ACKNOWLEDGEMENT I am deeply indebted to all those who in their own way

contributed to successful completion of this study. First and foremost I thank the
almighty God, to whom all knowledge, wisdom and power belong for sustaining me
in good health, sound judgment and strength to move on and complete my masters
studies. Special appreciation goes to my supervisor for his dedication, guidance,
valuable suggestion and ideas throughout the course of this project. Without his
enormous support this study would not have been successful. Thanks to my family
who always inspired me in every step to accomplish this study. I am eternally
grateful for your love, encouragement and support in all my endeavors.

INTRODUCTION

Most organizations use budget control as the primary means of corporate internal
controls, it provides a comprehensive management platform for efficient and
effective allocation of resources. Budgetary controls enable the management team
to make plans for the future through implementing those plans and monitoring
activities to see whether they conform to the plan, effective implementation of
budgetary control is an important guarantee for the effective implementation of
budget in the organization

Budgetary control is the process of developing a spending plan and periodically

comparing actual expenditures against that plan to determine if it or the spending
patterns need adjustment to stay on track. This process is necessary to control
spending and meet various financial goals. Organizations rely heavily on budgetary
control to manage their spending activities, and this technique is also used by the
public and the private sector as well as private individuals, such as heads of
household who want to make sure they live within their means (Dunk, 2009).

In budgetary control, 4 techniques are used namely: variance analysis, responsibility

accounting, adjustment of funds and zero based budgeting. Variance analysis
compares actual accounting figures to determine whether the variances are
favorable or unfavorable. Responsibility accounting on the other hand creates cost
center, profit center and investment center which are just like departments of any
organization after which all employees work on the basis of their centers, each with
specific targeted performance. For the adjustment of funds technique, top
management takes the decision to adjust fund from one project to other project. In
the Zero based budgeting (ZBB) technique, every next year budget is made on nil
bases. It can only be possible, if your estimated income will be equal to the
estimated expenses

The general objective of the study was to analyze the effectiveness of budgetary
control techniques on organizational performance. The specific objectives were find
out how effective implementation of responsibility accounting influences
organizational performance, to determine whether effective implementation of
variance analysis affects organizational performance and to find out how the
effective implementation of zero based budgeting affects organizational
performance.

2. LITERATURE REVIEW

2.1 Theoretical Framework

2.1.1 The Theory of Budgeting Hirst (1987) explains that an effective budgetary
control solves an organizations need to plan and consider how to confront future
potential risks and opportunities by establishing an efficient system of control.
Shields and Young (1993) define the theory of budgeting as a detector of variances
between organizational objectives and performance. Budgets are considered to be
the core element of an efficient control process and consequently vital part to the
umbrella concept of an effective budgetary control. 2.1.2 Accounting Theory Kaplan
and Norton (1996) assert that the accounting theory is aimed towards provision of a
coherent set of logical principles that form the general frame of reference for the
evaluation and development of sound accounting practices and policy development.
Otley and Pollanen (2000) exemplifies that the purpose in developing a theory of
accounting is to establish Standard for judging the acceptability of accounting
methods. Procedures that meet the Standard should be employed in practice of
accounting. Theory has assisted in making predictions of the likely outcome of
budget action in a given set of circumstance and effect of any change in
circumstances.

2.1.2 Accounting Theory Kaplan and Norton (1996) assert that the accounting
theory is aimed towards provision of a coherent set of logical principles that form
the general frame of reference for the evaluation and development of sound
accounting practices and policy development. Otley and Pollanen (2000) exemplifies
that the purpose in developing a theory of accounting is to establish Standard for
judging the acceptability of accounting methods. Procedures that meet the Standard
should be employed in practice of accounting. Theory has assisted in making
predictions of the likely outcome of budget action in a given set of circumstance and
effect of any change in circumstances. Accounting theory has developed models in
which Standard can be set. Management accounting theory also provides several
yardsticks to be used for control. That is variance analysis. Since budget is an
instrument of plan. It provides a framework of given feed back to the management
on the implementation of budget. When implementing the accounting theory
historical data is instrumental since this data serve as an input for making

