex task goals result in superior performance than simple goals.

Findings of various research studies failed to offer such obvious evidence. For instance,

Carroll and Tosi (1970) discovered a positive and considerable link amid perceived

task-goal difficulty of supervisors and self-rated outcome. Additionally, Blumenfeld and

Leidy (1969) also found that the performance of servicemen and salesmen who were

24
allotted more difficult objectives was greater as compared to the performance of the

ones who were allotted simple goals. Nevertheless, the results of a research study

conducted by Steers (1976) failed to assist the positive impacts of goal difficulty on

performance and motivation.

2.3. Factors affecting Budget design

Below given are the factors affecting the planning of the budget plan:

 The degree of quality of budget goals

 The total amount and volume of feedback

 The manner in which finances are used in performance assessment and

 The degree of budget purpose complexity.

Budgeting design from a company usually highlights the authority design combined

with the manageability values off the top of management given by (Argyris, (1952);

Kenis, (1979). Along with that, such organizational variables like structure

(decentralized versus centralized), measurement, and the level might affect the

budgeting style of the top of management as explained by (Bruns & Waterhouse,

(1975); Kenis, (1979).

Budgeting is really a financial strategy for future years regarding business enterprises’

revenue and finances. However, a budget is focused on a lot more than financial issue.

Finances are organized ahead of time for income, expenditure and then in contrast to

absolute performance to establish any variances.

25
Controllable expenses inside their finances are monitored by managers in an

organization and are expected to get remedial activity if the undesirable variances occur

and they are considered excessive.

For implementing budgets there are many methods to follow up. For example, budgets

are applied to:

 Control income and expenditure (the traditional use)

 Set targets and establish the importance in numerical terms

 Proper instruction and coordination into business leads the objectives into

practical reality

 Budget holders (managers) and allocate resources should be delegated

responsibilities

 The communication between managements and employee should be preserved

 Compliments are always welcome and encourage staff

 Improving operational efficiency

 Monitor performance and reliability

2.4. Budgetary Goal Characteristics

2.4.1. Budgetary Participation

Budgetary involvement suggests in the path of the level to which the supervisor gets a

portion in planning the capital and handling the financial targets of these power hubs.

Numerous researchers have insisted that involvement in placing budgetary objectives

encourages supervisors to set the targets, undertaking them more significantly and

purpose towards accomplishments (Argyris, 1952; Becker & Green, 1963; Wallace,

1967; Hannson, 1966; Dunbar, 1971; Kenis, 1979). Participation in job goal setting has

26
moreover been improved by very large behavioral researchers as Likert, McGregor,

Argyris and Locke. In conclusion, diverse scientific researchers have supported

structural impact of such involvement on the mind set of subordinates; in periods of

efficiency , however, the outcomes normally have been may be or not sure stated by

Yukl, (1971); Kenis, (1979).

Stores (1976) cited in Ittner and Larcker (1995) discovered good and essential

hyperlinks amid participation in task-goal adjustments and job contentment and job

involvement, however number link amid participation and workers' performance. Other

studies noted lesser number link amid subordinates' participation in purpose placing

along with their efficiency, goal attainment or goal approval (Ivancevich, 1976; Kenis,

1979). Some budgetary studies in this region demonstrate similar outcomes. Milano

(1975), for instance, discovered substantial and good correlations amid participation

within budget adjustments and perspective towards the job; however the connection

between business efficiency and participation was very weak. More, Swieringa and

Moncur (1975) discovered the larger need satisfaction amongst supervisors who have

been reached on the finances when compared with people who were not consulted. In

the same way, Hofstede (1967) noted good attitudes among subordinates who

participated in budgeting.

2.5. Budget Goal Clarity

Budget purpose clarity suggests to the amount to which budget objectives are

mentioned obviously and particularly, and are comprehended by those people who are

accountable for satisfying them. Based on Locke (1968), placing specific objectives is

more productive as compared to perhaps not placing objectives and advocating

personnel to give in their utmost outcome. Locke asserted that aware goals control

27
behaviour. Unclearly mentioned goals can bring about the confusion, nervousness and

discontentment of the staff members. Different studies uphold the positive effects of

task-goal specificity and clarity on the goal commitment, purpose fulfilment and

fulfilment of personnel by (Yukl & Latham, (1978); Ivancevich, (1976); Kenis, (1979).

Researches dealing with objective clarity in budgeting, however, have been lacking.

2.6. Budgetary Feedback

Feedback regarding a particular level that your budget objectives have been

accomplished is a vital inspirational variable. In case if the customers of an organization

do not know the results of their endeavors, they hold number schedule for feelings of

failure or accomplishment and number motivation for larger performance; further, they

might become discontented (Becker & Green, 1962; Kenis, 1979). The several student

studies linked to the influences of feedback on the employees' performance,

nevertheless, offer inconclusive outcomes. For instance, Carroll and Tosi (1970) found

that feedback is truly related to self-rated purpose fulfilment however perhaps not with

self-rated project stage

2.7. Budgetary Evaluation

Budgetary evaluation implies towards the stage to which budget variances are tracked

back to single department heads and adopted in assessing their performance (Kenis,

1979). Moreover, the patterns in which budgets are used in performance assessment

are likely to have an impact on the behaviour, performance and attitudes of the

participants. For instance, a punitive approach, could result into lower motivation as

well as unconstructive attitudes. While, on the other hand a supportive approach, might

lead to positive attitudes along with behaviour (Kenis, 1979).

28
2.8. Budget Goal Difficulty
Budget objectives may range from simply possible with very small and unachievable

tasks (Kenis, 1979). Simply possible objectives are lost in delivering and therefore, have

less inspirational impact. While, very small and unachievable objectives end up in

feelings of disappointment, decrease aspiration levels, and lastly rejection by the

participants (Becker & Green, 1962; Dunbar, 1971; Kenis, 1979). Nearly all budgeting

books suggest that the budgetary objectives should be rigid but achievable. In

accordance with Hofstede (1967), stronger budget objectives end up in better

motivation; beyond a certain point, nonetheless, tightening budget objectives cuts down

motivation. Locke (1968) also asserted that complicated job objectives end up in a

remarkable performance than easy goals.

Conclusions of various study reports failed to offer such obvious evidence. As an

example, Carroll and Tosi (1970) found a positive and considerable perceived task-goal

problem of supervisors and self-rated outcome. Furthermore, Blumenfeld and Leidy

(1969) also found that the performance of servicemen and sellers who have been

allotted more difficult objectives was a better asset alongside the operation of similar

kinds who have been allotted easy goals. However, the outcomes of study conducted by

Steers (1976) failed to aid the problem on performance and motivation.

2.8.1. The dangers of not having a budget

The largest hazard of not having a budget is running blindly into a dirty unexpected

surprise regarding your finances. Some of the shocks could even assign one’s business

out of order. For a new business set up that does not organize a budget, it is mostly like

to find out that even if it has sold as much product as expected or has drawn attention of

as many customers as a matter of fact, the figures do not match up (Klein 2006). It may

29
simply be unrealistic to make a earning at the enterprise, even if you accomplish all the

set goals you established up front. Enterprises are concentrated more on attracting

customers that they do not recognize how much their finances are going to be

consumed into their income (Klein 2006).

2.8.2. Common mistakes in budgeting

The biggest mistake for a business owner is to treat their budget as a one-time

investment process or a once-a-year investment procedure, merely as a living document

that they are using to run the business every day. Regularly, administrators who have

prepared budgets as they are trying to accumulate a loan or exercising taxes, they give

all their effort and time into illustrating up the budgeting and then will not consider it

again (Klein 2006).

Another mistake is making a budget unbelievable by not keeping in it the right amount

of data or not having any key particulars in there. But after getting destroyed down

when it comes to making certain projections, as these are only projections one would

not expect accurate results (Klein 2006 Wallender 1999)

The final most common mistake is that entrepreneurs usually need help with their

budget data, but they do not consider it. Contacting a qualified accountant or other

financial advisers to help make a first-time budget is a perfect idea (Klein 2006).

Budget control: If budget is controlled inefficiency is reduced drastically by not

spending finance on things an organisation or someone does not really need (Klein

2006; Ekholm & Wallin 2000; Wallander 1999).

Monitoring employees while they work results in immediate increased gain in earnings.

If a supervisor controls its staff members the chances are that they might be unwilling

30
to waste time. If you praise people then they will work harder for the firm. By

improving results per individual one is increasing productivity which translates into

reduced finance (Klein 2006; Ekholm & Wallin 2000).

2.9. Problems with Budgeting

Budgeting is regarded as the basis of management control procedure in nearly every

organization, but in spite of its widespread adoption, it is quite far from perfect (Hansen

2003). The researchers express concerns related with using budgets for the purpose of

preparation and performance appraisal. The researchers argue that budgets obstruct

the allotment of organizational resources to their most appropriate uses and motivate

myopic decision forming along with other dysfunctional budget games (Hansen 2003).

Moreover, they attribute these issues, in part, to commonly budgeting’s economically,

command and control, top-down orientation as rooted in yearly budget planning and

performance assessment procedures stated as stated by Bunce (1995); Bunce, Fraser

and Wookcock (1995); Hope & Fraser, (2003); Ekholm & Wallin (2000); Wallander

(1999), Marcino (2000); Jensen (2000); Hansen, (2002).

The ubiquitous application of budgetary control is greatly because of its capability to

weave jointly all the distinct threads of a company into a wide-ranging plan which

serves several distinct purposes, chiefly performance planning along with an ex-post

assessment of absolute performance in comparison with the plan (Hansen 2002). In

spite of carrying out this integrative function and laying down the groundwork for

performance evaluation, budgetary control holds a number of limitations, like its oft-

researched and long established susceptibility to encourage dysfunctional behaviours

or budget games.

31
A latest report by Neely, Sutcliff and Heyns (2001) derived chiefly from the expert

literature, puts forward the 12 most cited drawbacks of the budgetary control as:

 Budgets are time-taking to pull together;

 Budgets restrain receptiveness and are frequently an obstacle to change;

 Budgets are infrequently strategically concentrated and often contradictory;

 Budgets add up less value, particularly provided the time needed to prepare

them;

 Budgets focus on finance lessening and not value generation;

 Budgets reinforce vertical command-and-control;

 Budgets do not mirror the upcoming network structures which the companies

are taking up;

 Budgets motivate gaming as well as perverse behaviours;

 Budgets are formed and updated very rarely, generally once a year;

 Budgets are based on unsupported presumptions and deduction;

 Budgets strengthen departmental obstacles instead of encouraging knowledge

sharing;

 Budgets make individuals feel underrated.

Provided that there are several issues and several calls for advancements, it appears to

be out of place that the huge number of companies hold on to the formal budgeting

procedure. One reason why budgets need to be given due importance in the majority of

companies is due to the fact that they are very deep seated within a company’s fabric

(Scapens & Roberts, 1993; Hansen 2003). ‘‘They continue to be a centrally coordinated

activity (frequently the only one) in the organization Neely (2001); Hansen (2003) and

make up ‘‘the only procedure that covers up all spheres of organizational activity.

32
Withal, a latest survey revealed that even though around twenty five percent are

keeping hold of their traditional budgeting approaches, around sixty one per cent are

dynamically upgrading their budgeting system and remaining fourteen percent are

either disposing of budgets or at least considering them (Wallin and Ekholm, 2000;

Hansen 2002).

Findings of various research studies failed to offer such obvious evidence. For instance,

Carroll and Tosi (1970) discovered a positive and considerable link amid perceived

task-goal difficulty of supervisors and self-rated outcome. Additionally, Blumenfeld and

Leidy (1969) also found that the performance of servicemen and salesmen who were

allotted more difficult objectives was greater as compared to the performance of the

ones who were allotted simple goals. Nevertheless, the results of a research study

conducted by Steers (1976) failed to assist the positive impacts of goal difficulty on

performance and motivation.

Budgetary Control is the process of comparing absolute results with planned results and

reporting on different options (Lucy, 1989). Control compares absolute performance

and budgeted and helps expenditure to be maintained within agreed limits. The most

important managerial problem in budgetary control is the interpretation of budget

difference. The remainder should be notified and corrective action should be taken.

Budgetary monitoring is comprised of budgeting, monitoring and control, analyzing and

feedback.

Although the multiple roles of budgeting are stated in previous research, that research

focuses heavily on budgeting and its application to large, publicly listed organizations in

developed countries. For example, Dugdale (1994) finds that the U.K. companies derive

33
high benefits from the use of budgeting planning, or Bonn and Christodoulou (1996)

indicate that 72 percent of the largest manufacturing company in Australia use

formalized strategic planning systems.

Joshi, (2003), however, examines budgeting planning, control, and performance

evaluation practices in a developing country. He carries on a questionnaire survey of 54

medium- and large-sized firms, including both the listed and non-listed firms located in

Bahrain. His research finds that most of the firms prepare long-range plans and

operating budgets, and use budget variances to measure managers’ performance, for

“timely identification of problems, and to improve the coming period’s budget”.

Additionally, there has been some discussion in the academic literature on the

relationship between strategic planning and operation of the organization (Aram &

Cowen, (1990); Hillidge, (1990); but researchers have not paid considerable attention

to the possible relationship between budgeting process and performance in SMEs

(Wijewardena & De Zoysa, 2001). So the process of budgeting and its relationship to

performance in firms are still unclear. Merchant (1981) points out that the budgeting

process is adopted differently in firms which differ in size and/or diversity of

organizational system. Accordingly, due to the restriction of limited size and resources,

budgeting process in organization is, probably, different from that of large companies.

The issue of how the budgeting process in firms impacts their performance is,

therefore, certainly worthwhile to be explored.

Therefore, in analyzing the basic processes of budgeting that are supposed to be applied

in most of business organizations, i.e. budgeting planning and budgetary control, to set

34
up a theoretical basis for the current research. Then, the question how the budgeting

process impacts the performance of firms will be explored. We noted that a crucial task

in this study is to argue the importance of participation in the budgeting process, the

factor that is overlooked in the prior budgetary literature or organisations, and how it

affects performance. Lastly, some hypotheses in this survey are concluded, with a

critical review of literature.

Regardless of the type of the budget discussion and planning, it is almost certain that

there will be a political topic to its management structure. The phenomena “politics”

here refers to the energy struggle within the firm. It may be a place struggle in which

normal employee unions seek to impose their will on management body. It may be a

power battle among the board of directors or between divisions of the enterprise.

Whatever its nature, such a power struggle is evidenced in the budget process where

various units of the enterprise are engaged in contention over the preparation of the

budget. Thus the budgeting process may be more important as an expression of the

political struggle than as an item of financial planning (Weetman, 1997).

2.10. To improve budget performance there are six steps to follow up

Brydges (2012) found six ways to improve budgeting performance which include –

automate, focus on material items, be brutally honest when preparing the budgets, take

time to do the right thing, iterate on the budgets and lastly review, reflect, plan and

improve.

35
2.11. Advantages of Budgetary Control

Budget outlines a plan articulated in quantitative terms. Budgeting is a technique for

preparing budgets. Budgetary Control, on the other hand, refers to the principles,

methods and practices of achieving given goals through budgets. Following is the

importance of Budgetary Control. The budgetary control system assists in establishing

the goals for the organization as a whole and concentrated effort made for its

achievements. It brings economies in the constitution. Some of the advantages of

budgetary control are:

2.11.1. Maximizing returns for the organization

The budgetary control aims at the increasing profits of the organization. Operating costs

are reduced & resources are set to optimum use. To achieve the above objective,

efficient planning and coordination at different levels is ensured (Preetabh 2010).

