The Impact of Budget and Budgetary Control in the Banking Sector (A Case Study of First Bank of Nigeria Plc)

The Impact of Budget and Budgetary Control in the Banking Sector (A Case Study of First Bank of Nigeria Plc)

Chapter One

Research Objectives

The objectives of this study shall include:

1) To ex-ray the relevance of budgeting as tool for planning and control in First bank.

2) To ascertain the possible effect of non-existence of budget on the performance of First bank.

3) To create an opinion as to whether budgeting is actually an effective tool for profitability planning and management control of First bank

4) To ascertain the extent to which budgetary planning and control aid management in decision making in First bank.

CHAPTER TWO

LITERATURE REVIEW

The Concept of Budgeting and Budgetary Control

There is a consensus among authors that, in order to avert business failure, an enterprise must have a vision of where it wants to be in near feature and accordingly draws up a strategic business plan. In order to attain the set business objectives of the enterprise, these long term plan are further broken down into detailed step by step procedures. The end result of this planning is to minimize cost and maximize profit, which is also a benchmark for judging management performance profit planning in the short term, which is generally carved out of an agreed or signed-off budget. A.W will more is of the view that budgeting is a service function and that budgets do not replace management and also observes that planning goes from top down where budget formulation flows from bottom to up. Isaac Reynolds agree with wills more but noted that “budget planning is the key to survival in today highly technical and competitive environment and that failure to plan results, for many firms in a business failure that might have been avoided by profit planning.

Reynolds also listed the outcome of the reliability to establish and use a formal budget structure as follows;

Lost sales due to under production
Excessive inventory costs due to over productions.

iii. Excessive personnel turnover. iv. General lack of control over the outcome of business operations in terms of profit.

J.F Weston (1978) and E.F Brigham are in agreement with Reynolds (1984). But are guides to submit that the budget is not a means of limiting expenditure. Rather, it is a method to improve operations, a tool for obtaining the most productive and profitable uses of the companies resources through careful planning and controlling. Hingren and Foster (1988) agreed that the budget is not a penny-pinching device. They also agreed with the views expressed by other authors that budget is an aid to co-ordination and implantation.

They went further to say that well managed organizations usually have the following budget cycle:

Planning the performance of the organization as well as its units. The entire management term agrees as to what is expected.
Providing a frame of reference, a set of specific expectation against which actual result can be measured.
Investigating variance form plans, corrective action follows investigation.

Planning again, considering feedback and charged conditions. According to Chika Agu (2006) in the case study of ‘budgeting and budgetary Control in Business organization,’ “Budgetary control, is the use of the budget as an instrument for the guidance of business operations.

In that case, budgets serve as a yardstick for executive control of operation, to determine the extent to which planned goals and objectives are being attained and to arrest off-line drifts on “time”. While agreeing that budgetary control follows budget preparation, lucky opined that budgets require not only top managerial support but that control is assisted as well by “participation of budgets holders into the investigation of solution to the problems which arise”.

In reference to Chika Agu in the case study of ‘budgeting and budgetary Control in Business Organization, B.C Osisioma, agrees with the above views but stated that budgets fulfil two basic requirements in the overall control process.

Ø Feed forward: To provide a basis for control at the point of action, that is at the decision point.

Ø Feedback: To provide a basis for measurement of the effectiveness of central after the point of action. Control, they say promotes efficiency and reduces waste.

It can do according to S. Modetola Odeleye, (1991) “ensuring that corrective actions taken where necessary and possibly, to bridge the gap between the budget and the actual performance” and to review unrealistic budgets. There is no opposing view to the assertion made by Brown and Howard (1975) that is budgetary control enables management by exception because management attention is concentrated only on those areas of the operations that do not work according to .

CHAPTER THREE

RESEARCH METHODOLOGY

RESEARCH DESIGN;

In order to do justice in this research work, I employed three different methods to elicit the required information. They are;

Survey Method
Oral interview
By the use of textbook and magazines as my research instrument.

SURVEY METHOD – Since it is believed that observation will reveal some of the problems of budgeting and budgetary control. I observed the statement of accounts of most companies and it is brought to my notice that most of these companies and business organizations who failed in their business, if traced back to the find out that the remote cause of their failure is a result of not being able to budget their activities very well, and again, they failed because of inadequate management of their budgetary control department and their system of budgeting.

Through oral interviews and some investigations, I made in the textbooks and news papers, I understood that the body responsible for budget. Preparation/making in a business organization is the budgeting team, which is made up of some of the people working in the budgeting department. And also, the representatives from the various areas of activity within the organization.

A business organization may appoint a budget controller to co-ordinate the budgetary activities and the budgeting team which consists of representatives from various areas of activity within the organization.

SOURCE OF DATA.

I obtained the information contained in this project from the following sources;

Primary source
Secondary source

PRIMARY SOURCES – These are data I generated from surveys conducted. They are original in character. I went to First Bank Lekki Lagos Branch and got some facts through oral interview and use of questionnaire with the staffs of the organization.