2.1.3 Budgetary Control Theory According to this theory, a good budgetary control
system must be able to address the efficiency and effectiveness of the
organizations expenditure. A good budget is determined by the level of income of
the organization (Robinson, 2009). Sawhill and Williamson (2001) argue that
budgets can be used an indicator of the performance of the ruling government. It is
a statement of whether they are competent in administering the organization and
the national resources. It is therefore essential for the organization to understand its
budgeting system and give priority to urgent matters that require attention to its
control tools. In order to find out the relationship between the budgeting system
and the organizational performance, it is important for the firm to determine the
patterns of the expenditure of the organization and its performance

Budgetary control methods

a) Budget:

A formal statement of the financial resources set aside for carrying out specific activities in a
given period of time.

It helps to co-ordinate the activities of the organisation.

An example would be an advertising budget or sales force budget.

b) Budgetary control:

A control technique whereby actual results are compared with budgets.

Any differences (variances) are made the responsibility of key individuals who can either
exercise control action or revise the original budgets.

Budgetary control and responsibility centres;

These enable managers to monitor organisational functions.

A responsibility centre can be defined as any functional unit headed by a manager who is
responsible for the activities of that unit.

There are four types of responsibility centres:

a) Revenue centres

Organisational units in which outputs are measured in monetary terms but are not directly
compared to input costs.

b) Expense centres

Units where inputs are measured in monetary terms but outputs are not.

c) Profit centres
Where performance is measured by the difference between revenues (outputs) and expenditure
(inputs). Inter-departmental sales are often made using "transfer prices".

d) Investment centres

Where outputs are compared with the assets employed in producing them

Budget preparation

Firstly, determine the principal budget factor. This is also known as the key budget factor or
limiting budget factor and is the factor which will limit the activities of an undertaking. This limits
output, e.g. sales, material or labour.

a) Sales budget: this involves a realistic sales forecast. This is prepared in units of each product
and also in sales value. Methods of sales forecasting include:

sales force opinions

market research
statistical methods (correlation analysis and examination of trends)
mathematical models.

In using these techniques consider:

company's pricing policy

general economic and political conditions
changes in the population
competition
consumers' income and tastes
advertising and other sales promotion techniques
after sales service
credit terms offered.

b) Production budget: expressed in quantitative terms only and is geared to the sales budget.
The production manager's duties include:

analysis of plant utilisation

work-in-progress budgets.

If requirements exceed capacity he may:

subcontract
plan for overtime
introduce shift work
hire or buy additional machinery
The materials purchases budget's both quantitative and financial.
c) Raw materials and purchasing budget:

The materials usage budget is in quantities.

The materials purchases budget is both quantitative and financial.

Factors influencing a) and b) include:

production requirements
planning stock levels
storage space
trends of material prices.

d) Labour budget: is both quantitative and financial. This is influenced by:

production requirements
man-hours available
grades of labour required
wage rates (union agreements)
the need for incentives.

e) Cash budget: a cash plan for a defined period of time. It summarises monthly receipts and
payments. Hence, it highlights monthly surpluses and deficits of actual cash. Its main uses are:

to maintain control over a firm's cash requirements, e.g. stock and debtors

to enable a firm to take precautionary measures and arrange in advance for investment and
loan facilities whenever cash surpluses or deficits arises

to show the feasibility of management's plans in cash terms

to illustrate the financial impact of changes in management policy, e.g. change of credit terms
offered to customers.

Receipts of cash may come from one of the following:

cash sales
payments by debtors
the sale of fixed assets
the issue of new shares
the receipt of interest and dividends from investments.

Payments of cash may be for one or more of the following:

purchase of stocks
payments of wages or other expenses
 purchase of capital items
payment of interest, dividends or taxation.

