Budget And Budgetary Control – Problem As Management Tool In Decision Making

 Budget And Budgetary Control – Problem As Management Tool In Decision Making

Budget And Budgetary Control – Problem As Management Tool In Decision Making

A successful financial administration in government and any organization rests on two prerequisite system, namely, accounting and financial control.

To place an order for the Complete Project Material, pay N5,000 to

GTBank (Guaranty Trust Bank)
Account Name – Chudi-Oji Chukwuka
Account No – 0044157183

Then text the name of the Project topic, email address and your names to 08060565721.  

These are the essence of budgeting and budgetary control. Budding and budgetary control are designable to ensure that business organizations survive and meet the expectations of investors. For government, they underline government ability to meet its responsibility for ensuring stable price level, high level of employment, law and order, and good balance of payments. In order to achieve economics in the use of resources or maximize productivity, there is need to plan so as to help management in decision making.

Budget has been defined in various ways by different authors and by both private and public entities but the underlying philosophy and concept remains the same.

Business sectors look at budget as a quantitative plan of action and policies (usually monetary) prepared and approved prior to the time which it related.

T. Lucey (1983) ‘Government sector looks at budget from legal point of view as proposed estimates by revenue and expenditure within a fiscal year. According to Steamy (1992) government budgets usually consists of the following features:

1. A general review of the economy in terms of its performance in the last budget year.

2. The estimates, both revenue and expenditure, arranged under recurrent and capital groupings.

3. The fiscal monetary and other controls to be introduced by the government.

According to Chartered Institute of Management Accountant (CIMA), budget is defined as “financial and quantitative statements prepared and approved prior to a defined period of time of the policy to be pursued during that period for the purpose of attaining a given objective. They may involve income, expenditure and employment of capital. Budget could be said to be a standard with which to measure the actual achievement of people, departments and firms. On the other hand, budgeting control has been defined.

However, Chartered Institute of Management Accountant (CIMA) defined budgetary control as the establishment of budget relating the responsibilities of executives to the requirement policy, and the continuous comparison of actual with budgeted results.

Budgetary control is usually operated with a system of standard costing, because both systems are interrelated at not interdependent. Budgetary control is thus a system of controlling costs which includes the preparation of budgets, comparing actual performance with budgeted and acting upon results to achieve maximum profit and set objectives.


The purpose of this study is to look critically into relevant areas of budget and budgetary control. Thus, it is to find out what type of budget and budgetary control are in use in Enugu State Government, what circumstances warrant their use, investigate whether or not budgetary control as management of the resources of the state, what extent this tool is used to enable the State Government take prudent decision that will helps achieve her objectives. The problems the State Government encounter during and after the budget process and how to curb these problems.


A successful study of the subject matter of this research will be of immense advantage to Nigeria as a whole. This is because, a full analysis of budget and budgetary control, will enable them to tackle most of their economic problems such as:

1. The high inflation

2. High input bills

3. Devaluation of naira

4. Huge overseas debts/borrowing

5. Low survival rate of business

If all these problems were solved, there will be efficient use of our resources and this country will be worthy of emulation.


The study is limited to the appraisal of budget and budgetary control as management tool in decision-making in government bodies only. It aims at giving an in-depth study of budget and budgetary control as a means of achieving the set objectives of the government and also to find out the type of problems that emerge during and after the approval of the budget.

RelatedPost  Job Enrichment - Development Scheme For Secretary

The limitation of this study are substantial, some respondent ministries did not readily volunteer enough information as expected while some gave more than one response of classification of responses. The researchers was able to overcome this by careful analysis, and because of the result oriented nature this researcher was able to pick out right answer for the appropriate places.



This is defined as a comprehensive and co-ordinated plans, expressed in financial terms for the operations and resources of an enterprise for some specific period in future.


Decision making starts with planning and planning is the process of determining objectives and goals and the future course of action to attain them.


Budgeting is the act of preparing a budget. It is the process of preparing a short and detailed plan of activities in an organization and converting the strategic long-term plan into action.


Budgetary control is the use of budgets to plan and control the activities of an enterprise. It involves:

(a) Setting standards

(b) Comparing actual performance with standards to identify deviations.

(c) Initiating actions to correct the deviations.