2.11.2. Quality of communication is improved

Budgeting improves the quality of communication. Preetabh (2010) discusses that the

enterprise’s goals, detailed plans to achieve such goals, methods etc. are clearly drawn

and communicated to all people in the organization through budgets which results in

better understanding and harmonious relations among all.

2.11.3. Co-ordination

Budgeting helps to equivalent, incorporate, and equilibrium the efforts of various

departments in the brightness of the overall goals of the organization. These results in

achieving goals. Budgeting helps to coordinate, articulate, and equalize the efforts of

36
different departments for the entity’s overall objectives (Pandey 1979; Preetabh

2010). The budgets of different departments have a bearing on one another. This

results in co-ordination of executives and subordinates at different stages of the

enterprise. Goal congruence and harmony among the departments and harmony among

the departments.

2.11.4. Specific Aims

The ideas, guidelines and targets are determined by the most truly effective

management. All efforts are put together to achieve the common purpose of the

constitution. Every class provides a goal to be attained. The efforts are focused towards

reaching come particular aims. If you have number certain aim then your efforts will

soon be lost in seeking various aims (Hope 2003 & Fraser 2003).

2.11.5. Tool for Measuring Performance

By giving targets to various departments, budgetary control provides an instrument for

measuring managerial performance. The budgeted targets are in comparison to

absolute results and deviations are squared off (Preetabh 2010; Pandey 1979). The

operation of every department is reported to the most truly effective management. This

arrangement enables the initiation of management by exception.

2.11.6. Economy

Budgetary control eliminates misuse of finance and organization’s finances. Budgetary

control involves setting up of budgets and if any deviations occur, the responsible

person will be accountable for his/her action. So the planning of expenses will be

37
systematic and there will be an economy in giving away. The accounts will be put to

prime use (Preetabh 2010).

2.11.7. Determining Weakness

The deviation in budgeted and absolute performance helps to identify potential threats

and business problems and weak spots. Efforts are concentrated on those aspects

where performance is less than what was targeted (Preetabh 2010).

2.11.8. Disciplinary Action

The management will be able to bring corrective measures whenever there is a

discrepancy in performance (Preetabh 2010). The deviations are likely to be often

described in order that essential activity is assumed at the earliest.

2.11.9. Consciousness
It creates budget consciousness among the employees. By arranging goals for the

workers, they are made alert of their authority (Preetabh 2010).

2.11.10Reduces Finances
Budgeting develops profit-mindedness and finance consciousness across all levels of

employees in the enterprise.

2.11.12. Introduction of Incentive Schemes

Budgetary control system also enables the introduction of incentive schemes of

compensation for motivating employees. The comparison of budgeted and absolute

performance will enable the usage of such schemes (Preetabh 2010).

38
2.12. Planning and Budgeting

2.12.1. Budgeting
Budgeting is the process of developing and using budgets to achieve management

objectives. A budget represents management’s plans of action for future periods of an

organization (Drury, 2000; Pandey, 1979). In the study of Scarborough (1991),

extensive uses of budgeting have been excused. They are mostly highlighted the

significant emphasis, which diverse forms of businesses in various places, put on

budgeting techniques, as critical aspects of management control. Significantly, however,

there seems to be always a paradigm shift in the management sales literature, while one

can find however advocates of budgeting, critics contend that the standard budget is no

further proper provided changes in engineering and the rapidly changing business

atmosphere (Kaplan, 1983; Kaplan and Norton, 1992 and 2001). Enthusiast of

budgeting battle that budgets have 19 several vital roles. Blocher, (2002), for a moment

argued that budgets help to assign resources, equivalent operations and ensure a

means for performance measurement. Hilton (2000) agrees with this view and claims

that the budget is most widely used technique for planning and control purposes.

The Institute of Finance and Management Reports identifies a budget as a plan

quantified in monetary terms, organized and approved ahead of a defined time frame,

usually featuring in the pipeline revenue to be made and/or expenditure to be incurred

during that time and the capital to be utilized to achieve given objectives (Mordi, 2000).

Budgeting involves the provision of an itemized financial statement indicating what the

expenditures are going to be over a given period, normally for a twelve month. The

budget might also showcase what income the institution is likely to generate during the

same period.

39
Cole (1996), noted that fundamental to the success of any organization, is drawing a

budget plan and putting it in operation. More, records that making a budget is very

important as it enforces an organization to carefully think about the expected demand

for the products and services, companies and the assets needed to meet that demand.

It also translates the higher priorities for the organization into the appropriate

resources needed to achieve those priorities, as it would be difficult to allocate

resources due to scarcity without a budget plan. It creates the baseline against which

absolute results can be compared, budgets act as a basis for evaluating performance in

organizations and help in directing the activities of the organization hence giving earlier

signals on variances in sufficient time to take corrective actions. Clarke and Toal (1999)

too are of the opinion that budgets are still essential and can be incorporated as part of

the financial component of the balanced scorecard. Pierce and O’Dea (1998), also

subscribe to the view that budgets are still relevant to today’s business environment.

Fig: Central Aspect of Budgeting

The Central Aspects of Budgeting are:

 Allocating resources after proper preparation, marking targets, restricting finances

are the primary goals of a sound budgetary process.

40
 Financial, leaders, management experts, managers and business practitioners can

identify potential threats and business problems with the help of budgeting and

use it to create competitive advantage.

2.12.2. Budget Functions

Budgeting serves the functions of financial and management control. Financial control

results in the dominance of financial resources while management control ensures that

the natural processes of the offices of the organization are co-coordinated (Otley, 1987).

Budgets coordinate the activities of the components of the constitution, through this;

the aims of the organization are harmonized with the objectives of the parts. Budgets

assist coordination via communication of information about plans to managers and

employees (Nassolo, 1997).

Budgeting at the local level is intended to improve service delivery by shifting

responsibility from policy implementation to the beneficiaries and promotion of

domestic skills. This is meant to place prominence on clear and accountability in the

management of public affairs (Danilo, 2002).

On the other hand, if the budget is insufficient to complete a piece of work, additional

funds should be availed so that the project is completed. Additional funds in the form of

supplementary estimates should be availed so long as satisfactory reasons are provided,

this will assist completion of projects on stipulated time. It will also reduce wastage of

resources on uncompleted projects. There is a need to plan for changing business

conditions in order to appropriately take action that can deal with changes that occur

should any of the plans be affected by such modifications. This is the significance of

41
having contingency plans available to deal with certain addition, which were surprised

at the time when the budget was originally prepared (Zeithml and Parasuraman, 1994).

Meanwhile critics of budgets claims that budgets are bad for business applications and

no longer considers it adequate. They deemed it as “basically flawed” for planning and

control mechanism in today’s complex and highly uncertain business environment

(McNally, 2002). Stewart (1990) claims that experts criticize budgets as not useful.

According Stewart, “the budgets monitor the wrong financial things, indicates the

experts like head and even elevates the profits”. Prendergast (2000) lists a number of

problems with budgeting for planning and control purposes. First, a lot of guesswork is

involved in the budgeting process. Second, budgets are increasingly inaccurate as a

result of shorter product lifecycles and the rapidly changing business atmosphere.

Finally the extent of budget with certain integrity he argues that over the long period,

budgets have been resulting in a conflict between top level management and their

considerate subordinates.

Another major criticism of budgets is the over-emphasis on short-term profits at the

expense of continuous long-term improvements such as new product development and

customer satisfaction (Hayes & Abernathy, 1980). McNally (2000) is also very critical

of the traditional budgeting. He clarifies by his argument, “days of common budgeting

and the following are numbered”. Some critics say that McNally indifference on

budgeting is that he views the process as consuming too much time and incur very

high finances. Consequently, when the budget is passed, it may no longer be accurate

and this causes problems for businesses in today’s unpredictable and fast-paced

business environment. An annually established budget is, therefore, imperative to the

effective and efficient operation of the organization according to Zimmerman, (2003).

42
2.12.3. Planning
Planning as part of the budgeting system which involves a long range planning, strategic

planning and short term planning (Sizer, 1989). Further, he emphasizes that short term

budgeting must accept the environment of the current day, and the human and financial

positions at present available to the organization.

Planning involves selecting objectives and action to attain them. It is looking ahead and

preparing for it, which connects to budget planning. Through this planning the

organization is able to assess where it is supposed to be in terms of objectives and goals

(Stoner, 1996)

Good planning is characterized by clear objectives and goals. It must be simple and

absolute. The plan shall be well compared and adjustable so as to incorporate changes

in the resources and should be time bound. Properly covered plans tells what, when and

how something is to be done (Chandan, 1995; Bhatia, 1996). Sound planning mentions

priorities and the planning control cycle. Since there are so many activities to be

achieved , it is necessary that they are listed in order of choice.

Budgets are put in place in advance of the budget periods based on an anticipated set of

circumstances or atmosphere. The important decisions are viewed as a component part

of the log term planning process (Selznick, 1988). Benefits of budgeting accrue to the

whole organization if both the short and long term consequences of the budgets are

considered (Otley, 1987). Nevertheless, the annual budgeting process leads to the

refinement of particular plans, since employees must produce specified plans for the

implementation of the long range plans. Without the annual budgeting procedure, the

43
pressures of everyday controlling problems may tempt managers not to plan for future

operations (Scott, 1987).

2.12.4 Planning Process

The planning process helps to ensure that managers achieve expected results and then

consider how the conditions in the next calendar year will probably modify and then

determine what procedures they have to decide to try to overcome these kinds of

conditions.

Budgetary planning is therefore the key to success in business and budgeting forces

planning to commence. Once it is not commenced properly the firm may not operate

properly (Lucy, 1996). This process encourages managers to anticipate problems

before they appear, and speedy decisions that are considered on stimulation of the

moment, based on advantages rather than deduced judgment (Murphy and Peek 2003).

An organization’s plan and priorities should therefore be important drivers in the

budgeting process.

2.13. Participation
The management accounting literature advocates participative budgeting as it provides

managers with a sense of belonging (“this is our budget”) and increases the possibility

that they will make greater attempts to achieve the organizational budgetary goals.

Prior studies on the relationship between budgeting participation and performance

have received mixed results. Stedry (1960); Cherrington and Cherrington (1973) found

that a participative budgeting approach has a negative impact on performance. In

contrast Merchant (1981); Brownell (1982); Covaleski et al (2003) found a positive

relationship between budget participation and performance. The more recent literature,

however appears to advocate a participative approach as it can be more effective and

44
people may be more inclined to attempt to achieve budgetary goals if they have been

consulted in the budget-setting exercise (Hilton 2000). Fisher (2000); Chow (1988)

indicated that participation provided opportunities for managers to create budgeting

inactive, whereas low attendance restricts such opportunities. Budgetary slack is

defined as the amount by which managers intentionally build excess requirement for

resources into the budget or knowingly understate productive capacity (Dye 1992).

A study has nevertheless found that the relationship between participation and slack is

not logical. Competitive budgeting may have a different impact on lower level managers

than on managers from a higher level. Lack of control feeling in work placements were

more prevalent at lower organizational levels (Semler, 1989).

Higher-level managers can exercise more control over their employment situations,

because of their position in the hierarchy, than lower level managers. Freakout and

Shearon (1991) cited in Hopwood (1974), using the locus of control as a moderating

factor, found that hierarchical levels affected the impact of budgetary participation of

Mexican managers. Other works, however, leads one to conclude that although

competing management is respected as being rather “biblically correct” presently; it

may possibly be that its value is usually situated-specific, there are certainly a lot of

companies whereby it is not necessarily immediately a major motivational force. As

reported by Cherrington (1973) it learns to identify which the “very excellent down”

deception of budget permitting spots resulted in more significant functionality between

the clients unlike those leaders who, more or less fixed one’s own targets. At the same

time, despite present-day preferred idea, all the setting of budget allowed spots in

addition to budgetary command which does not always end in autocratic managing

behaviour (Demanpour and Evan 1984).

45
Operators can be motivated so that you can interact with these types of difficulties with

regular exercising their particular authority on an inclusive, accessory, democratic,

participatory method. Carried to its logical conclusion, real participation would result

in a “bottom-up” employee empowerment, envisaged by Johnson (1992). Here, staff at

the bottom of the pyramid would not solely have access to elaborate accounting data,

however they might be inspired and expedited to use this, alongside their information

about the basics of the organization, to progress and grow that organization and

guarantee most potency and effectiveness in meeting its goals. Therefore, it can be

argued, is a somewhat Utopian perception, taking an active belief in the efficiency of

Barnard’s (1938) assertion that power in any organization is held at its base and that

all employees have sufficient competence and motivation to analyze detailed

accounting information.

The difference between success and failure of an organization can be partially explained

by how well employees are organized and supported, how well the organization brings

out the abilities and talents of its staff (Denton, 1999). It is important that staff will be

more receptive of decisions and objectives of the firm. If that is the aim to happen,

management has to provide work free environment in which there is mutual trust, and

a sense of employee and ownership of the business prevails (Denton, 1999).

2.14. Environmental Monitoring and Control

2.14.1. Monitoring
Budgetary monitoring and control are a deterrent process against misappropriation of

funds in terms of operations and conventions that show the boundaries of financial

behaviour. According to Drury (2000), budgetary monitoring and control process is a

systematic and continuous one which, is characterized by the following stages;

46
Establishing targeted performance or level of activity for each department of the

organization by way of setting targets to be achieved enhances the monitoring of the

organization's operation. Communicating details of the budgetary policy to all the

stakeholders for easy appreciation of the set targets and objectives enhances ownership

of the results achieved at the end of the day (Esuku 2003). Monitoring absolute revenue

or finance data is done by way of continuous comparison of absolute performance with

the budgeted performance and regular reporting of variances to the responsible

officers. This helps in asserting the reasons for the differences between absolute and

budgeted performance and taking the suitable corrective action. The “bottom-top”

approach of budgeting allows participation of all levels of management in the decision-

making process. Negotiations then begin between the corporate office and department

heads to finalize budgetary figures. The budgetary process then shifts to a "tops-down"

approach, where the corporate office has ultimate control to adjust the final budget.

Through this process of monitoring, analysis and control, the problem of "ratcheting" is

generally avoided (Kelly, 2003).

A budgetary monitoring and control process assumes that expenditure must agree with

the budgeted plans and maintains information about expenditure. Financial control is

also one of the most important aspects of budgeting. By means of budgetary control,

which means balancing absolute results with planned events and reporting on the

variations, a perfect margin is set for management (Esuku 2003). This frame points to

managers to track the flow of resources accurately and constantly. This calls for an

unstoppable control process throughout the year, and not just at the end of a budget

time frame. The main objective of monitoring is to plan the policy of a firm, to

coordinate the activities of that firm so as to achieve the targets set. According to

Briston (1981), financial control and monitoring ensures efficient and finance-effective

47
program execution within a system of responsibility. Nevertheless, he observes that the

current financial control systems must be complemented by further improvements in

the overall program monitoring for better budget implementation in accordance with

approved study plans.

The above process demands comprehensive planning and approval framework,

consistent with processes for constructing budgets of revenue and capital. A sound

approach for assessing the fiscal impact of projected expenditures, compatible with

other management and performance data and a system of control that define clear

responsibilities and gives accurate and timely monitoring information on performance

against budgets is significant.

2.14.2. Control
Control basically provides the ex-ante motivation to achieving the budget and the ex-

post reinforcements necessary to ensure future motivation (Kerr, 1979). Hence the

perception of variances as extremely important and valid measures of achievement is

sustained. The evaluation of budget fulfillment should be based on a comparison of

absolute performance with a set budget to reflect the current conditions of the

environment under which directors are absolutely operating in (Alesina and Perotti,

1996). A budget therefore, assists managers in monitoring and controlling the activities

for which they are answerable. By contrast the absolute results against the budgeted

amounts for different categories of expenses, managers can ascertain which finances do

not conform to the original plan requirement. This methodology helps management to

operate a system of management by excluding, which concerns that a manager’s

interest and effort can be concentrated on significant deviations from the expected

48
results. Thus enabling managers to identify inefficiencies and appreciate control action

sought to rectify the situation.