HUMAN FACTORS IN BUDGETING

If a budget program is to be successful, it must have the complete acceptance and
support of the persons who occupy key management positions. If lower or middle
management personnel sense that top management is lukewarm about budgeting,
or if they sense that top management simply tolerates budgeting as a necessary
evil, then their own attitude will reflect a similar lack of enthusiasm. Budgeting is
hard work, and if top management is not enthusiastic about and committed to the
budget program, then it is unlikely that anyone else in the organization will be
either.

Behavioral aspects of budgeting

Punishment system [t]here is a general tendency for managers to distort the
information Such distortion of information is undesirable and counter-productive.

The way in which budgets are administered impacts on their effectiveness in helping to
achieve an organizations goals. The budget in any company has a dual role of being a
forecast of the year and a yard stick 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
they pass on to their superiors, so that the unfavorable items are under-emphasized
Some organizations use sanctions and punishment to encourage adherence to budget.
The use of sanctions and punishment is synonymous with an authoritarian style of
management. Typical responses to this use of budgets are:
Manager: The important thing for us to do is to follow up. The supervisors interest
lags unless someone is constantly checking up on him I think there is a need for more
pressure I think that man is inherently lazy and if we could only increase the pressure
budgets would be more effective.
Supervisor: Youve got to outwit that son-of-a-bitch Remember the bastards are out
to screw you, and thats all theyve got to think about.
The use of sanctions and punishment is more likely to lead to resentment and further
attempts to beat the system. At best it will result in a defeated and less than
enthusiastic employee. It will certainly encourage behavior such as padding the
budget.

If a budget program is to be successful, it must have the complete acceptance and

support of the persons who occupy key management positions. If lower or middle
management personnel sense that top management is lukewarm about budgeting,
or if they sense that top management simply tolerates budgeting as a necessary
evil, then their own attitude will reflect a similar lack of enthusiasm. Budgeting is
hard work, and if top management is not enthusiastic about and committed to the
budget program, then it is unlikely that anyone else in the organization will be
either
In administering the budget program, it is particularly important that top
management not use budget as a club to pressure employees or as a way to find
someone to blame if something goes wrong. Using budgets in such negative ways
will breed hostility, tension, and mistrust rather than greater cooperation and
productivity. Unfortunately, the budget is too often used as a pressure device and
great emphasis is placed on meeting the budget under all circumstances.

Rather than being used a weapon, the budget should be used as a positive
instrument to assist in establishing goals, in measuring operating results,
and in isolating areas that are indeed of extra effort or attention. Any
misgivings that employees have about a budget program can be overcome
by meaningful involvement at all levels and by proper use of the program
over time. Administration of a budget program requires a great deal of
insight and sensitivity on the part of management. The budget program
should be designed to be a positive aid in achieving both individual and
company goals.

Management must keep clearly in mind that the human aspect of budgeting
is of key importance. It is easy to become preoccupied with the technical
aspect of the budget to the exclusion of the human aspects. Indeed, the use
of budget data in a rigid and inflexible manner is often the greatest single
complaint of persons whose performance is evaluated using budgets.
Management should remember that the purposes of the budget are to
motivate employees and to coordinate efforts. Preoccupation with the dollars
and cents in the budget, or being rigid and inflexible, can only lead to
frustration of these purposes

In establishing a budget, how challenging should budget targets be? In

practice, companies typically set their budgets either at a stretch level or a
highly achievable level.

A stretch level budget is one that has only a small chance of being met
and in fact may be met less than half the time by even the most capable
managers. A highly achievable budget is one that is challenging, but
which can be met through hard work. Managers usually prefer highly
achievable budgets. Such budgets are generally coupled with bonuses that
are given when budget targets are met, along with added bonuses when
these targets are exceeded. Highly achievable budgets are believed to build
a managers confidence and to generate commitment to the budget
program.