It means all establishments whether government or privately owned.


Is any establishment which has profit motive or maximization as its major objectives.


A well prepared budget provides management with a planned programme based upon investigation, study and research on the part of the entire organization.

Fundamentally, it will be useful to consider the following definitions from the terminology of the Chartered Institute of Cost and Management Accountants.

A budget is a financial and/or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and the employment of capital.

Lucey (1983) defines budget as a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planned income to be generated and expenditure to be incurred during that period, and capital to be employed to attain a given objective.

On the other hand, Nwoko (1988) defined budgetary control as “control by the use of budgets”. Thus emphasizing the fact that control can be exerted through budgets. He pointed out that control through budgets are affected in the following ways:

(1) Budgets when drawn up with full active participation of staff and management, motivates workers and ensure control through the efficient use of resources.

(2) Budgets for management to anticipate the future and identify the controllable variable and factors which influence and improve operation in the coming period.

From the above points, writers view is that for purpose of control, budget should be seen as prudent, painstakingly assembled plans which must be adhered to in order to attain organizational goals. The absence of budgets will lead a fire-fighting approach to management that results in wastages and losses.

Brown and Howard 91975) discussed budgetary control from the point of view of management by exception and stated that control through budget enables management to consider only items that do not go according to plan to concentrate on exception. Thus, time is wasted sorting through massive figures instead that variations points to the root of inefficiencies.

The above quoted authors seem all to agree that control through budgets enhances the achievement of better results.


The budget period is length of time during which reasonable forecast can be made. In principle, no specific period is stated as the best budget period. Different types of budget are established with different objectives for instance long term and short term budget.

A realistic budget is based on specific period. Although factors may affect them due to unforeseen events.

In order to consider the length of period, certain factors are to be determined. Onochies (1979) pointed the following out as factors to be considered in determining the length of period:

1. For a business of seasonal nature, the budget period should cover at least one entire seasonal cycle.

2. The period should be long enough to complete production of the various product to allow financing of the production well in advance of the actual needs.

RelatedPost  Business Organizations In Nigeria - Social Responsiveness : A Study Of MTN Enugu Branch

3. The period should coincide with financial accounting period in order to compare actual results with the budget estimates or proposals.

According to Owler and Brown (1984), the budget period usually relate to two principal factors:

1. The type of business and

2. The control factor

Under the type of business, he explained that a firm with high capital expenditure and having long term planning requires budget period of up to twenty years. While firm seasonal demands like ladies clothing adopt shouter budget period of perhaps six months.

On control aspect, he emphasized that budget period is needed for regular short term reports which are used for control purposes. The budget period should be divided into months so as to compare actual results with the budgeted and ensure that immediate action is taken if any adverse variance occurs.


The preparation of budgets are important in that it serves two major purposes: for accounting and management process.

From the accounting point of view the procedures are planned in such a way that the end result of recording and summarizing operations in a financial statements are identical sin format with these from the process of recording historical cost/events. The difference between the historical data and the budgets is that budgets are more estimates of what will happen in the future rather than what has happened in the past.

As a management process, it relates closely to the operation of an organization. According to Kootnz and Weihrich, budgeting is an aid to the planning and controlling function of management which is achieved through numerical statements of plans and breaking those plans into components consistent with the organization structure, without loss of control”. Simply put, plans reduced to definite figures force a kind of orderliness that permits managers to see clearly what capital will be spent by whom and where, and what expenses, revenue or units of physical input or output plans will be involved.


It constitutes the following:

1. A sales budget

2. Production budget

3. Purchasing budget

4. Cash budget

5. Proforma statement

6. Capital expenditure


Sales budget is the starting point of any budgetary process. It is the most important and usually the most difficult and usually the most difficult to forecast.


Production overhead budget represent the detailed plan of all the cost supporting services in an organization. It represents the preparation of indirect material cost, indirect labour cost and other costs which cannot be traced to a particular cost center like administrative cost, personnel cost etc.


The purchase of direct materials depend on the level of opening and closing inventories. The units of materials to be purchased is determined thus; Budgeted usage plus desired closing inventories less opening inventory (materials) purchase in units. Direct labour budget is prepared from production budget. The direct labour hours to be produced and labour hours required to produce one unit.