By means of budgetary control that is, comparing absolute results with planned results

and reporting on different options, an authority frame is set of management. It helps

expenditure to be retained within the planned limits (Alesina and Perotti, 1996). Carr,

(2000), argues that in order to achieve the expected production results, monitoring and

evaluation is necessary. Monitoring and evaluation maintain stability under many

competing forces, hence important to lower some organizational effectiveness (Hokal

and Shaw, 1999). However, Hokal and Shaw continues to note that monitoring and

evaluation require only raw data to test and examine performance which is time

consuming yet contributes little to performance.

Perhaps, the requirement to establish the level of controlling and controlled in realizing

sound budget management and performance.

2.14.3. Feedback and Control

Feedback concerning the degree to which budget goals have been achieved is another

important variable in the budgeting procedure. Reports should be granted with the

required frequency to aiding adjustments to off-target operations. When members of an

organization do not know the results of their efforts, they have no indication of success

or failure and no incentive for higher performance (Henderson, 1997). Although

Henderson (1997) and Kenis (1979) mentioned the importance of budgetary feedback

and monitoring for improvement of managerial achievement, they did not explore how

the revelation of such information affects other managerial behavior.

49
Sometimes, top management instructs its unit managers to work towards budget

targets but do not want such managers to know the rationale behind their resolutions.

Consequently, these managers can lose their focus and uncertainty can be faced. The

only option for managers to solve problems is by creating budgetary slack, and they

might use the slack to cover the varying figures. As a result, wastage can be created

(Lukka, 1988). Feedback on performance, when presented in a constructive, objective

and unfavorable manner, has been afforded to be absolutely important as a motivator in

giving reliable estimations in the budgeting process.

Management should learn to sustain the people/employees’ rather than control in order

to let them lead the initiatives in identifying and resolving the problems. Organizational

employees/staff need to learn to accept and accept given authority. Management needs

to learn to invest confidence in the employees’ hard work, and support the when they

make errors by providing constructive feedback. Mistakes drive people and

organizations to learn (Heifetz & Laurie 1994).

2.14.4. Types of budget

Budgets may be classified on the basis time period

a. Long term strategic technology planning and budgeting.

b. The short term budget outlook is pretty bad.

Long term strategic technology planning and budgeting. A budget with an expression

usually prolonged or longer than one year that implies more ambiguous than a short-

term budget as business processes and market trends are predictable for a short period

of time. Long term budget or planning is essential to maintain (Pandey 1979).

50
The short term budget outlook is pretty bad. Short term budget or planning usually

refers to planning for a short period of time usually less than a year like items to be

bought and paid for (Pandey 1979).

2.15. Budgeting Process

A budget is a flexible financial plan that integrates competing demands while working

towards a similar goal (Antos and Brimson 1998). For example, an organization has

mentioned its goal in their mission statement. The perfect goal is to provide quality

goods and services to its customers, which are differentiated by their accessibility,

excellence and responsibility for individual and regional demands. The combination of

competing demands diagnoses the truth. There is never adequate finance available to

satisfy all the needs of our clientele. The basic thing is to drive a balance between

demands and resources available. The perfect tool is a budget, which is available to

support that difference, but it also plays various roles.

A particular budget is considered to be a calculable and detailed design. It reads the

information about the achievement and the use of financial and other resources over a

specific period of time, either a longer period (years) or a short period (months or

days). Budgets require management to specify expected sales of market organization,

cash inflows and outflows, and finances (Horngren, 2006).

The term “budgeting” identifies the act of designing a budget or the activities of

expecting and qualifying future needs for finance. Budgets provide systematic and

definite data expedite and it allows a decision-making method of organizations.

Budgetary process is mainly implemented to evaluate relationship between the

budgeting process and budget execution.

51
Budgeting deals with the implementation of the standard curriculum within the long-

range plan. The purpose of a budget system is to supply the needs of management in

view of the judgments and resolutions necessary to seduce and to provide a basis for

the management functions of planning and control (Kironde 2004).

A budget is organized much prior to the time period and is dependent on the agreed

objectives for that period of time together with the scheme planned to acquire those

objectives (Whitman et al 1996).

Fig: Budget Principles Diagram source Kironde (2004)

2.15.1. The principle stages include

Conversing the details of aims and plans for those who are responsible for setting up of

budgets, conversing the particulars of the budget making actions of those responsible

for making of Budgets. Deciding the restricting factor which limits overall budget

52
flexibility and forms the focus of the budget flow, making initial budgets, discussing

budgets with business managers, organizing and review budgets, accomplishing

budgets in final form and finally executing on-going reassessment of budgets.

2.15.2. Participation
Participative budgeting as it offers managers with a belonging sense, a feeling (“this is

our Budget”) and enhances the opportunity that they will build larger attempts to reach

the organizational budgetary goals. Prior studies on the relationship between budgeting

participation and performance have got hold of mixed results. Stedry (1960) &

Cherrington (1973) observed that a participative budgeting method has a negative

influence on performance. In contrast Merchant (1981), Brownell (1982) and

Covaleski (2003) discovered an optimistic relationship between budget participation

and performance.

2.15.3. Feedback and Control

Feedback relating the extent to which budget goals have been acquired is another

essential variable in the budgeting method. Reports should be concerned with adequate

frequency to make easy changes to off-target operations. When employees of an

organization are unaware of the outcome of their efforts, they have no clue of success or

failure and no encouragement for higher performance (Lukka 1998). Although Lukka

(1998); Kenis (1979) mentioned the necessity of budgetary feedback and control for

enhancing managerial performance,

2.15.4. Perceived Budget Performance

Perceived budget performance consigns to the insights or opinions of respondents in view to how

well or badly the aims of the organization are acquired through budget performance and this would

53
be in sight of the revenue performance, expenditure performance and value for financial

performance (Fanning, 1999).

2.15.5. Revenue performance

The process of weighing up and estimating on how successfully and capably person,

assets and technology within an organization is referred to as Performance

measurement (Schermerhorn and Chappell, 2000). Utilized in the marketing area,

usefulness refers to the degree to which customer needs are met, while efficiency is a

measure of how economical the firm’s resources are utilized when providing a given

level of customer satisfaction (Neely, Gregory and Platts, 1995).

2.15.6. Expenditure Performance

This refers to how careful management maintains finances so as to enhance the profit

obtained from the revenue (Weetman, 1996). Expenditure performance as a yardstick

of budget performance would be settled as a budget to real expenditure comparison.

Variance analysis is an internally managed technique; management puts in place so as

to enable to institute the reasons of deviations from the budget.

2.15.7. Valuation for financial performance

Value for finance achievements are detailed as improvements in the grouping of whole

life expense and class that meet the users’ requirements. They are tenable as a result of

constructive activity by staff engaged in commercial transactions (Kironde 2004).

2.16. Relationship between Budgeting process and budgeting

performance
Participation in the budgeting process has conventionally been taken to mean the active

participation of the budget holders, at least which goes beyond simple. Feedback is an

essential part of budgeting for acquiring the expected quality and standards in planning,

control, and leadership and staffing (Douglas 1994).

54
Budgets being a standard for performance are also used to assess managerial

performance (Srinivasan, 1987). Similarly, Hopwood (1972) used a case study tactic

and found that budgeting places a high essentiality on budget-to-actual comparison for

performance assessment reason both at the corporate and the subsidiary levels.

As the speed of change keeps on to go faster in the global economy it is necessary for

firms to move beyond lagging financial performance pointers to judge variances that

add to long-term value creation. As more firms move to utilize economic value –added,

non-financial and balanced score card move towards to calculate and recompense

performance, it is essential to deem their association on budgeting and financial

planning (Rapaport, 1986).

The modifications in corporate functioning assessment stem from the shareholder value

movement of the 1980’s (Rapaport, 1986). The shareholder value viewpoint proposes

that managers’ achievement can be judged by their ability to raise the present value of

future cash flows to corporate shareholders. This model later developed was put into

practice through the popular economic value added (EVA) measure of management

performance.

2.17. Participates in preparation of the annual budget

1. Sales

2. Inventory

3. Operating finance and expenses.

4. Suitable various research and development.

55
 Fig: Budget Stages: Diagram Source Bremser (1990)

Strategic and
long-range
plan

Long range
sales
forecast Marketing
expense
budget
Sales budget

Production Administrati
Inventory
budget ve budget
budget

Manufacturin
g finance
center
budgets

Profit plan

Cash budget Capital

expenditure
budget

Balance
sheet budget

56
2.18. Zero Based Budgeting (ZBB) and Activity Based Budgeting (ABB)
It is advocated it can be possible to match the budgetary needs of the entity in question

(performance) through adopting “better budgeting” processes including as an example

activity based budgeting (ABB) and zero Budgeting (ZBB) (Fanning, 1999).

Nevertheless, it is now being increasingly argued which simply “tinkering” having an

organization's budgeting system is not adequate.

2.18.1. Activity-Based Budgeting (ABB)

An approach to budgeting where the actions that incur finances in each functional

region of a business are recorded and relationships are defined and analyzed. Activities

are then stuck just using strategic goals, then the amount paid of those actions needed

utilized create the budget (Hansen 2003).

Activity based budgeting stands distinct from traditional, finance-based budgeting

practices where a prior period's finances are simply adjusted to be mindful of inflation

or revenue growth. As a, ABB provides the possibility to align activities with objectives,

streamline finances and improve business practices (Hansen 2003).

By looking into the financial structure of a business through the processes that come

being performed, managers can better analyze the earnings potential of the company's

products and services. Finance efficiencies are offered by comparing activities

performed in several instances the firm and consolidating or rerouting certain functions

(Hansen 2003).

At its essence, activity-based budgeting begins by contemplating results and those

actions that produced them, unlike finance-based budgeting, which frequently leads off

57
with raw input and material and works outward. ABB could also help firms make more

accurate financial forecasts.

Activity based budgeting is a tactic into the budgeting procedure that targets for

identifying the amount paid of activities that be fulfilled in each area of the business or

organization, and seeing how those things understand one another. The details

regarding those things as well as how they relate one to the other is employed to create

goals that enable the firm move forward. By discovering the relationship between all

those actions of the firm, selecting possible for making realistic budgets for any

department that happen to be more equitable as well as in the top interests of the firm

actually run (Hansen 2003).

The very idea of activity based budgeting is different to the method termed finance-

based budgeting. Oftentimes, the finance-based approach utilizes assessing this

particular expenditure connecting along with a previous budget period, and just

adjusting those amounts while using the current rate of inflation, or even be aware of

modifications in the degree of revenue generated. Electrical systems, activity based

budgeting might be more concerned using what is done inside the firm, how those

actions or activities join hands, then allocating funds to each and every activity in much

the way it will finance you to successfully complete those activities (Hansen 2003).

Zero Based Budgeting

A technique for budgeting whereby all expenses need to be justified per new period.

Zero-based budgeting starts using a "zero base" and each function within an institution

is analysed because needs and finances. Budgets are then built around what exactly

you'll the upcoming period, if your budget is higher or not up to the prior one.

58
ZBB allows top-level strategic goals that they are implemented in the budgeting process

by linking these to specific functional sectors of the corporation, where finances are

generally first grouped, then measured against previous results and current

expectations (Hansen 2003).

Due to its detail-oriented nature, zero-based budgeting is sometimes rolling process

done over the decades, with just a few functional areas reviewed at any given time by

managers or group leader.

Zero-based budgeting can lower finances by avoiding blanket increases or decreases to

somewhat of a prior period's budget. It will be, however, a time-consuming procedure

that takes considerably longer than traditional, finance-based budgeting. The practice

also favours areas that achieve direct revenues or production; their contributions are

usually easily justified compared with a department which includes client service and

research and development (Hansen 2003).

ZBB allows top-level strategic goals that they are implemented in the budgeting process

by tying these to specific functional sectors of the corporation, where finances are

generally first grouped, then measured against previous results and current

expectations (Hansen 2003).

Zero-based budgeting can lower finances by avoiding blanket increases or decreases to

somewhat of a prior period's budget. It will be, however, a time-consuming procedure

that takes considerably longer than traditional, finance-based budgeting. The practice

also favors areas that achieve direct revenues or production; their contributions are

usually easily justified compared with a department which includes client service and

research and development (Hansen 2003).

59
In utilizing zero-based budgeting, the Budget Owner and Budget Mind should reate an

asking attitude. Some case issues, to be placed on each activity/process, are the

following:

 Does the experience have to be moved out?

 Does the experience have to be moved out in this manner?

 What will be the outcome if the experience were not moved out?

 How much does the experience gain the organization?

 Is the present quantity of provision satisfactory?

 Is there a backup way of applying the provision?

 Just how much must the experience price?

Incremental Budgeting: This style of budgeting involves using next year’s budget on the

current year’s budget, plus a provision to take into account things such as inflation,

estimated growth etc. for the coming year. It’s concerned with projecting increases in

costs and revenue for the coming year. This approach is less time consuming but

depends a lot on the accuracy of the current year’s budget. A drawback to this approach

is that managers may needlessly spend the whole budget to try and guarantee full

allocation in the coming year (Hansen 2003). Also if a business’ operations are inefficient

and ineffective this approach can highlight.

Rolling/Continuous Budgeting - A rolling budget is one, which is continuously updated

by adding a further accounting period once the earlier accounting period has expired.

The major benefit of this approach is that it reflects the most up to date information and

market conditions (Hansen 2003). This is probably the best approach as changes are

included on a monthly basis or however frequent the budget is rolled over. This is not

60
the case with ZBB or Incremental budgets. The downside of this approach is that as it

has to be continually updated, it is a significant drain on resources.

2.19. Beyond Budgeting (BB)

Beyond Budgeting is one which involves disregarding the traditional budget process

altogether and applying a range of existing tools/techniques (independent of budgeting)

together to take its place, such as rolling forecasts, balanced scorecards etc. The

ultimate goal of the BB approach in an organization is that it brings about a more

adaptive set of management processes within the organization and units/departments

are highly decentralized (CIMA, Topic Gateway Series No.35, Beyond Budgeting).The BB

has two set of guiding principles, which are:

2.19.1. Leadership Principles

Leadership principles provide a framework for the devolution to lower level teams

especially Frontline employees and consequently enabling them to respond quickly to

emerging events and making them accountable for continuously improving customer

outcomes and relative performance in the organization (Daum 2002) Governance is

based on clear values and boundaries not on detailed rules and budgets.

1. Performance - Build a high performance culture based on relative success not on

meeting targets.

2. Freedom to act - Devolve decision making authority to frontline teams do not

micro-manage them.

3. Accountability - Create a network of small units accountable for results not

centralized hierarchies

61
4. Customer focus - Focus everyone on improving customer outcomes not on meeting

internal targets

5. Promote open and shared information doesn’t restrict it to those who ‘need to

know’

2.19.2. Process/Performance Management Principles

The process principles support a more adaptive management process which enables

lower level employees (Frontline staff) to be more responsive to the competitive

environment and customers (Daum 2002). The process principle involves:

1. Target setting - Sets operational goals based on continuous relative improvement

not fixed targets.

2. Rewards - Reward shared success based on relative performance not on meeting

fixed targets.

3. Planning - Make planning an inclusive and continuous process not an annual event.

4. Resources - Make resources available as required not through annual budget

allocations.

5. Coordination - Coordinate cross company interactions dynamically not through

annual plans and budgets

6. Controls - Base controls on relative performance indicators not variances against

the plan.

