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An Evaluation Of Financial And Budgetary Control In Construction Industry In Nigeria

ACCOUNTING PROJECT TOPICS AND MATERIALS

Abstract

This study, an evaluation of financial and budgetary control in construction industry in Nigeria , was conducted using Cadbury Nigeria Plc, as case study. Since wants are plenty while resources are limited, every organisation tends to find means by which it can get what it wants with the limited resources at its disposal. Therefore, firms seek  to adopt the concept of budgeting and budgetary control to satisfy their needs at the least possible cost and at the same time fulfill their stewardship obligations to the numerous stakeholders. We adopted a descriptive research design with data gathered through questionnaire administered to respondents. Non-parametric tool of chi square was employed to analyse the data. Hypotheses were tested and analysed on a 5% level of significance and it was revealed that budgeting is a useful tool that guides firms to evaluate whether their goals and objectives are actualised. Considering the changing environment in which firms now operate, it can be concluded that budget, which is a continous management activity, should adapt to changes in the dynamic business environment.
 
CHAPTER ONE

Introduction

1.1 Background to the Study

Wants are numerous while resources are limited but there is every tendency to waste or under-utilise the limited resources by the human factor involved in the production of goods and services. With various companies competing with one another, only few that are able to produce at least possible cost will survive the growing competition in the market. Therefore, it is paramount for every serious business undertaken to produce at that possible minimum cost so as to remain in business and also achieve the corporate objectives of profitability and stability. In view of this, there is every need to do a realistic planning of the activities of the firm taking into consideration the limiting factors and the long term objectives of the firm. In order to achieve this, budgeting – a tool of planning and control becomes indispensable. Budgeting is ubiquitous and has long been considered as a necessary tool in managing a company.
 
A budget has been defined by Chartered Institute of Management Accountants (CIMA), as “a financial or qualitative statement prepared and approved prior to a defined period of time for the purpose of attaining a given objective.  It may include income, expenditure and  the employment of capital”. CIMA also defined budgetary control as “the establishment of budgets relating the responsibilities of executives to the requirements of a policy and the continous comparisons of actual with budgeted results, either to secure by individual action the objectives of that policy or to provide a basis for its revision.
 
Horngreen (1982) defined a budget as “a quantitative expression of a plan of action and an aid to coordination and  implementation”.  The  Oxford  Advanced  Learners‟ dictionary defined budget as an estimate or plan of the money available to somebody and how it will be spent over a period of time. Both Horngreen and the dictionary emphasised the word plan, but planning itself is found in all aspect of human endeavor, hence planning is a blue print of business growth and a road map for development that helps in deciding objectives, quantitatively and qualitatively. It involves setting a goal on the premise of the objectives and keeping of the resources. The process of planning requires that managers of business to act as if they are fortune tellers and attempt to predict the future course of action to be adopted. Such prediction of the so-called fortune tellers will determine whether or not the objectives of the firm will be met.
 
Adams (2001), views budget as a future plan of action for the whole organization or a sector thereof. Budgets are plans that deal with future allocations and utilisation of resources to different activities over a given period of time. For any organisation to make progress or achieve its goals, it needs capital and to be able to make profit, it requires planning of its resources, which can only be achieved through budgeting, hence budgeting serves as a tool for financial planning.
 
Batty (1982), defined budgetary control as a system which uses budgets as a means of planning and control- ling all aspects of producing and or selling commodities or services. This is true as we tend to prepare revenue and expenditure variance analysis to be able to deduce areas of divergencies for which the management  needs to watch to avoid embarassment as any adverse variance will translate into inability to meet the corporate objective which will eventually lead to disagreement with stakeholders.
 
Pandy (1985) has observed that although many people will complain about budget and its process, budgets are indispensable in a large modern organisation as the benefit that occurs from budgets and its control is much greater than the cost involved. In view of this, the fact that resources are scarce, coupled with high competition that permeate most businesses, budgets when rightly applied, would be an effective tool for planning and con- trol, especially in large corporation as Cadbury Nigeria Plc.
 
Lucey  (2010),  in  support  of  the  CIMA‟s  definition  de- fined budget to be a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planned income to be generated or ex- penditure to be incurred during the period and the capital to be employed to maintain the given objective. From this definition, we can as well state that budget is an aid to making and coordinating short range plan; a device  for communicating plan and objectives to various responsibility centres and a basic evaluation of performance.
 