Cash budget is a statement that shows the detailed plan of the expected cash receipts and expected cash disbursement for the period.


Proforma income statements are prepared from data accumulated in various operating and financial budgets. It is prepared in the same way as actual income statement, except that the figures represents intent rather than achievement.


Capital expenditure are the planning of long term worth while capital expenditure, together with the estimated cost and cash flows, of each project.


Production budget comes immediately after the sales budget. It is statement showing the detailed plans of the output achieved in a given time. It helps to determine what it is to be produced, when it is to be produced and how it will be produced.


The use of budgetary control in an organization assists the management in the use of the business’s resources in most economical possible way. The benefits derived from budgetary control are not accrued automatically. They are worked for. The benefits are dealt with under the following heads:

1. Planning co-ordination and control

2. Classification of authority and responsibility and motivation.

3. Communication


Budgetary control compels planning since budget formulates expected performance and expresses managerial target. Planning is the key to success in every business and budgeting forces planning to take place.

RelatedPost  Budgetary Control - Improving Performance Of Small Scale Business

It co-ordinates all the activities of an organization so that each fact contributes towards the overall plan.


The responsibility of each manager is classified in the budgeting process. The adoption of budget aurhorizes the plans contained within it so that management by exception can be produced.


Communication is an important avenue of communication between top and middle management regarding the organization objectives and practical problems of implementing them and when budget is finalized, it communicates the agreed plans to all the staff involved.


The budgetary process is not a mechanistic or technical procedure but a human and subjective element of management. Its success is totally dependent on the goodwill and co-operation of participants. Not only is the participation, of top management required but full participation co-operation and understanding of the middle and lower management is also essential. Without this budgeting will become a paper. Exercise with no real impact on the operations of the organization except perhaps negatively.

Budgets are prepared to help managers communicate goals to employees, co-ordinate activities, motivate workers to accomplish the goals and evaluate performance.


The researchers analysed in order to observe the problems and suggest remedies by which budgeting control can aid management in decision making.

In this chapter, the study is concluded and recommendations made both generally and for further study.

It was observed that variances occurred in the State budgets

These variances are as a result of:

(a) Inadequate planning by budget officer.

(b) Belief by departmental head that money would be given if they exceed the budget.

(c) Fluctuation in cost of maintaining the property of the establishments.

The occurrence of variance provides an insight on how to prepare future budget, provide for contingencies to carter for variances. It is used for investigation and corrective action. The variance is used as basis for making some decisions such as how much money would be made available and in giving instruction for remedial actions.


In conclusion, budget and budgetary control are indispensable in an organization for attainment of the organization’s objectives. If budgets are carefully planned and properly implemented, it would lead to decrease in cost and increase in revenue which will in turn lead to an increase in productivity. Effective use of budget serves as a means of making and co-ordinating plans, communicating those plans to those responsible for execution, motivating staff at various levels and as well as standard for measuring actual performance.

On the whole, the finding of this study supports the conclusion that proper use of budget and budgetary control contributes in no small way to the overall performance of the state government.


Consequent upon the exposure and experience gained in this research, the following recommendations were made:

1. The researcher recommends that the state government should establish a training programme or workshop at least once a year for those involved in budget preparation.

2. It was found that the minimum qualification is West African School Certificate. This causes lack of knowledge of the usefulness of budgetary control in some sensitive position.

3. The researchers therefore recommends that the minimum qualification should not be less than HND/BSC.

4. The state should adopt flexible budgets to take care of fluctuations that might occur.

5. Budget reports should be prepared periodically and sent to each departmental head, stating the revenue cost earned.

6. There should be provision for incentive to departmental heads whose department recorded favourable variance.

7. Adherence to the budgetary provisions should be practiced by top management, this is because if arbitrary actions are taken by them, the realization of the budget would be impossible.

Budget And Budgetary Control – Problem As Management Tool In Decision Making

To place an order for the Complete Project Material, pay N5,000 to

GTBank (Guaranty Trust Bank)
Account Name – Chudi-Oji Chukwuka
Account No – 0044157183

Then text the name of the Project topic, email address and your names to 08060565721.  

Enter your email address:

Delivered by FeedBurner

Speak Your Mind