Clarke (2002) states that organizations using the BB approach will continually review

their strategic position. The new emphasis is on looking for opportunities and threats

rather than continually looking backwards at historical information. BB companies will

62
measure and report on a few key performance indicators rather than a mass of detail.

The quality of the information is more important than the quantity. The BB approach

assumes that effective organizational performance is likely to be associated with giving

employees the training and authority to make decisions, and rewarding them

accordingly (Daum 2002). It's important to have system that empowers and facilitates

actions based on the value propositions of the firm. It has changed the target and

reward systems. The rewards are now based on group or unit rather than individual

performance. The focus is on beating the competition not on beating previously agreed

targets. The motivation is to continually do better (Clarke 2002).

2.19.3. Developments in Budgeting

According to Hansen (2003), he shows that the two practices-led developments which

demonstrate proposals to enhance budgeting or to discard it include the U. S. -Based

CAM-I ABB (Activity-Based Budgeting) and The European-based CAM-I BB (Beyond

Budgeting). Though the two practices-led developments reach distinct conclusions, both

originated within the same company, the Consortium for Advanced Manufacturing-

International (CAM-I); one within the United States and the other within Europe. The

ABB group advocates enhancing the budgeting system through marrying a more

inclusive, activity based operational framework having a detailed financial model

(Hansen 2003). It lays emphasis on enhancing the budgeting backing of operational

planning. As the name depicts, the ABB-approach emphasis on developing a budget

from an activity-based framework of the society, rather than the conventional product-

market, departmental focus or responsibility center (Hansen 2003). The ABB-group’s

basic thrust is to spread out capacity management as well as activity-based conceptions

into budgeting.

63
Moreover, the Beyond Budgeting (BB) group takes on a more radical perspective and

proposes a two-stage paradigm (Hansen 2003). The first stage deals with the issues

with budgeting at the time when they are adopted for performance appraisal. It

proposes that traditional budgetary controls which combine performance evaluation

and planning result in ineffective planning as well as dysfunctional behavior. As a result,

the BB-group suggests either radically altering the traditional budget-based

performance assessments or totally rejecting the budget procedure (Hansen 2003). The

second phase of the BB-concept is to thoroughly decentralize the company and

authorize lower-level supervisors and staff members. CAM-I Europe’s BB-concept

attempts to keep away from what they label the yearly performance trap (Hansen

2003). This trap takes in dysfunctional behaviors which occur from assessing line

supervisors’ vi's-à-vis this budget targets which are established without any reference

to the trustworthy (outside) source and continue to be stable for the subsequent budget

year (Hansen 2003). Even though, the ABB-group includes more of planning focus and

while the BB-group focuses more on performance evaluation, they share a general

opinion that traditional budgeting is basically mismatched to present day’s rapidly

altering and onshore environments.

2.20. Purpose/Importance of Budgeting

1. Serve as a tool of price control.

2. Act as legal guarantee.

3. Tool for eliminating universal services finance.

4. They are also an indispensable tool for policy makers.

64
Effective budgeting system serves in the value creation process. These are invaluable

components of company’s forecasting and monitoring efforts. The system drives

managers to set up and promote coordination. The budget method supports accounting

and accounts. Master budget combined with comprehensive plans, registers the

company’s objectives and intentions. Combining the master budget to the company’s

long range and strategic setting up increases the overall planning effort (Bremser

1990).

When organizing a budget these facts affecting finances should be thought about:

 Past income numbers

 The economy

 Opponents ‘activities

 Industry study

 Government legislation and policy

Finances might

Short term 1 year

Medium term 1-5 years

Long term 5 + years

2.20.1. Fixed and Variable Budgeting

A static budget is organized for the starters degree of income or level of creation and

that stays unaffected throughout the budget period. A flexible budget is organized.

65
2.21. VIREMENT
The budgets of any organization are supposed to be followed rigidly. Since rigidity is a

requirement of the budget whose major aim is to make sure that only those items and

amounts of expenditure authorized in the budget should be incurred. However, because

business conditions are always changing, it is imperative to view the budgeting process

as a guide to future action, rather than a rigid plan that must be followed irrespective of

changing business conditions. Also a great deal of flexibility is required in

implementing the budget so that changes in circumstances and unexpected events can

be accommodated (Johnson 1992). There might be a fall in revenues from fees and

charges than earlier anticipated or an increase in the cost of a particular project. These

would require the changes or resources.

According to Johnson (1992), it may be possible to meet the over spending in the budget

from elsewhere in the budget. This process of meeting overspending in one area by

under spending from another department or unit is known as virement, provided the

under expenditure has arisen as a result of a genuine saving and is not merely

fortuitous.

The goal of virement is to enable managers to move amounts between budget headings,

without touching the underside line target, to more accurately reflect their

department's anticipated expenditure as the year unfolds. Effecting virements within

the system will improve the monitoring of the organisation’s department budget and

the physical movement of budgets between headings will enable savings in a single area

to be offset by expenditure in another (Johnson 1992).

This virement policy will apply to all or any budget changes proposed throughout the

financial year. Budget changes that occur consequently in budget setting will

66
undoubtedly be undertaken within the unit’s or department’s normal annual budget

setting process (Johnson 1992).

Budgeting within big businesses is an incredibly complicated task. Economic analysts

should produce assumptions of what the long run will appear like predicated on

previous data. Which means that also the very best budgeting method is at the mercy of

significant inaccuracies? Then, as the entire year advances, each class is confronted with

a predefined budget that might become inferior because of adjusting conditions. On

another dive, some communities will realize they have more cash than they might need,

and may possibly decide to surreptitiously burn up the "added" budget with pointless

expenditures to be able to prevent budget cuts.

2.22. Budget Committee

The budget committee is a management committee set up in an organization and

consequently charged with the responsibility of preparing the budget. Members of a

budget committee are made up of executives drawn from all the departments in the

organizations – human resource, sales and marketing, administration, finance and

accounts, production and other service departments. The budget director (e.g. chief

executive officer or a senior director or finance director in the firm) is in charge of the

budget committee.

The key functions of the budget committee according to Steps in making a budget

(2011) are:

1. The provision of general guidelines for budgets and suggests changes;

2. To offer technical advice;

3. Getting & researching of all finances;

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 4. To receive and review individual budgets and suggest changes;

5. To reconcile divergent views and co-ordinate budgetary activities

6. Indicating of amendments and changes;

7. To approve budgets with or without revisions and scrutinize budget reports late

The budget committee brings together all the activities of every departments/sections

in a co-coordinated way and controls those activities in an effective manner. It has an

advisory role and the advice of the budget committee is vital, and is usually carried out

by the management.

2.23. Budget Centers

For control purposes, all divisions of the enterprise will be broken down into budget

centers. Budget for each division will be prepared alongside its services or

departments. The head of department will be responsible for controlling all costs

relating to their departments or units Horngren (1972). On the other hand, budget

center is that area or team of the corporations which for the applications of budgetary

get a handle on, is determined and divided from the remaining portion of the parts or

sections of the organization. The State Budget Management (2011) explains in the

archive documents that a departmental brain operates like obligation centers. There

ought to be another budget for every budget center & also separate contract must be

created using actual (Steps in making a budget 2011).

2.24. Budget Manual

Horngren (1972) says that this is a written set of instructions and relevant information

that serves as a reference book for the implementation of the budgetary process. It

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normally contains among other details of the responsibilities of individuals involved in

the preparation of budget, the basis on which each of them should prepare their

functional or departmental budget and the form and records to be used for reporting

the actual results. The budget manual tells what to do, how doing it, when to do it and

the form to do it (Horngren 1972).

2.25. Behaviour Aspect Of Budgeting

Participative budgeting is one important aspect of budgeting in recent times. Brown

(1984) observed that budgeting system will be ineffective if the people who are

operating the system have not been considered and are not asked to participate in it.

Even in an automated industry person will still be needed somewhere in the system

and their aims and objectives must be considered. Prior to participating budgeting, the

budget was merely discussed with those responsible for operating the system and

participation was very minimal.

In recent years, participative budgeting has been introduced and full participation is

required from all relevant staff in budget setting in order to realize an effective

budgeting. It is generally recognized that staff motivation is attained when they are

involved in certain decision making in any organization and thus improve

organizational performance. Goal setting in an organization is expected to be all

involving and requires the initiative of managers available resources (Brown 1984).

There is a great deal of mistrust of the whole budgeting process at the supervisory

management level. This is due to the beliefs that:

1. Budgets tend to oversimplify the real situation and fails to allow for flexibility in

external factors.

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 2. Quantitative variables in the budget are not adequately reflected in the budgets.

3. Budgets distort the true situation and simply confirm what the supervisors

already know.

4. The budget report emphasizes on results, not reasons.

5. It interferes with the supervisor's style of leadership and are thus unwelcome.

Johnson (1984) posits that the effect of the budgeting process of people may also lead to

produce side effect like: formation of small groups, with conflict goal to that of the

organization, combat pressure and reduce it. Unnecessary publicity given to individual

performance, especially may increase friction among supervisors as well as between

supervisors and the accounting personnel. Also there may be conflicting initiative which

sometimes discourage people from trying something new when the established ways

have a large chances of success and new methods portends a greater degree of

uncertainty. The problem associated with the budgeting process do not mean that the

process should be scrapped, but rather, that careful consideration is required it is to

have the desired effect (Pandey 1979).

The way in which budgets are administered impacts on their effectiveness in helping to

achieve an organization’s goals. ‘The budget in any company has a dual role of being a

forecast of the year and a yardstick of managerial performance. It can also be argued

that by using the budget to measure managerial performance there is an attempt to use

it as a tool for control. If this is linked with a reward and/or punishment system ‘there is

a general tendency for managers to distort the information they pass on to their

superiors, so that the unfavourable items are under-emphasized’. Such distortion of

information is undesirable and counterproductive. Some organizations use sanctions

70
and punishment to encourage adherence to budget. The use of sanctions and

punishment is synonymous with an autocratic style of management. Typical responses

to this use of budgets are (“Budgeting, Behavior Aspects of Budgeting” 2013).

• Manager: ‘The important thing for us to do is to follow up. The supervisor’s

Interest is lagging unless someone is constantly checking up on him …….. I think there is

a need for more pressure ……… I think that humanity is inherently lazy and if we could

only increase the pressure budgets would be more effective.’

• Supervisor: ‘You have got to outwit that person…….. Remember they are out to cheat

you, and that’s all they have got to think about.’

The use of sanctions and punishment are more likely to lead to resentment and further

tries to circumvent the system. At best it will result in a defeated and less than

enthusiastic employee. It will certainly encourage behaviours such as ‘padding the

budget’ (Pandey 1979).

2.26. Padding the budget

A good example of a system. Jack Bill could be the director of a large government

department in Canberra, Australia. Bill is responsible for ensuring that the finances of

the administration department do not exceed budget. Knowing this, Bill always

submits estimates to the budget committee that exceeds what he believes the actual

finances will be.

Florence Green often is the manager with the sales department for the government

department in Sydney. Florence submits a conservative estimate for sales knowing if

the branch's sales exceeds budget she will be in a very favourable light to senior

management. These are generally plus the padding the budget. Padding your capacity

71
to purchase means overestimating finances and/or underestimating revenue. The

relating to the padded estimate and an authentic estimate has the name budgetary

slack. For instance, if Jack Bill above believes that an authentic estimate for

administrative salaries towards the year is $160 000 but he submits $180 000 to your

capacity to purchase committee, he has generated $20 000 slack into your budget.

Another case managers pad your capacity to purchase is always that in a good many

organizations the submitted estimate is changed via the resource allocation authority,

that may be budgeted finances are brought down and budgeted revenues increased.

Participation during the budgetary process, Hopwood reports on some experiments

conducted by Bass and Leavitt as cited in Bass and Bass (2008). Managers ingested two

plans, one brought on by themselves and the additional planned for them. One half of

the managers operated their own personal plan first and have operated their own

personal plan second. ‘The link between the experiment established that the directors

were both richer and even more pleased with their job and their colleagues when

operating their own personal plans … they has a great deal with leading them to be

working (Bass and Bass 2008).

It has also been found that a shorter period was wasted on competition concerned with

the planners and doers in case the managers implemented their own personal plans.

Whilst advocating that lower level managers picks up carte balance setting their own

personal plans it is strongly recommended that they must be in the budget setting

process and their opinions be sought and carefully considered (Bass and Bass 2008).

Advantages arising from participation are:

 Improved communication

72
  Greater comprehension of the standards involved

 The possibility thrash out problems at budget meetings before this is settled

 Increased acceptance of this

 Improved commitment

 A huge possibility of much better with the excellence of the budget since the

manager's expertise is used.

This shows that participation helps ease the stress and tension created by budgets.

Bass and Bass (2008) also pointed out the reality that if top management staffers in an

organisation are likely to use participation it ought to be used with the true sense of

the word. Any watering down or pretence will end up in distrust and suspicion by

subordinates.

Dysfunctional behaviour can be because of this budget problem:

• Budget targets which were perceived by employees as too challenging to attain will

result in resentment and a sense stress.

• Budget targets which were perceived by staff as too uncomplicated to achieve do not

ever supplies a challenge and may bring about a slipshod performance by staff.

• Managers can experience a loss in autonomy also hemmed in by this and loss of

sufficient flexibility make use of the initiative.

• Managers become narrow minded, focusing only independent department, that

disadvantages for one organization being a whole.

73
• The increased exposure of financial goals to detriment of non-financial goals might

have a debilitating effect on the organization.

Non financial criteria of performance

In an organisation or any set up, variance indicate area that require further

investigation; it does not really show the point that the manager/section where these

variances came up is frivolous in spending as such labelled a problem department or

section, this is not the case here as far as budgeting and budgetary control are

concerned. To outweigh a reliance upon financial criteria for performance evaluation

Horngren and Foster (1987) further stated that non-financial measures needs to be

taken as well in budgeting and budgetary control of an organisation if it will enhance

performance. They offered two examples: ‘first-time through yield, i.e. the percentage of

products manufactured “right” (to specification) the first time, and throughput time, i.e.

the time that anything is taken from the primary point of manufacture to completion.

Ultimately, Horngren & Foster (1987) further stated that lots of companies use variety

of both financial and non-financial measures when evaluating the performance of their

organizations. Warriors (budgeting) are a good idea considering there are lots of

factors which are not directly measurable in monetary terms in an organisation, as an

illustration of personal problems and reliance upon other departments.

2.27. Budget Preparation

Pandey (1979) suggested that the preparation of budgets in an organization is a

management function as well as an accounting task. Although there is no laid down

rules on how to prepare a budget, be it private or public enterprises, budgets must be

prepared along its products, services, departments or divisions/units and must reflect

74
the organization’s objectives for the budget period. Budgeting in private and public

enterprises also need to follow a particular technique or system. Its orientation has,

therefore influenced the introduction of a number of techniques which can be said to

have evolved through three phases of budget orientation – control, management and

planning. Lynch (1979) states that for effective preparation of budget, the following

should be adequately taken care of:

a) Efficient organization of the whole business;

b) The creation of budget centers where budgets could be set;

c) The introduction of adequate accounting records, accounting system to

collect;

d) The introduction of an information system, to communicate to the users the

objectives the budget is to achieve;

e) The establishment of budget committee;

f) The preparation of an organizational chart with defined authority,

responsibility and accountability;

g) The preparation of a budget manual

h) The determination of the budget period, and;

i) The identification of the budget factors.