Therefore, it can be said that budget is a parameter  which measures the actual achievement of people, departments, ministries and firms, while budgetary control ensures that actual results are positively or negatively in accordance with the overall financial and policy objectives of the establishment.

1.2 Statement of Problem

The decision as to how to distribute limited financial and non-financial resources, in an effective and efficient manner, is an important challenge in all organisations.  In most large and complex organisations, this task would be nearly impossible without budgeting. Without effective budget analysis and feedback about budgetary problems, many organisations would become  bankrupt. Some of the problems arise from inadequate data to formulate and implement a proper budget; and non existence of well defined structure, which leads to overlap- ping of duties. These deficiencies can therefore be addressed through the use of budgeting technique. There- fore, this study traces the extent by which budgeting can used as a good planning and controlling tool in a  construction company.
 
1.3 Objectives of the study
The main objectives of this study is an evaluation of financial and budgetary control in construction industry in Nigeria.
The specific objectives are thus:
 

  • To examine the extend to which budgeting technique serve in a construction industry in Nigeria
  • To investigate how budgeting aid the planning of a construction industry profit in Nigeria
  • To ascertain whether control affect the working performance of employees in a construction industry in Nigeria
  • To find out if construction industry in Nigeria lack adequate skill for planning and controlling policy formulations and implementations
  • To investigate whether inadequate data and records create problems for construction industry in formulating effective budgeting?

1.4 Research Questions

The study was guided by the following research questions:

  1. a) What importance does budgeting technique serve in a construction industry in Nigeria?
  2. b) How does budgeting aid the planning of a construction industry profit in Nigeria?
  3. c) How does budgetary control affect the working performance of employees in a construction industry in Nigeria?
  4. d) Why do construction industry in Nigeria lack adequate skill for planning and controlling policy formulations and implementations?
  5. e) In what way do inadequate data and records create problems for construction industry in formulating effective budgeting?

1.5 Research Hypothesis

For the purpose of analyzing the data, the following hypotheses were tested:

  1. a) Ho1: There is no significant relationship between budgetary planning and control on organisation performance;
  2. b) Ho2: Effective budgetary control does not influence the result achieved;
  3. c) Ho3: Budgeting technique is of no importance in a construction industry;
  4. d) Ho4: Budgetary control does not affect the working performance of an employee in a construction industry

1.6 SIGNIFICANCE OF THE STUDY
This study will be of importance to building professionals and the general public because it would not only clarify but also create awareness of the extent to which inadequacies in cost control techniques can adversely affect project performance. The study will also help contractors, clients, consultants and all parties involved in construction projects about ways of improving their current method of cost management and control.
The study will also be of great benefit for other student researchers’ who may want to venture into the same subject matter. Having gotten results-both empirically and theoretically, the study will serve as a foundation for future research studies.
1.7 SCOPE OF THE STUDY
The study will cover some selected quantity surveyor. All findings and recommendations from the study may not reflect the true view of the traditional roles and changing roles of quantity surveyors as the researcher could not cover a wider area due to financial and time constraints.
1.8 DEFINITION OF TERMS

  • Construction:In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking. Normally, the job is managed by a project manager and supervised by a construction manager, design engineer, construction engineer or project architect
  • Deliverable: Deliverable is a term used in project management to describe a tangible or intangible object produced as a result of the project that is intended to be delivered to a customer (either internal or external). A deliverable could be a report, a document, a server upgrade or any other building block of an overall project.
  • Project management:this is the discipline of planning, organizing, motivating, and controlling resources to achieve specific goals. A project is a temporary endeavour with a defined beginning and end (usually time-constrained, and often constrained by funding or deliverables), undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value.
  • Time: This is a dimension in which events can be ordered from the past through the present into the future, and also the measure of durations of events and the intervals between them.
  • Cost: A cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost.
  • Cost overrun: occurs when the final cost of the project exceeds the original contract value at the time of completion.
  • Good cost performance project: Project in which the cost overrun of the project does not exceed 10 percent of the initial budget.

·         Poor cost performance project: Project in which the cost overrun of the project exceeds 10 percent of the initial budget

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