SECONDARY SOURCE – These are information’s I gathered from data which are already collected by some other persons and have passed through some statistical process of at least once. I gathered them from both published and unpublished sources.

The sources of my unpublished data include materials I found with scholars and research workers. Project reports and study I got from different university libraries.

Then I also got information’s from published materials which includes;

Official publications of the government.
Reports and publications of trade associations, banks, trade unions, manufacturers, and professional bodies.
Technical Journals that is books and news papers.
Textbooks

These published materials are what I got from my research in some of the libraries in Lagos like;

Lagos State library
Caritas university library
National library of Nigeria Lagos branch.

POPULATION SIZE

The population for this research work comprises of top management staffs, middle management staffs and lower level management staffs of First Bank Lagos branch. This gives a total population of forty five (45) staffs.

CHAPTER FOUR

PRESENTATION & ANALYSIS OF DATA

This is a business study and as the researcher I am thus inclined to measure data not as numerical values but in categories. In presenting the data that way, it is easier to determine from examination of the data, the level, if there is any of dependencies between the two tested variables. In this type of study, the chi-square (or contingency table test) method of data analysis is most appropriate for use.

A chi-square test makes it imperative to emulate a null hypothesis, which assumes that there two objects of interest and their methods of classification. It is then my task as the researcher through data analysis, to prove the assumption wrong. In other words to reject the null hypothesis.

The chi-square statistics can be computed from the data in a chi-square table by comparing the observed and expected frequencies in each cell of the table, if the margins between the observed ends expected frequencies are large, the chi-square statistics will be large and the null hypothesis is rejected if however, the difference is small, a small chi-square value will result and the null hypothesis is accepted. Finally compare the chi-square statistics of the decision rule to accept or reject the null hypothesis.

CHPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION.

SUMMARY OF FINDINGS

We have tried to discuss the foregoing chapters. Some of the major problems militating against budgeting and budgetary control in business organizations.

The list is by no means exhaustive, but we tried as far as possible to discuss the major problems of budgeting so as to enable the reader of this research work form an informed Judgment of the problems of budgeting and budgetary control in business organization. This chapter will proceed with the suggestions, recommendations made conclusions based on the result of the investigation.

CONCLUSION

The most prominent goal of any reasonable firm is for a credible budget both in the production and exchange of goals and services.

To restore the integrity of the budgetary process, a manager must control deficit finance, streamline expenditure with realistic income profile and ensure that budget become an ultimate and effective instrument in controlling the financial system of their firm.

Based on all these facts given in this project work, we can see that budgetary control can be as harmful as it is beneficial depending on how the system is administered. At best it helps management to decentralize responsibilities while it centralizes control. By means of efficient planning, effective communication, motivation, and if human relations are strained and uncertainties which can result from the presence of variables in budget are not effectively provided for, budgetary control technique can constitute a grave deterrent to the achievement of management objectives.

RECOMMENDATIONS

The findings strongly indicate that the company has a good budgetary system. However, the findings reveal some weakness; the ways these weaknesses may be overcome are outlined below,

Management appears to set standards for Junior managers that are too difficult to attain- There is the danger of frustration, distrust and deliberate to take individual managers to take individual managers ability, education and aspirations into account in setting targets. When the ability has been assessed, management should set stewards that are only attainable when the manager given his ability and education, is working under efficient conditions.
It is dangerous for managers in an organization to compete among themselves in a situation of inter-dependency. It means, for instance, that one manager can withhold vital information that another manager needs to make a good decision. This competition obviously is because reward is tied to goal attainment and no manager wants to assist another to get ahead of him. All in one, corporate goals lose out to managers’ self- interest, and the work environment is suffered with tension, management can encourage team work among the managers by stressing group reward above individual reward, for all manager at a level when each managers achieves the standards or is at a reasonable range of its attainment.
Vague and conflicting instructions can impede effective actio0n and answerability to more than one supervisor can introduce confusion and make control difficult. This can happen when certain functions are duplicated. The organizational structure of libraries should be overhauled. Jobs should be thoroughly scheduled and duties precisely defined and described. The supervisor—subordinate relationship needs to be assessed so that a situation does not arise where a subordinate is answerable to two or more supervisors. A management consultant firm could be engaged to carry out the overhead.

BIBLIOGRAPHY

Aljian, G. W.(1984):Purchasing Handbook: Mograw- Hill publications ,3^rd Edition,
Batty, J. (1971): Theory and Practice of Investment: Heineman Ltd, London, 4^th Edition.
Bhatia, H. L. (1993): Public Finance: Vikas Publishing House Ltd, MasjidRoad, Jangpure, 17^th Edition.
Brigham, E. F. (1986): Fundamentals of Financial Management: The Orghan Presshold, Rinehait and Winston Saunders College Publishing, London. 5^th Edition.
Brown, J. L. and Howard, L. R (1975): Principle and Practice of Management Accounting: Mac Donald & Evans Ltd, London. 2^nd Edition.
Burkhead, J.(1965): Government Budgeting: John Wiley and Sons Ltd, 3^rd Edition.
Drury, C. (1996): management and cost of accounting: pitman

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