2.28. Budget planning (revenue)

Neely (1994) asserts that finances must be ready in respect with this specific to

organisational budget manual or handbook and quality assurance agency (QAA),

economic rules (approved by the board or directors) of an organisation. These

measures are included should be included in the budget manual in a particular

75
organisation. Some of the likely information found in the budget manual include the

following:

 Technique

 Completely immune to reason and evidence

 Unfunded reserves

 Clarification and finalization point (with Finance)

 Problem method

 Phasing

 Evaluation

The Budget Mind, who is the Class Mind, has an obligation for ensuring that finances

inside their place are organized and monitored relating with one of these guidelines

(Joshi 2003).

The Budget Dish can function as Party Mind but is probably being a chosen individual

that has day-to-day duty for planning and checking of a specific budget in respect with

one of these guidelines (Lacey 1993; Joshi 2003).

2.28.1.Method
McGill (2001) stated that QAA in an organisation may create their finances annually

applying among the subsequent practices: Evidence-based budgeting. This can bring in

evidence in the present year’s i.e. knowledge received and most useful estimates of

amounts and kinds of task, as well as data how the existing budget is going. There

should be evidence and reason to add all numbers in the budget.

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2.29. Conclusion
Reid (2002) stated that budgeting and budgetary controls are aids to management

planning and control. These are essential for the effective and efficient management of

both public and private organizations. The fundamental principles of budgeting and

control as a tool for better performance of organizations includes – the establishment of

a plan or target of performance which coordinates all the activities of an organization,

the establishment of budget centers, the efficient organization of the whole enterprise,

the introduction of adequate accounting records, the introduction of an information

system to communicate to the users the objectives of budgeting, the preparation of

budget manual, the determination of budget period that is the period to which the

budget relates, setting the level of activity (that is the level of performance), record the

actual performance and compare it with the plans, calculate the variances and analyse

the reason(s) for them, act immediately if necessary to remedy the situation and finally

appreciate the existence of budget factors (Klein 2006; Reid 2002).

The preparation and implementation depends on the goal of the firm. The efficiency of

any budgetary system relies not just on the suitability of its technical features to the

specific company and environmental conditions to which it is applied, but on the

manner in which organizational participants use the information that it promotes as

well (Anthony & Govindarjan, 2003). The budgetary system is time and again

overlooked, at times manipulated and even misrepresented by those to whom it is

provided. Researches indicate that the dysfunctional conduct normally stems from the

actuality that the budget information offered by the accounting system does not

sufficiently match with the intricacy of the underlying company and economic events

(Hansen 2003). However it is also apparent that the distortion of data could take place

77
even at the time when the budgetary system is technically sufficient. Further, such

distortion is an upshot of deviation of individual objectives from those of the company

and most commonly exhibits itself in efforts to make budgetary reports highlight more

constructively on the contribution of an individual to the entire organizational

performance.

Budgetary control is highly essential in the management of a company for the reason

that it helps in accomplishing organizational objectives (Hansen 2003). Once the

ultimate budget is fixed, it turns out to be a plan against which the revenue, the actual

cost and performance are regularly evaluated and contrasted with. Budgetary control is

employed by the line management for controlling the cost by way of incessant appraisal

of actual expenditures, utilizing like a guide the planned costs as illustrated in the

budget. Moreover, the principle is also applied to several kinds of income as well as to

items which have an impact on the balance sheet, like receivables inventories, fixed

assets, cash etc. Budgetary control is basically the formation of budgets or targets for

agreed segments of the business (Anthony & Govindarjan, 2003). A segment might be a

functional management segment such as sales, production or purchases or it might be

an agreed cost centre segment, such as machinery assembly, planning that might consist

of a device, group of devices or a group of staff members.

Further still, budgeting as well as control comprises of a clear style of decisions in a

corporation that is effective of deciding its purposes, objectives and the way how such

goals are attained by setting up principal guidelines and plans (Chong & Chong, 2002).

Nonetheless, the incapability accomplished acknowledges the problem involved and

setting up a boundary off assessment results in impediment for the efficient execution

of control (Hansen et. al., 2003). Few companies just look for narrow arrays of options

78
that they arrive at from the previous expenses and current circumstances, other top

levels even prevents future planning along with budgeting in favour of present day’s

issues thus making the issues of tomorrow more complex. Several researches on

budgetary controls and budgets have clearly demonstrated that companies need to pay

high attention on budgetary procedures, budgetary controls and budgets (Anthony &

Govindarjan, 2003).

Budgetary controls, as such, control nothing. Moreover, the management has a control

“gauge” and at the time when the actual outcomes are contrasted with the budget

figures, management should be driven to action. The information could help in

controlling operations as well as enhancing decision making budgetary control.

Budgets are effective means for influencing behaviour. Control is the efficient exercise

of authority to have an impact on the behaviour within a company. Two other principal

means for influencing behaviour are interpersonal contact (such as leadership) and

organizational structure including the distribution of work roles and authority.

CHAPTER 3: RESEARCH METHODOLOGY

3.1. Introduction
This chapter puts forward the approach that was utilized in executing the study. This

started with detailing the study design, sample population, sampling ways, data

accumulation, data supply, amount of variables, legality and consistency of instruments,

data dispensation and analysis that was engaged in the study, boundaries and

conditional measures utilized.

This section concentrates on the research methods and the instruments utilized by the

researcher to accomplish the study. It presents an explanation of the research design,

location of study, sample details, data accumulation and analysis processes.

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 Fig: The Basic Conceptual Model of this study

3.1.1. Hypothesis 1: The more formalized the budgeting process, the better
the firm performance

In this theory, the official financing process serves as the independent variable and firm

functions as the dependent variable. Firm functions include financial functions,

budgetary functions, and other functions

To test hypothesis 1, the following regression model (Model 1a) is used (Eq. (A)):

Y1=a1+ b1X1 (A)

Because the concept of the formal budgeting process is redefined, accordingly

80
3.1.1.1. Hypothesis 1 is divided into sub-hypotheses. They are listed as follows
 Hypothesis 1a: The more official the budgeting set up, the superior the firm

functioning.

 Hypothesis 1a1: The more official the budgeting set up, the superior the financial

performance;

 Hypothesis 1a1: the more official the budgeting set up, the elevated the growth of

sales revenues;

 Hypothesis 1a2: the more official the budgeting set up, the elevated the growth of

profit.

 Hypothesis 1b1: the more apparent the budget aims, the superior the firm

functioning.

 Hypothesis 1b11: the more apparent the budget goals, the improved budget goal

achievement;

 Hypothesis 1b12: the clearer the budget aims, the better the job fulfillment.

 Hypothesis 1b2: the more complicated but realistic the budget aims, the better the

firm functioning.

 Hypothesis 1b21: the more complicated but realistic the budget aims, the more

Impetus from budget setting;

 Hypothesis 1b22: the more complicated but realistic the budget aims, the more job

participation.

 Hypothesis 1c: the more naïve the budgeting, the improved the firm performance.

 Hypothesis 1c1: the more naive the budgeting, the better the financial performance;

 Hypothesis 1c1: the more naïve the budgeting, the elevated the growth of sales

revenues;

 Hypothesis 1c2: the more naïve the budgeting, the elevated the growth of profit.

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 Hypothesis 1d: the more official the budgetary monitoring, the better the firm

functioning.

 Hypothesis 1d1: the more official the budgetary monitoring, the improved the

financial functioning;

 Hypothesis 1d1: the more official the budgetary monitoring, the elevated the

growth of sales revenues;

 Hypothesis 1d2: the more official the budgetary monitoring, the elevated the

growth of profit.

3.1.2. The Formal Budgeting Process

The official budgeting process, an independent variable, is calculated by four sub

variables

(See Table 4.1), i.e., the official budget setting up (X1a), budget-aim clarity and

Complexity (X1b), budgetary superiority (X1c), and the official budgeting monitoring

(X1d). For each sub-variable, the method of measurement is explained:

3.1.2.1. The formal process of budget planning

In the designed questionnaire of this study, an instrument comprising of three items is

utilized to review the official budget planning in a firm. The respondents are asked to

indicate:

1. How many times budgets are made to qualifying a firm plan for the future period?

2. To what degree do you imagine budgets are made to succeed various areas of

operation in your firm?

3. Please account what are those process areas that budgets wrap up in your firm?

For the first two questions, a seven-point Likert scale from 1 (never) to 7 (quite

often/great extent) is given to evaluate by the respondents. For the last question, a list

82
with various functional areas such as sales, production etc should be marked.

Respondents who specify in the first question “no budget use” in their department can

stop answering the questionnaire. In this case, the first question’s score will be marked

with one. Those who act to that budget monitoring is approved in their section are

asked to continue to question two and further.

The result from factor analysis reveals that the correlation between the three indicators

of the official budgeting monitoring are highly correlated. The variance explained is

82.09%. The Eigenvalue is 2.46. The internal reliability assessed by Cronbach (1951)

alpha for the three-item measure in this study is 0.89.

3.1.2.2. Budget goal characteristics

As per the discussion in Chapter 2, the budget characteristics and budget goal are tested

from two dimensions: budget goal clarity and budget goal difficulty.

 Budget goal clarity

Budget goal clarity is detailed using a three-item instrument from Kenis (1979). The

three items are:

1. My budget goals are very obvious and precise. I know accurately what my budget

goals are?

2. I think my budget aims are vague and uncertain.

3. I recognize fully which of my budget goals are more essential than others. I have an

accurate sense of precedence on these goals.

The Impact of the Budgeting Process on Performance of ADV Telecoms Australia

The instrument asks each respondent to answer on a seven-point Likert-type scale if

he/she “extremely disagree” (1) to “extremely agree” (7). Factor analysis indicates that

these three items are loaded effectively into one factor. Eigenvalue is 2.09 and the

83
discrepancy elucidated is 69.76 per cent. These values can be considered good. The

yielded Cronbach alpha coefficient for budget goal clarity is 0.77, which indicates a high

internal accuracy.

 Budget goal difficulty

As to the measurement of budget goal difficulty, a five-item instrument developed by

Keynes (1979) is used. These five items comprise:

1. I should not have too much intricacy in reaching my budget goals. They come out to

be fairly easy.

2. My budget goals are quite intricate to attain.

3. My budget goals necessitate a great amount of attempts from me to conquer them.

4. It takes an elevated degree of skill and knowledge on my part to achieve fully my

budget goals.

5. In general, how would you categorize the budgetary aims of your unit?

A seven-point Likert-type scale instrument ranging from 1 (extremely disagree) to 7

(extremely agree) is utilized for the first four items. For the fifth item, the answer

format is a list of five viewpoints about budget goal (--too loose; --fairly loose; --just

right; - -tight but attainable; --too tight). Here, participants have to spot a budget goal.

The 5-item questionnaire for budget goal intricacy shows a low internal accuracy.

(Cronbach alpha 0.50). Therefore, we also use factor analysis as an extra method. Two

factors are pulled out representing 59.45 per cent of the total variance of all pointers.

The Eigenvalue is equal to 1.16. The results from the factor analysis point out that the

last three items out of the five-item instrument for the budget goal intricacy can be

grouped into one factor. These results also point out that the first two items for budget

84
goal intricacy can be divided into another factor. The last three items are positioned

together to be checked, an exacting test shows that its Cronbach alpha increases to 0.63.

3.1.2.3. Budgeting Sophistication

Based on Gordon’s instrument (1978), the instrument is further improved to measure

budgeting elegance. The original instrument contains only one item 5-point scale 29

with respect to the elegance of computer support. Gordon’s questionnaire is tailored

into a three-item instrument. As mentioned before, greater budgeting elegance includes

three dimensions, i.e., greater utilization of computers, technical staff, and financial

shaping. It is required to measure each dimension. Therefore, all respondents were

questioned:

1. To what degree does software bear the budget setting in your company?

2. How many technical staff members are engaged in the budget setting in your firm?

3. In your company, to what extent is financial modeling used in the process of budget

setting?

The response format is a seven-point Likert-type scale ranging from 1 (representing

very low budgeting sophistication) to 7 (very high budgeting sophistication). Again,

factor analysis is undertaken to ascertain the uni-dimensional nature of the three items

of budgetary sophistication. The Eigenvalue is 2.19; it is good enough to use a single

indicator to reflect the overall level of budgetary sophistication. The internal reliability

of the three-item measure assessed by Cronbach alpha is 0.81.

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3.1.2.4. The Formal Process of Budgetary Control
The official process of budgetary control is captured using a five-item instrument. Those

five items include:

1. How often do you think your organization calculates the difference between actual

performance and budgeted performance?

2. To what degree does budget variances (calculating the difference between actual

functioning and budgeted functioning) cover, from viewpoint to various items of

operational functions, income, and finance for taking rightful corrective action?

3. Please inform which operation areas are covered up by budget variance in your

firm.

4. In your firm, will any rightful actions be commenced if negative budget

discrepancies take place?

5. Are incentives given in the case that positive budgetary differences occur?

A seven-point Likert-type scale ranging from 1 (representing low budgeting control) to

7 (representing high budgeting control) is utilized for the first two items. A list is

obtainable in the questionnaire and participants are necessary to mark answers. For the

third item, the answer format is a list of items of functional areas which the budgeting

monitoring covers.

Participants are needed to mark relevant answers. “Yes” and “No” style questions are

applied to the last two items.

In examining association among the pointers of the official budgeting monitoring, a

factor analysis is utilized. The end result illustrates that only one factor is derived,

which give details 81.49 per cent of the total variance, with an Eigenvalue of 2.45 (over

86
1.000). The Cronbach alpha of 0.87 for the five-item measure in this study points out an

up-to standard level of internal accuracy.

3.2. Research Design

The study obtained from a cross-sectional research methods and designs in which data

were accumulated from the study population. It consisted of utilization of both logical

and expressive techniques where the researcher investigated information already

obtainable and looked at the present state of affairs. This was because data examined

was definite nominal data and qualitative in nature.

A cross-sectional research methods and designs were used and were pooled with an

illustrative research design a correlation studies is derived to institute the relationship

between the independent variable (budgetary control) and the dependent variable

(perceived performance).

3.2.1. Study Population

The study population was 221 staff, which actively participated in the budgeting of ADV

Telecoms Australia.

3.3 Sample Size and Sampling design.

The sample size of 140 employees was established using Krejcie and Morgan’s table

(1970) for concluding sample size. Balanced stratified sampling and simple

unsystematic sampling design was used to acquire a sample of 140 employees.

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 Table: Distribution of Sample Size among Respondents

Sample Actual no. of Percentage

Category Population size respondents Response

Managerial

Staff 90 57 35 61

Accounting

Staff 65 41 29 70

Clerical staff 66 42 21 50

Total 221 140 85 61

Source: Primary Data.

3.4 Data Collection Instruments

Questionnaire:

The researcher accumulated primary data using closed prearranged questionnaires.

These questionnaires were self-managed amongst the respondents with a view to

accumulate the completed responses within a short time possible.

A self–managed questionnaire was utilized to calculate the insights of the respondents

concerning the ADV Telecoms budgeting process assumed in terms of level of

contribution and the level of response and control its effects on budget performance

which was calculated by the apparent budget functioning of the respondents. The

88
questionnaire consisted of a paragraph accentuating the importance of the study and

others on how to conclude the questionnaire at the start of each section. The

respondents were also given a declaration of confidentiality and it was emphasized that

the findings of the research were to be utilized exclusively for academic intentions.

