John, states that it was during the 1960s that companies began to use budgets to dictate what people needed to do. In the 1970s performance improvement was based on meeting financial targets rather than effectiveness companies then faced problems in the 1980s and 1990s when they were not willing to spend money on innovations in order to stay with the rigid budgets, they were no longer concerned about how customers were being treated, only meeting sales targets became essential. Budgets are known to have an important role to transmit the expectation of top management to lower levels. According to Bremser (1988) budgets are used to communicate top management's expectations to managers and employees. According to Lucey. (1993), it is a quantitative expression of plan of action prepared in advance of the period to which it relates, expressed in money terms approved prior to the period.
As business environments have become increasingly dynamic and competitive, it has become increasingly important for managers to develop coherent, internally and logically consistent business strategies and to have tools and models which provide useful information to support strategic decision-making, planning and control. In response to these needs, there have been many important developments, in both management accounting research and practice that focus on the use of accounting data and related information regarding strategy and operations for these purposes.
Some of the most important developments in strategic planning and control have been firstly the balanced scorecard, a comprehensive set of performance measures designed to assist managers in implementing competitive strategies and monitoring performance with respect to them ( Kaplan and Norton 2000), secondly strategic variance/profitability analysis, systems which decompose measures of budgeted versus actual net income into variances which managers can relate logically to a firm's or strategic business units (SBU's) mission and business strategy and therefore use to analyse performance from a strategic perspective (Shank and Govindarajan 1993; Simons 2000), thirdly profit-linked performance measurement systems, models which decompose measures of changes in profitability over time into measures of changes in constructs such as productivity and price recovery, which can be logically linked to a firm's mission and business strategy and finally levers of control, a comprehensive framework for organizing and employing management control systems to promote strategic objectives (see Simons 2000).
In the past liberalization environment, the subject of budgetary control has become far more complex than what it was in the last century. Nowadays, budgetary control is one of the most vital and critical area of business management. The content of budgetary control are also changing at a rapid pace and quantitative techniques are also incorporated in its field which have shifted emphasis from the episodic cost control and cost reduction.
Budgetary control is a tool of management used to plan, carry out and control the operations of the business. The entrepreneur finds it quite handy in planning the growth of his business or enterprise. The concept and procedures under budget plan and control have wide application not only in profits- oriented enterprises but in every enterprise where the resource are limited and have to be properly applied. This, in a sense is 'managerial budgeting'. It applies to public and private enterprises, government departments and charitable organizations
Budgetary Control is defined as "the establishment of budgets, relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results either to secure by individual action the objective of that policy or to provide a base for its revision.
Budgetary control system acts as a friend, philosopher and guide to the management and it also acts like an impersonal policeman to bring all round efficiency in performance. Therefore the success of budgetary control, largely, depends upon effective co-ordination. The performance of one department depends on the performance of the other department and need to ensure necessary co-ordination to bring better performance and efficiency.
In business organizations, budgeting are formally associated with the advent of industrial capitalization for the revolution of the eighteenth century, which presented a challenge for industrial management. However, budgeting at the early state of its development was concerned with preparing and to permit correct performance evaluation and consequently rewards. Information that management accounting control system helps managers, by monitoring company's changing environmental circumstances, to compare opportunities and threats in the market so that they can obtain added value against competitors because it is important in facilitating the preparation of budgets, since budgeting and accounting are closely related (Bromwish,1990).
Lucey (1993) further urges that performance is influenced by many factors which includes planning and coordination, clarification of authority and responsibility, effective communication both internal and external, control of resources available, both human and non-human and motivation of both the lower and middle management.
If the actual numbers delivered through the financial year turn to be close to the budget, this actually demonstrates that the organization's management understand its business and has been successfully driving it in the direction they had planned. On the other hand, if the actual results diverge wide from the budget, this sends out an „out of control‟ signal. For this reason, budget based control means manager's evaluation according to budgetary goals.
1.1 Inspirations of the Study
The rapid environmental changes that companies face today affect not only production system, equipment changes and new technology usage but also organizational performance and management philosophies, therefore purpose of the study is how far does budgetary control and performance are concerned in business organizations and industries. Hence to conduct this study I have taken Aquarelle Clothing Ltd as a sample to conduct the research and to measure the effect of budgetary control on performance.
1.2 Overview of the Organization
Aquarelle Clothing Shirts Division is an international shirts manufacturer operating in a homogenous upper/middle market segment. Aquarelle aims to deliver "unbeatable value" to its customers to help them increase their market share and profitability. "Unbeatable value" key ingredients being quality, service, flexibility, product development and competitiveness.
Aquarelle's shirts are exported to many renowned customers in Europe and the USA. Being totally "customer driven", the group strategy is to closely monitor market trends and position itself accordingly.
Aquarelle Clothing Ltd consist of 2500 employee and produce Men's Casual and Formal shirts, Ladies blouses and kids shirting. The industry produce six million units annually and export to different client such as Express, J Crew, Woolworth and etc.
The unit is integrated with its own weaving mill (Consolidated Fabrics Ltd) and also sources yarn from different regions of the world ensuring that the most competitive prices are offered. Dyeing, Weaving, Finishing and Washing operations are performed in-house and meticulously supervised ensuring impeccable quality. Aquarelle Clothing, under certain conditions offers duty free products to the USA / Europe and RSA. We have various off shore offices. Namely in Hong Kong, UK, Spain, RSA and the USA.
1.3 Research problem.
Many business firms recognize the need to have a developed and comprehensive budgetary control system in order to minimize budget variances, costs and maximize efficiency. Budgetary control is as crucial as cash itself and any theft, waste, excessive use or stock out could lead to the business's poor performance. Aquarelle Clothing Ltd has acknowledged that its performance is influenced by budgetary control systems.
1.4 Research objectives
The general objective of the study will be to analyze the role of budgetary control on the performance of business organizations.
1 To establish the levels of budgetary controls in Kampala Serena Hotel.
2. To establish the levels of performance in Kampala Serena Hotel.
3. To establish the relationship between budgetary control and performance in Aquarelle Clothing Ltd.
1.5 Structure of the Research
Chapter 1 Introduction: Introducing the purpose of the study, spelling out research problem, broad objectives of the study and a structure of the dissertation.
Chapter 2 Literature Review: The theory of different authors on the evaluation of the effect of budgetary control on performance in different organisations advantages and disadvantages and factors influencing its evaluation.
Chapter 3 Research Methodology: Procedure of exploratory research, problem definition, research objectives and design, sampling plan, data collection and questionnaire design, stratified sampling technique, data processing and analysis, and limitations of the study.
Chapter 4 Analysis of Findings: Analyzing of variables, the relationship between different variables by using appropriate cross tabulations through SPSS v20.0 software.
Chapter 5 Conclusions and Recommendations: Proposes a series of actions to be taken to have better budgetary control to bring better performance.