Source: Primary Data

Questionnaire Budgeting Monitoring Analysing

& & &
Planning Control Feedback
Agenda and plan form the base of assigning
0.897
funds in the budget .897

Aims & results of budget functions are precisely

0.863
mentioned in the budget .863

Budget functions & programs equal the total

0.859
budget aims. 859
Employees are detailed about their aims to be
0.85
achieved .850

The budget organization makes possible a clear

relationship between the funds and the results. 0.832
832

We usually mark main worries, problems &

0.832
programs to be included in the budget .832

We explain the errands & functions to be done

0.83
in the budget .830
The funds are available on time to carry out the
0.826
activities .826
We make decisions depending on budget plans
0.824
& activities .824

Planning enables the recognition of the kind and

0.81
level of resources to furnish. 810

All programs & functions are divided as per to

0.808
the objectives .808

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Programs functions are precisely expressed .806 0.806

Resources are redistributed depending on

0.803
performance .803

Budgets serve the standard of calculating

0.8
financial performance .800

Planning enables monitoring of the functions of

0.792
the enterprise .792

Function indicators are usually listed in the

0.785
budgets of our institution .785

We normally formulate our aims from the set

0.77
goals .770
Budgets take into consideration the 3 year
0.767
growth plan. 767

Budgets have the lifetime of more than one year

0.767
in our organization. 767

Our programs begin after planning .764 0.764

We regularly use resources to achieve results

0.754
.754
We design appropriate programs to lodge short-
0.737
range goals .737
My institution always follows budget methods
0.734
.734
We combine planning with the budgeting
0.732
progression .732

The finance committee of the Governing

0.72
Council checks budget proposals .720

Programs and plans are sourced for getting

0.715
financial resources .715
Each budget activity is equalled with
0.708
appropriate resources. 708
The budget enables the evaluation of future cost
0.676
implications .676

Our budgets measures outcomes .672 0.672

We always present the budget to the governing

0.676
council/BOG for verification. 660

90
Our budgets depend on the requirements
0.672
identified by our sections/departments .642

Programs are studied before selecting the

0.66
different resources .625

Priorities for the coming year are built at

0.642
workshop sessions/budget conference .577

In included in the budget setting process .542 0.625

All the stakeholders to the budget are associated

0.577
with the planning. 524

Budget is printed after consent. 513 0.542

Our programs are in line with the budget

0.524
objectives .423
The budget functions are controlled by
0.513
utilization of a fat book in my institution .333

Budget review is carried out in my institution

0.423 0.77
.770

Program results are tracked in my enterprise.

0.333 0.763
763
The estimated level of budget monitoring and
0.754
control in my enterprise is satisfactory. 754

The estimated level of budget monitoring and

0.734
control in my enterprise is outstanding. 734

Budget adjustments are done in my institution as

0.716
the requirement arises .716

A continuous comparison of the real with

budgeted performance is done in my institution 0.692
.692

Reasons for the differences between actual and

0.669
budgeted performance are always given .669

The budget performance reports are prepared

0.664
monthly in my institution .664

91
The governing council/BOG usually check on
0.659
the progress as planned .659

All our expenses are paid after approval from

0.646
concerned authorities .646

The top management always holds budget

0.646
conferences to check performance .646

Performance targets for each department are

0.645
decided on .645

The favorable and unfavorable differences are

0.583
regularly reported .583

The budgeting process is advanced by use of

0.49
budget centers .490

Monitoring of the budget activities is done by

0.46
only the Principal's office .460
Line managers & departmental heads are held
responsible for the carrying out of the budget 0.459
activities. 459

Financial performance is conversed regularly in

0.863
meetings .863

The heads of budget centers always details

0.84
differences in top management .840

The budget reports are always presented to the

0.809
heads of budget centers .809

Adverse deviations from the budget is always

0.791
mentioned & followed .791

The management consents on priorities in the

0.759
budget conference .759

Management always takes timely appropriate

actions when adverse differences are reported 0.757
.757

Requisitions raised by the staff are honored .685 0.685

92
There is clear tracking of program outcomes in
0.677
my institution .677
Deviations from the anticipated and the actual
0.646
results are common .646
The favorable and unfavorable differences
report to budget committee/top management 0.641
.641

Funding of budget programs is depending on the

0.556
approved budget .556

The budget deviations are reviewed by the top

0.547
management .547

The line managers are always included in the

0.509
budgeting process .509

Eigenvalues 23.894 11.281 5.440 23.894 11.281 5.44

Percentage of variance 35.072 16.590 8.000 35.072 16.59 8

Cumulative Percentage variance 35.072

35.072 51.662 59.663
51.662 59.663

3.5. Factor Analysis of the Budgeting Process & control

In this section H1 (Examining the budgetary process) is tested utilizing Factor Analysis.

Factor analysis was utilized to acquire out and authenticate the most important components

that calculate the study variables (with Eigen Value greater than 1). Responses were acquired

in terms of funds and Planning, monitoring and control, examination and feedback. Factor

analysis was carried out utilizing the principle component and Varimax rotation processes to

obtain components of factors that calculated the study variables.

The table above indicates that, only components with Eigen value greater than 1 were

removed. Items or questions with correlation coefficients above (positive or negative 0.3)

were measured representing that the elements of budgeting & control involve the following;

93
Budgeting and Planning with percentage Variance of 35%, Monitoring and Control with

Percentage Variance of 17% and Analyzing and Feedback with percentage variance of 8%

giving a cumulative Percentage Variance of 60%. Therefore the level of budgeting process &

control in ADV Telecoms is 60%.

3.6. Organizational Performance

The second objective was to estimate the functioning of the organization, which was

estimated by the degree of Perceived Revenue performance, Perceived expenditure

performance and value of Perceived money performance. These were examined using

Frequency tables, and Chi-square tests as shown in the table below:-

3.6.1 Perceived Revenue Performance

3.6.1.1. Frequency Percentage
Disagree 05 6

Not Sure 22 26

Agree 52 61

Strongly Agree 06 7

Total 85 100

Chi-Square=67. 894,

D. f=3,

P-Value=0. 000

Source: Primary Data

The above data shows that there were essentially positive perceptions of staff from viewpoint

to revenue Performance (Chi-Square=67. 894, d. f=3, P-Value=0. 000). 68% of the

respondents had positive perceptions that Units/projects continuously realized their annual

budgeted revenue anticipations during the financial year, designed activities at the start of the

94
financial year were achieved within the precise time frame because of the understanding of

the revenue and the large amount of designing activities during budgeting were put into

practice and identified revenue performance was 68%.

3.7. Correlation Analysis

H2 is to set up the relationship between the budgeting process and Organizational

performance. Spearman’s correlation coefficient was utilized to decide the degree of

association between the budget process and the identified budget performance because of the

categorical variables and qualitative nature of data analysed.

Correlation Matrix

1 2 3

Planning & participation level in

budgeting 1

Feedback & Control in budgeting 0.602** 1

Organizational Performance 0.494** 0.595** 1

Source: Primary Data ** Correlation is significant at the 0.01 level (2-tailed)

The association between budgeting process and identified budget performance was estimated

using Spearman’s correlation coefficient as shown in the correlation Matrix table above.

Table above suggests that there was an essential positive association between the level of

contribution and recognized performance (r=0. 494, P-Value<0.01). This involved that

planning & participation in the budgeting process elevated organizational functioning. The

table further suggests that there was an important positive relationship between the degree of

feedback and Control and organizational functioning (r=0. 595, P-Value<0.01). This entailed

that feedback and control worked a positive role in the performance of ADV Telecoms. Of

the total, the budgeting process was moderate and noteworthy in the performance of the

95
Organization from the viewpoint of level of planning, participation and level of feedback and

control.

3.8. Regression Analysis

To predict perceived organizational performance a regression analysis as shown in the table

below:-

Regression Model:

Coefficients Standardized

Unstandardized Coefficients

Regression Model B Std Error Beta T Sig

Constant 2.091 0.44 4.756 0

Level of Planning &

Participation 0.304 0.105 0.268 1.162 0.033

Level of Feedback and

Control 0.398 0.103 0.360 2.966 0.004

R-Square=0. 207, Adjusted R-Square=0. 115, F=7. 056, Sig=0. 000

Source: Primary Data

There was a linear relationship between budgeting process and Organizational performance

(F=7. 056, Sig=0. 000). Feedback, control, and planning & participation in the budgeting

process, explained 12% of the functioning of Telecom organization. Feedback and control

(Beta=0. 360) detailed more of performance and planning & participation (Beta=0. 268).

Model; P= 2.091 +0.304LP +0.398LF

Variation in the degree of planning & participation led to a 0.304 positive elevation in

functioning and a variation in level of feedback and controlled to a 0.398 positive elevation in

performance.

96
3.9. Conclusion
A fabulous theoretic structure is evolved in this chapter. The structure indicates all regarded

family relationships concerned with the proper cash strategy operation and even performance.

Quantitative process has been determined since the important groundwork paradigm. A list of

questions was useful for facts collection. Limited customer survey is practiced for those

feedbacks which will be treated as input for that quantitative evaluation of the study. Most of

the variables associated with these studies really are operationalized. Researching and even

assessments are taken to be sure of the correlations and even reliabilities.

Chapter 4: Presentation and Analysis of Data

4.1. Introduction
This chapter is meant to analyse responses received from questionnaires administered

in this study. A cross-sectional research design which is pooled and illustrative and

97
correlation studies to institute the relationship between the independent variable

(budgetary control) and the dependent variable (perceived performance). A total of 221

staff members participated in budgeting survey. Krejcie and Morgan’s table (1970)

were used for concluding to a sample size of 140 employees. Designs used, balanced

stratified and simple unsystematic / random sample designs.

4.2. Data Collected

Table: The Distribution of Sample Size among Respondents

Sample Actual no. of Percentage

Category Population size respondents Response

Managerial

Staff 90 57 35 61

Accounting

Staff 65 41 29 70

Clerical staff 66 42 21 50

Total 221 140 85 61

Source: Primary Data.

4.3. Factor Analysis and Budgetary Control

The table above indicates that, only components with Eigenvalue greater than 1 were

removed. Items or questions with correlation coefficients above (positive or negative

0.3) were measured representing that the elements of budgeting & control involve the

following: budgeting and planning with percentage Variance of 35%, monitoring and

98
control with percentage variance of 17% and analyzing and feedback with percentage

variance of 8% giving a cumulative percentage variance of 60%.

4.4. Data Collected

Source: Primary Data

Questionnaire Budgeting Monitoring Analysing

& & &

Planning Control Feedback

Employees are detailed about their aims to 0.85

be achieved .850

The budget organization makes possible a 0.832

clear relationship between the funds and

the results. 832

We usually mark main worries, problems 0.832

& programs to be included in the budget

.832

We explain the errands & functions to be 0.83

done in the budget .830

The funds are available on time to carry 0.826

out the activities .826

We make decisions depending on budget 0.824

plans & activities .824

Planning enables the recognition of the 0.81

kind and level of resources to furnish. 810

99
All programs & functions are divided as 0.808

per to the objectives .808

Programs functions are precisely 0.806

expressed .806

Resources are redistributed depending on 0.803

performance .803

Budgets serve the standard of calculating 0.8

financial performance .800

Planning enables monitoring of the 0.792

functions of the enterprise .792

Function indicators are usually listed in the 0.785

budgets of our institution .785

We normally formulate our aims from the 0.77

set goals .770

Budgets take into consideration the 3 year 0.767

growth plan. 767

Budgets have the lifetime of more than 0.767

one year in our organization. 767

Our programs begin after planning .764 0.764

We regularly use resources to achieve 0.754

results .754

We design appropriate programs to lodge 0.737

short-range goals .737

My institution always follows budget 0.734

100
methods .734

We combine planning with the budgeting 0.732

progression .732

The finance committee of the Governing 0.72

Council checks budget proposals .720

Programs and plans are sourced for getting 0.715

financial resources .715

0.708

Each budget activity is equalled with

appropriate resources. 708

The budget enables the evaluation of 0.676

future finance implications .676

Our budgets measures outcomes .672 0.672

We always present the budget to the 0.66

governing council/BOG for verification.

660

Our budgets depend on the requirements 0.642

identified by our sections/departments

.642

Programs are studied before selecting the 0.625

different resources .625

Priorities for the coming year are built at 0.577

workshop sessions/budget conference

.577

101
In included in the budget setting process 0.542

.542

All the stakeholders to the budget are 0.524

associated with the planning. 524

Budget is printed after consent. 513 0.513

Our programs are in line with the budget 0.423

objectives .423

The budget functions are controlled by 0.333

utilization of a fat book in my institution

.333

Budget review is carried out in my 0.77

institution .770

Program results are tracked in my 0.763

enterprise. 763

The estimated level of budget monitoring 0.754

and control in my enterprise is

satisfactory. 754

The estimated level of budget monitoring 0.734

and control in my enterprise is

outstanding. 734

Budget adjustments are done in my 0.716

institution as the requirement arises .716

A continuous comparison of the real with 0.692

budgeted performance is done in my

102
institution .692

Reasons for the differences between actual 0.669

and budgeted performance are always

given .669

The budget performance reports are 0.664

prepared monthly in my institution .664

The governing council/BOG usually check 0.659

on the progress as planned .659

All our expenses are paid after approval 0.646

from the concerned authorities .646

The top management always holds budget 0.646

conferences to check performance .646

Performance targets for each department 0.645

are decided on .645

The favorable and unfavorable differences 0.583

are regularly reported .583

The budgeting process is advanced by use 0.49

of budget centers .490

Monitoring of the budget activities is done 0.46

by only the Principal's office .460

Line managers & departmental heads are 0.459

held responsible for the carrying out of the

budget activities. 459

103
Financial performance is conversed 0.863

regularly in meetings .863

The heads of budget centers always details 0.84

differences in top management .840

The budget reports are always presented 0.809

to the heads of budget centers .809

Adverse deviations from the budget is 0.791

always mentioned & followed .791

The management consents on priorities in 0.759

the budget conference .759

Management always takes timely 0.757

appropriate actions when adverse

differences are reported .757

Requisitions raised by the staff are 0.685

honored .685

There is clear tracking of program 0.677

outcomes in my institution .677

Deviations from the anticipated and the 0.646

actual results are common .646

The favorable and unfavorable differences 0.641

report to budget committee/top

management .641

Funding of budget programs is depending 0.556

on the approved budget .556

104
 The budget deviations are reviewed by the 0.547

top management .547

The line managers are always included in 0.509

the budgeting process .509

Eigenvalues 23.894 11.281 5.440 23.894 11.281 5.44

Percentage of variance 35.072 16.590 35.072 16.59 8

8.000

Cumulative Percentage variance 35.072 35.072 51.662 59.663

51.662 59.663

4.5. Factor Analysis and Budgeting Control

In this section H1 (Examining the budgetary process) is tested utilizing Factor Analysis.

Factor analysis was utilized to acquire out and authenticate the most important

components that calculate the study variables (With Eigen Value greater than 1).

Responses were acquired in terms of funds and Planning, monitoring and control,

examination and feedback. Factor analysis was carried out utilizing the principle

component and Varimax rotation processes to obtain components of factors that

calculated the study variables.

4.6. A questionnaire administered

4.6.1. Questions related to the Formal Process of Budget Planning?

1. “How many time budgets are made to qualifying a firm plan for the future period?”

2. “To what degree do you imagine budgets are made to succeed various areas of

operation in your firm?”

3. “Please account what are those process areas that budgets wrap up in your firm?”

105
Answers/Response

The result from factor analysis reveals that the correlation between the three indicators

of the official budgeting monitoring are highly correlated. The variance explained is

82.09%. The Eigenvalue is 2.46. The internal reliability assessed by Cronbach (1951)

alpha for the three-item measure in this study is 0.89.

The questions were asked to respondents who answered budgetary use in their

organization for the first question and the second question was focused in areas like

sales and production. These are rated on seven-point Likert scale from 1 (never) to 7

(quite often/great extent)

Answer/Response

The results from the factor analysis point out that the last three items out of the five-

item instrument for the budget goal intricacy can be grouped into one factor. These

results also point out that the first two items for budget goal intricacy can be divided

into another factor. The last three items are positioned together to be checked, an

exacting test shows that its Cronbach alpha increases to 0.63.

Answers were rated on a seven-point Likert-type scale instrument ranging from 1

(extremely disagree) to 7 (extremely agree) and for the fifth question answer format is

designed as a list of five viewpoints about budget goal (--too loose; --fairly loose; --just

right; - -tight but attainable; --too tight).

Here, participants have to spot a budget goal. The 5-item questionnaire for budget goal

intricacy shows a low internal accuracy with Cronbach alpha value of 0.50. Therefore,

106
we also use factor analysis as an extra method. Two factors are pulled out representing

59.45 per cent of the total variance of all pointers. The Eigenvalue is equal to 1.16.

4.7. Budgeting Sophistication

Based on Gordon’s instrument (1978), the instrument is further improved to measure

budgeting elegance. Therefore, all respondents are questioned:

1. “To what degree does software bear the budget setting in your company?”

2. “How many technical staff members are engaged in the budget setting in your

firm?”

3. “In your company, to what extent is financial modeling used in the process of

budget setting?”

Answer/response

The response format is a seven-point Likert-type scale ranging from 1 (representing

very low budgeting sophistication) to 7 (very high budgeting sophistication). Again,

factor analysis is undertaken to ascertain the uni-dimensional nature of the three items

of budgetary sophistication. The Eigenvalue is 2.19; it is good enough to use a single

indicator to reflect the overall level of budgetary sophistication. The internal reliability

of the three-item measure assessed by Cronbach alpha is 0.81.

4.8. Analysis of data

4.8.1. Frequency Percentage

Disagree 05 6, Not Sure 22 26, Agree 52 61, and Strongly Agree 06 7

Total 85 100 Chi-Square=67. 894, d. f=3, P-Value=0. 000

Correlation Matrix

1 2 3

Planning & participation level in 1

107
 budgeting

Feedback & Control in budgeting 0.602** 1

Organizational Performance 0.494** 0.595** 1

Source: Primary Data ** Correlation is significant at the 0.01 level (2-tailed)

4.8.2. Regression Model

Unstandardized Standardized

Coefficients Coefficients

Regression Model B Std Error Beta T Sig

Constant 2.091 0.44 4.756 0

Level of Planning &

Participation 0.304 0.105 0.268 1.162 0.033

Level of Feedback and

Control 0.398 0.103 0.360 2.966 0.004

R-Square=0. 207, Adjusted R-Square=0. 115, F=7. 056, Sig=0. 000

Source: Primary Data

From viewpoint to revenue Performance (Chi-Square=67. 894, d. f=3, P-Value=0. 000).

68% of the respondents had positive perceptions that Units/projects continuously

realized their annual budgeted revenue anticipations during the financial year

4.9. Correlation
Relationship between the budgeting process and Organizational performance.

Spearman’s correlation coefficient was utilized to decide the degree of association

between the budget process and the identified budget performance because of the

categorical variables and qualitative nature of data analysed. It suggests that there was

an essential positive association between the level of contribution and recognized

108
performance (r=0. 494, P-Value<0.01). This involved that planning & participation in

the budgeting process elevated organizational functioning.

4.10. Regression
Regression analysis was used to predict perceived organizational performance. There

was a linear relationship between budgeting process and Organizational performance

(F=7. 056, Sig=0. 000). Feedback, control, and planning & participation in the budgeting

process, explained 12% of the functioning of ADV Telecoms Australia. Feedback and

control (Beta=0. 360) detailed more of performance and planning & participation

(Beta=0. 268).

Model; P= 2.091 +0.304LP +0.398LF

Variation in the degree of planning & participation led to a 0.304 positive elevation in

functioning and a variation in level of feedback and controlled to a 0.398 positive

elevation in performance.

4.11. Administration of budget leading to better performance

A cross-sectional research design consisting of sample size of 140 employees obtained

through balanced stratified and random techniques was used to evaluate the level of

budgeting process & control in ADV Telecoms Australia and the value obtained was

60%. Varimax component analysis was used for analysing budgeting control in terms of

funds and Planning, monitoring and control, examination and feedback. Factor analysis

was used to test budgeting control. Finally, a self-managed questionnaire was prepared

and answers from respondents were recorded using a seven-point Likert-type scale

method. These responses were analysed using frequency method, correlation analysis,

109
regression analysis, and Cronbach alpha. Chi-Square test indicated that from revenue

performance point of view respondents were positive about realizing their budgeting

revenue anticipations

4.12. Presentation of data

Table: Distribution of Sample Size among Respondents

Sample Actual no. of Percentage

Category Population size respondents Response

Managerial

Staff 90 57 35 61

Accounting

Staff 65 41 29 70

Clerical staff 66 42 21 50

Total 221 140 85 61

Table: Distribution of samples among respondents.

Source: Primary Data.

4.12. Budgetary Control

Budgeting Monitoring Analysing

& & &
Planning Control Feedback
Agenda and plan form the base of assigning
0.897
funds in the budget .897

Aims & results of budget functions are precisely

0.863
mentioned in the budget .863

Budget functions & programs equal the total

0.859
budget aims. 859
Employees are detailed about their aims to be
0.85
achieved .850

110
The budget organization makes possible a clear
relationship between the funds and the results. 0.832
832

We usually mark main worries, problems &

0.832
programs to be included in the budget .832

We explain the errands & functions to be done

0.83
in the budget .830
The funds are available on time to carry out the
0.826
activities .826
We make decisions depending on budget plans
0.824
& activities .824

Planning enables the recognition of the kind and

0.81
level of resources to furnish. 810

All programs & functions are divided as per to

0.808
the objectives .808

Programs functions are precisely expressed .806 0.806

Resources are redistributed depending on

0.803
performance .803

Budgets serve the standard of calculating

0.8
financial performance .800

Planning enables monitoring of the functions of

0.792
the enterprise .792

Function indicators are usually listed in the

0.785
budgets of our institution .785

We normally formulate our aims from the set

0.77
goals .770
Budgets take into consideration the 3 year
0.767
growth plan. 767

Budgets have the lifetime of more than one year

0.767
in our organization. 767

Our programs begin after planning .764 0.764

We regularly use resources to achieve results

0.754
.754

111
We design appropriate programs to lodge short-
0.737
range goals .737
My institution always follows budget methods
0.734
.734
We combine planning with the budgeting
0.732
progression .732

The finance committee of the Governing

0.72
Council checks budget proposals .720

Programs and plans are sourced for getting

0.715
financial resources .715
Each budget activity is equalled with
0.708
appropriate resources. 708
The budget enables the evaluation of future cost
0.676
implications .676

Our budgets measures outcomes .672 0.672

We always present the budget to the governing

0.676
council/BOG for verification. 660

Our budgets depend on the requirements

0.672
identified by our sections/departments .642

Programs are studied before selecting the

0.66
different resources .625

Priorities for the coming year are built at

0.642
workshop sessions/budget conference .577

In included in the budget setting process .542 0.625

All the stakeholders to the budget are associated

0.577
with the planning. 524

Budget is printed after consent. 513 0.542

Our programs are in line with the budget

0.524
objectives .423
The budget functions are controlled by
0.513
utilization of a fat book in my institution .333

Budget review is carried out in my institution

0.423 0.77
.770

112
 Program results are tracked in my enterprise.
0.333 0.763
763
The estimated level of budget monitoring and
0.754
control in my enterprise is satisfactory. 754

The estimated level of budget monitoring and

0.734
control in my enterprise is outstanding. 734

Budget adjustments are done in my institution as

0.716
the requirement arises .716

A continuous comparison of the real with

budgeted performance is done in my institution 0.692
.692

Reasons for the differences between actual and

0.669
budgeted performance are always given .669

The budget performance reports are prepared

0.664
monthly in my institution .664

The governing council/BOG usually check on

0.659
the progress as planned .659

All our expenses are paid after approval from

0.646
concerned authorities .646

The top management always holds budget

0.646
conferences to check performance .646

Performance targets for each department are

0.645
decided on .645

The favorable and unfavorable differences are

0.583
regularly reported .583

The budgeting process is advanced by use of

0.49
budget centers .490

Monitoring of the budget activities is done by

0.46
only the Principal's office .460
Line managers & departmental heads are held
responsible for the carrying out of the budget 0.459
activities. 459

113
Financial performance is conversed regularly in
0.863
meetings .863

The heads of budget centers always details

0.84
differences in top management .840

The budget reports are always presented to the

0.809
heads of budget centers .809

Adverse deviations from the budget is always

0.791
mentioned & followed .791

The management consents on priorities in the

0.759
budget conference .759

Management always takes timely appropriate

actions when adverse differences are reported 0.757
.757

Requisitions raised by the staff are honoured

0.685
.685

There is clear tracking of program outcomes in

0.677
my institution .677
Deviations from the anticipated and the actual
0.646
results are common .646
The favourable and unfavourable differences
report to budget committee/top management 0.641
.641

Funding of budget programs is depending on the

0.556
approved budget .556

The budget deviations are reviewed by the top

0.547
management .547

The line managers are always included in the

0.509
budgeting process .509

4.13. Data Collected

Presentation of Data

114
Presentation of data

Obs Comment ratio1 ratio2

1 Disagree 1 1

2 Not Sure 12 14

3 Agree 55 65

4 Strongly Agree 17 20

BLOCK CHART OF POPULATION

65 66 90 221

Accounting St Clerical staf Managerial St Total

CATEGORY
SAMPLE SIZE 41 42 57 140

115
 BLOCK CHART OF ACTUAL NO. OF RESPONDENTS

29 21 35 85

Accounting St Clerical staf Managerial St Total

CATEGORY
PERCENTAGE RESPONSE 50 61 70

Level of Participation

116
 ratio1 SUM

60

50

40

30

20

10

0
Agree Disagree Not Sure Strongly Agree

comment

ratio2 1 14 20 65

Obs Comment ratio1 ratio2

1 Disagree 3 4

2 Not Sure 22 26

3 Agree 52 61

4 Strongly Agree 8 9

Level of feedback control

117
 ratio1 SUM

60

50

40

30

20

10

0
Agree Disagree Not Sure Strongly Agree

comment

ratio2 4 9 26 61

Obs Comment ratio1 ratio2

1 Disagree 5 6

2 Not Sure 22 26

3 Agree 52 61

4 Strongly Agree 6 7

Perceived budget performances

118
 ratio1 SUM

60

50

40

30

20

10

0
Agree Disagree Not Sure Strongly Agree

comment

ratio2 6 7 26 61

Obs Comment ratio1 ratio2

1 Disagree 3 4

2 Not Sure 68 80

3 Agree 13 15

4 Strongly Agree 1 1

Perceived Expenditure Performance

119
 ratio1 SUM

70

60

50

40

30

20

10

0
Agree Disagree Not Sure Strongly Agree

comment

ratio2 1 4 15 80

Obs Comment ratio1 ratio2

1 Disagree 1 1

2 Not Sure 16 19

3 Agree 44 52

4 Strongly Agree 24 28

Perceived Value for Finance Performance

120
 ratio1 SUM

50

40

30

20

10

0
Agree Disagree Not Sure Strongly Agree

comment

ratio2 1 19 28 52

Obs Comment ratio1 ratio2

1 Not Sure 25 29

2 Agree 54 64

3 Strongly Agree 6 7

Consolidated Perceived Performance

121
 ratio1 SUM

60

50

40

30

20

10

0
Agree Not Sure Strongly Agree

comment

ratio2 7 29 64

4.14. Administration of budget leading to better performance

The general findings indicate that there was a significant positive relationship between

the level of participation and perceived performance as this implies that participation in

the budgeting process enhanced budget performance. It’s noteworthy that earlier

studies on the relationship between participation and performance makes one to

conclude that, even when participation in the budgeting process is seen as being correct,

its value would be situation –specific; there may be some organizations in which it is not

necessarily a key performance driver. Feedback and control plays a positive role in the

performance of budgets. Herifetz and Laurie (1994) made a similar conclusion, which

they said that mistakes drive people and organizations to learn and therefore perform

better. The level of feedback and level of participation measured and explained the

budgeting process. Therefore these variables need to be upheld and strengthened in

order to have an effective and efficient budgeting process. There is a need for regular or

periodic meetings at the National office, departmental and project level with an

122
objective of providing intentional feedback on budgeting in terms of quarterly budget

performance indicating budget changes, revenue and expenditure performance, value

for finance performance and budget revisions to the beneficiary units/departments

with detailed explanations of variances from plans and recommended controls to

manage budgets better in the next quarter. It should be mandatory that budgeting

process for the different units/departments are conducted in a workshop/unit meeting

was set so as to enhance participation of all the staff in the respective budgeting units

and a requirement for all participating staff to endorse on their unit’s budget document

as evidence of their participation. These would be enforced by a change in the budgeting

guidelines or policy.

Although level of participation is important in the budgeting process, emphasis needs to

be put on the level of feedback and control in the budgeting process.

Chapter 5: Conclusion
5.1. Discussions of findings
This dissertation has five chapters. Chapter one states the significance of budgeting and

budgetary control for better organizational performance, a case study of ADV Telecoms

Australia. From the research carried out, the following findings revealed that ADV

Telecom’s attainment in Australia has been notable, it functions with every major

telecommunications company in Australia and shaped over 500 direct employees and

many more indirectly. In line with the enhancing digitalization of society, the telecom

industry is ready to embark on new and exhilarating developments. Much of this

novelty began in the rising markets of USA and Canada.

123
A cross-sectional research design was used to institute the relationship between the

independent variable (budgetary control) and the dependent variable (perceived

performance) in which a sample size of 140 employees was used.

Factor analysis and budgetary control revealed budgeting and planning with percentage

variance of 35%, monitoring and control with Percentage Variance of 17% and

analyzing and feedback with percentage variance of 8% giving a cumulative percentage

variance of 60%.

Examining the budgetary process, responses were acquired in terms of funds and

Planning, monitoring and control, examination and feedback. Factor analysis was

carried out utilizing the principle component and varimax rotation processes to obtain

components of factors that calculated the study variables.

Relationship between the budgeting process and Organizational performance.

Spearman’s correlation coefficient was utilized to decide the degree of association

between the budget process and the identified budget performance because of the

categorical variables and qualitative nature of data analysed. It suggests that there was

an essential positive association between the level of contribution and recognized

performance (r=0. 494, P-Value<0.01). This involved that planning & participation in

the budgeting process elevated organizational functioning.

Regression analysis was used to predict perceived organizational performance. There

was a linear relationship between budgeting process and Organizational performance

(F=7. 056, Sig=0. 000). Feedback, control, and planning and participation in the

124
budgeting process, explained 12% of the functioning of ADV Telecoms Australia.

Feedback and control (Beta=0. 360) detailed more of performance and planning &

participation (Beta=0. 268).

Model; P= 2.091 +0.304LP +0.398LF

Variation in the degree of planning & participation led to a 0.304 positive elevation in

functioning and a variation in level of feedback and controlled to a 0.398 positive

elevation in performance explained by Kironde (2004).

Usage of information was not easy since all of the financial information is known as

confidential therefore reliance was on respondents' perceptions drawn from primary

data and thus the reliance on subjective budget performance variables instead of more

objective indicators of budget performance. Further parameter used in the study

indicates that there was a significant positive relationship between the level of

participation and perceived performance which implies that participation in the

budgeting process enhanced budget performance. It is noteworthy that earlier studies

on the relationship between participation and performance makes one to conclude that,

even when participation in the budgeting process is seen as being correct, its value

would be situation – specific; there may be some organizations in which it is not

necessarily a key performance driver. Feedback and control plays a positive role in the

performance of budgets. Herifetz and Laurie (1994); Kironde (2004) made similar

conclusions, which they said that mistakes drive people and organizations to learn and

therefore perform better.

125
5.2. Recommendations

Budgeting process should not be considered as only a financial aspect of the

organization but this also involves managerial, political, communication, planning and

financial dimensions.

The level of feedback and level of participation measured and explained the budgeting

process. Therefore these variables need to be upheld and strengthened in order to have

an effective and efficient budgeting process. There is a need for regular or periodic

meetings at the head office, departmental and project level with an objective of

providing intentional feedback on budgeting in terms of quarterly budget performance

indicating budget changes, revenue and expenditure performance, value for finance

performance and budget revisions to the beneficiary units/departments with detailed

explanations of variances from plans and recommended controls to manage budgets

better in the next quarter. It should be mandatory that budgeting process for the

different units /departments are conducted in a workshop / unit meeting was set so as

to enhance participation of all the staff in the respective budgeting units and a

requirement for all participating staff to endorse on their unit’s budget document as

evidence of their participation. These would be enforced by a change in the budgeting

guidelines or policy.

Although level of participation is important in the budgeting process, emphasis needs to

be put on the level of feedback and control in the budgeting process.

5.3. Conclusion

The analysis will benefit the senior leadership team of ADV Telecoms Australia and its

other branches to discover a means to fix the problem of poor organizational

126
performance. Make recommendations that will go quite a distance in improving the

grade of the budgeting process that will better budget performance in the

telecommunication industrial segment and other sectors. The study is going to be used

by investors to analyse the linkage and relationship between budgeting process and

performance. The study will also benefit academicians, researchers and other

professionals.

5.4. Suggestion for further study

Variables notably: organizational politics, motivation ownership and their effect on

budget performance that the study did not examine would warrant further study. Since

the study was focused on estimating the level of feedback control and participation in

the budgeting process, other variables that evaluate budget performance like

motivation, staff attitude, organizational politics need to be paid attention to for

organisations to thrive. Organizational culture and learning have implications not only

for decision-making but also the performance of the organization in general. This is yet

another area of further research. The results need to be tested and compared with other

profit-oriented organizations as given by Kironde (2004).

5.5. Contribution to knowledge

The budget is a significant planning tool for an organization. When preparing a budget,

it is essential to be as tangible and accurate as possible about future profits and

spending. The budget must take into account direct and indirect finances and facilitate

the organization to distribute and plan for the coming year. All the Budgets are planned

before the beginning of the fiscal year, so indefinite factors need to be forecasted.

Budget analysts evaluate historical tendencies as well as make postulations about

127
upcoming expenses to attempt and accurately foresee the organization's monetary

situation for the year ahead.

The study implies the importance of the budgeting process in an organization which is

not only oriented through financial gains but governed by several other factors. These

factors directly or indirectly affect working aspects of the organization. The study

undertaken in this research involved parameters like level of participation, level of

feedback control which are important but variables like politics, Motivation ownership,

Organizational Culture, and learning also have an impact on the overall budgeting

process. Hence behavioural aspects of people involved in budgeting process also

determine its outcome. The levels at which staffs participate and the extent to which

their contributions form part of the budget was used to measure participation.

Perception of staff level of feedback on information of Budget adjustments and changes

and the extent to which budgets control actual expenditure. The study acknowledges

three factors of consideration for effective budget planning, preparation, programming

or execution.

5.5.1. Revenue
Budget predictions are influenced when actual capital or revenue obtained is not as

much as originally expected. Whereas external factors such as economic slump,

unpredicted competition resulting in decreased sales or an incapability to maintain the

level of growth required. Internal factors like insufficient accumulation and poor

accounts receivable methods could also affect revenue. Destructive predictions that

presume a high rate of growth or increased capital have a much larger more potential

for inaccuracy than conservative estimates depending on data from previous years.

128
5.5.2. Expenditure
Most crucial area of the budget to anticipate. Augments to health insurance, turnover

levels and collective bargaining in unionized organizations can all manipulate salary

and benefits by a noteworthy margin. In numerous industries, salary and benefits are

higher than 50 percent of the organization's total expenses. Any differences in employee

compensation will have a noteworthy effect on budget anticipations. Other unpredicted

expenditures may include unseen need for overtime and financial audit fees and fines.

5.5.3. Market conditions

Economy and current market conditions can affect the financial predictability in

numerous ways. Benjamin (2013), explains alterations to the inflation rate and stock

market conditions directly affect the organization's net worth and its ability to generate

funds or loans. If the company depends heavily on investments as a funding vehicle,

then poor stock market function will have a direct, negative effect on budget predictions

similarly if the rate of return on savings exceeds the prediction, then the budget will

have a surplus Legislative changes like a change in taxation can also affect budget

preparation.

5.5.4. Additional knowledge

Budget is a systematic method of allocating financial, human resources and physical for

achieving the strategic goals. Organizations develop budgets in order to check the

progress of the company goals, helping in controlling the spending of the organization,

and have a foresight of the cash flow and with profits included. Best Practices explained

by Benjamin (2013) contribute to budgeting performance in an organization

 Link budget development to corporate strategy. Because the budget predicts

how resources will be distributed and what measures will be required to

129
 evaluate progress, budget development is most effective when linked to overall

corporate strategy which also links all managers and employees giving them a

clearer understanding of strategic goals.

 Design procedures that allocate resources strategically. Competition for

resources is unavoidable as every business section requires funding for both

capital and operating expenditures- usually in excess of the actual resources

available. This makes it essentially important for companies to structure or

develop procedures so that resources are distributed accordingly to support key

strategies.

Tie incentives to performance measures other than meeting budget targets. Evaluation

of managers based on how closely they achieve budget targets tempts managers to

"win" by manipulating the budget targets. Andersen (2000) explains that it is not in the

company's best interest. Meeting budget targets are secondary to other performance

measures therefore a balanced set of performance measures to design progress toward

strategic goals should be used as well as for their incentive programs. This establishes

the importance of key strategies and communicates what the results will be rewarded.

 Link finance management efforts to budgeting. By this method companies perk

up the quality of information accessible for managers to utilize in producing their

budgets. The exact finance information is fundamental to budgeting. Companies

that utilize accurate finance management techniques and offer budget

developers with ready access to finance information make better both the

precision and the speed of their budget process.

 Reduce budget complexity and cycle time (Andersen, 2000). This kind of

processing of budget permits management to accumulate budget information,

130
 makes distributions or work allocations, decisions, and communicate final

targets in reduced time, at less finance, and with less disturbance to the

company's core activities.

 Andersen, (2000) explains about developing budgets that accommodate change. This way

companies can react to competitive threats or opportunities more quickly and with greater

precision. Flexibility in budget can cover a wide variety of possible developments. This leads

to clearer and more realistic budgets.

131
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Appendix

Sample Questionnaire

This research aims to investigate the effects of formal budgeting process and budgetary

Control on the performance of your organization. The following questionnaire consists

of five parts, which asks your perceptions on the budgeting process and performance in

your company. Please answer all the questions following the instructions given.

Completion of the questionnaire should not take more than 10 minutes of your time. All

responses will be treated in the strictest confidence and only summarized results will

be published. Your time and cooperation is very much appreciated.

Thank you!

A: Financial Performance

The following section of the questionnaire seeks some information relating to your

organizational performance in the recent past year. If you have no definite figures we

would appreciate approximate figures.

Please indicate the intervals which best depict your enterprise’s performance by

circling an appropriate number of questions (a) and (b).

(a) Please indicate the growth in sales revenue of your company over the past 3 years:

Below 10% 1 51–60% 6

11–20% 2 61–70% 7

21–30% 3 71–80% 8

31–40% 4 81–90% 9

41–50% 5 Above 90% 10

139
(b) The growth of profit in your company over the last 3 years is:

Below 10% 1 51–60% 6

11–20% 2 61–70% 7

21–30% 3 71–80% 8

31–40% 4 81–90% 9

41–50% 5 Above 90% 10

B: Managerial Performance

Effective managerial performance may be regarded as depending on competence in the

areas of managerial activity listed below (a-h). Please respond by placing a number

from 1 (very low) to 9 (very high) in the appropriate space to rate your own recent

performance in each area. The following scale should be used for reference:

Performance: Below average, Average, Above average Performance

1 2 3 4 5 6 7 8 9

(Number from 1 to 9)

1. Planning: courses of action, policies, determining goals and budgeting, setting up

procedures, work scheduling, programming. _____

2. Investigating: Collecting and preparing important data for records, reports and

accounts, measuring output; inventorying, job analysis. _____

3. Coordinating: Exchanging information with people in your organization in order to

relate and adjust programs; advising and liaison with other people. _____

140
4. Evaluating: appraisal of the proposals and assessment of the observed and or

repeated performance; judging output records, employee appraisals, product

inspection, judging financial reports. _____

5. Supervising: Organizing and Directing, developing your team and leading;

counseling, explaining work rules to subordinates, and training; handling

complaints and assigning them the work. _____

6. Staffing: Maintaining the human workforce in the organization; interviewing,

recruiting and selection of new employees; transferring , placing and promoting the

employees. _____

7. Negotiating: Purchasing, contracting for goods or services, selling, dealing with

sales representatives contacting suppliers,. _____

8. Representing: consults with other firms, Attending conventions, advancing the

general interests of your organization business club meetings, community drives;

public speaking. _____

C: Budgetary Performance

a) How often do you meet the budget goals of your company (have favorable

variances)?

1 23 45

Never Few times Always

b) How much budgetary motivation do you get from the setting of budgetary goals?

1 23 45

None Few A lot of

141
D: Other Performance

Besides financial performance, manageability and budgetary performance,

performances such as change of market share, provide more information and reveal the

overall performance of a company. Please ticket the proper options (yes or no) you

think in the following items.

a) Are you satisfied with your job in your company?

1 23 45

Not Satisfied Very Satisfied

b) How do you think of your job involve in your organization?

1 23 45

Low Medium High

E: The Formal Budgeting Process

The formal process of budgeting in small and medium enterprise is measured from four

aspects, i.e. the formal budgeting planning, the clarity and difficulty of budget goals,

budgeting sophistication, and the formal budgetary control. Please respond the

following questions by cycling/ticking the relevant number of seven-point scale, which

you think best reflecting the budgeting process of your enterprise. (Note: if no budget

use in your forms, please stop at the third question)

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  The formal budgeting planning

The formalization of budgeting planning refers to the extent of detailed budget use with

respect to different operational areas. Please firstly cycle the frequency and the

extension of budgetary use in your company and then tick the exact operation areas that

budgets are adopted.

1. How often in a year does your organization use a budget to qualify the firm’s plan

for a future period?

1 2 3 4 5 6 7

Never Few times Quite often

2. To what extent do you think budgets are prepared to qualify different areas of

operation in your organization

1 2 3 4 5 6 7

Not Small Great extent

3. The operational areas that budgets cover are: (please ticket at the front of

corresponding items)

 Production

 Sales

 Marketing

 Research & development

 Human resource

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Other, namely_____

 The clarity and difficulty of budget goals

Goal clarity is referred to as extent to which the budget goals are stated specifically and

clearly, and are understood by the unit managers responsible for meeting them. On the

other hand, goals can vary from very loose and easily attainable goals to very tight and

unattainable goals. Please cycle (or ticket) the proper number (or option), which you

think best indicating the level of clarity and difficulty of budget goals of your company.

 Budget goal clarity

Do not agree at all Very agree

1) Budget goals of my company are Specific and clear I know exactly what the

budget goals are

1 2 3 4 5 6 7

2) I think the budget goals of my company Ambiguous and unclear I do not know

exactly what the budget goals are.

1 2 3 4 5 6 7

3) I understand fully which of the budget goals I have a clear sense of priorities on

these goals budget goal difficulty do not agree at all.

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1 2 3 4 5 6 7

4) I do not have too much difficulty Reaching the budget goals They appear to be

fairly easy.

1 2 3 4 5 6 7

5) My budget goals are quite difficult to attain.

1 2 3 4 5 6 7

6) My budget goals require a great deal of effort from me to achieve them.

1 2 3 4 5 6 7

7) It takes a high degree of skill and know how on my part to attain fully my budget

goals.

1 2 3 4 5 6 7

In general, how would you characterize the budgetary goals of your unit? (Please tick at

the front of the proper options)

 Too loose

 Fairly loose

 Dust tight

 Tight but attainable

 Too tight

 Budgetary Sophistication

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Greater budgeting sophistication includes greater use of computers, technical staff, and

financial modeling. Please respond by cycling an appropriate number from the lowest

(1) to the highest (7) in each item to rate the budgetary sophistication of your company.

1. To what extent does software support the budget setting in your company?

1 2 3 4 5 6 7

No computer support Few computer support availability of remote terminals in an

interactive mode

2. How many technical staffs are involved in the budget setting in your company?

1 2 3 4 5 6 7

Not at all Few staff members Quite a lot

3. Financial modeling refers to the development and implementation of tools

supporting firms, investors, intermediaries, governments and others in their

financial economic decision making, including the validation of the premises

behind these tools and the measurement of the affectivity of the use of these

tools. For your company, to what extent is financial modeling used in the process

of budget setting?

1 2 3 4 5 6 7

Not at all Few models Quite a lot models

 The extent of formal budgeting control

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 1. How often do you think your organization is calculating the difference between

actual performance and budgeted performance?

1 2 3 4 5 6 7

Never Few times Quite often

2. To what extent does the budget variances (calculating the difference betwactual

performance and budgeted performance) cover with respect to different items of

operation activities, revenues, and finance for taking appropriate corrective

action?

1 2 3 4 5 6 7

No calculation Small extent Great extent

3. These operation areas that budget variances cover are: (please ticket at the front

of corresponding items)

 Production

 Sales

 Marketing

 Research & development

 Human resource

 Other, namely_____

4. Do appropriate corrective actions are taken in the case that budgeting negative

variance occurs in your company?

 Yes

 No

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 5. Are rewards given in the case that positive budgetary variances occur?

 Yes

 No

F: Budgetary Participation

Budgetary participation is related to the involvement of managers in the budgetary

process and their influence on the setting of budgetary targets. Owner/senior manager

of a company or functional managers from different departments in a company will be

asked some questions regarding the role that you play in the development of the budget

for your group. Therefore,

 For owner or senior managers of a company, please respond by circling a

number from 1 to 7 on the scale for each of the following items.

1. Which category below best describes your activity when the budget is being set?

I am involved in setting:

1 2 3 4 5 6 7

None of the budget All of the budget

2. How much influence do you feel you have on the final budget?

1 2 3 4 5 6 7

None Considerable high amount Very high amount

3. How do you view your contribution to the budget? My contribution is:

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1 2 3 4 5 6 7

Very unimportant Fairly important Very important

 For different functional managers of a company, please respond by circling a

number from 1 to 7 on the scale for each of the following items.

1. Which category below best describes your activity when the budget is being set?

I am involved in setting:

1 2 3 4 5 6 7

None of the budget Few of the budget All of the budget

2. Which category below best describes the reasoning provided by your superior

when budget revisions are made? The reasoning is:

1 2 3 4 5 6 7

Very arbitrary Acceptable Very sound And/or illogical and/or logical

3. How often do you state your requests, opinions, and/or suggestions about the

budget to your superior without being asked?

1 2 3 4 5 6 7

Never Frequently Very frequently

4. How much influence do you feel you have on the final budget?

1 2 3 4 5 6 7

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None Fair amount Very high amount

5. How do you view your contribution to the budget? My contribution is:

1 2 3 4 5 6 7

Very unimportant Fairly important Very important

6. How often does your superior seek your requests, opinions, and/or suggestions

when the budget is being set?

1 2 3 4 5 6 7

Never Very frequently

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