BUDGETING AS A FINANCIAL TOOL FOR MANAGEMENT DECISION MAKING IN THE TRANSPORT INDUSTRY (A CASE STUDY OF THE NIGERIAN RAILWAY CORPORATION)

ABSTRACT

Budget is meant to ensure proper planning, controlling and coordinating of activities for effective decision making. Budgets are means of tabulating the projectional inflows and outflows of any organization in order to map out plans to be achieved at a specified period of time.

A well prepared budget gives room for easy control of resources made available for the extension of al activities planned for a transport organization. This study was conducted to examine budgeting as a financial tool for management decision making as a financial tool for management decision making in the transport industry and to highlight the usefulness of budget in enhancing corporate objectives and also highlight the limitation of budgeting.

An exploratory research method was used and the population study was 60 respondents both males and females in the Nigerian railway corporation.

The statistical research tool used for testing the hypothesis and analyzing responses to the research questions were the chi-square and simple percentage method.

The study recommend that adequate efforts must be made by the transport organization to ensure that their budget must be properly planned, prepared and implemented, all levels of management and departments in an organization must be involved to make necessary input that will used in the budget preparation, there must be periodic reviews of performance  with a view to determining deviation and transport organization must establish strong control co-ordination machinery  to serve as a watchdog and guide post.

 

TABLE OF CONTENT

Title page i

Certificationii

Dedicationiii

Acknowledgementiv

Abstractv

Table of Content

CHAPTER ONE: INTRODUCTION

1.1Background of the Study1

1.2Statement of the Problem3

1.3Objective of the Study4

1.4Research Question4

1.5Research Hypothesis5

1.6Significance of the Study6

1.7Scope of the Study6

1.8Limitations of the Study7

1.9Definition of Terms7

1.10Organization of the Study8

CHAPTER TWO: LITERATURE REVIEW

2.1Conceptual Framework10

2.2Theoretical Framework12

2.3Empirical Review38

CHAPTER THREE: RESEARCH METHODOLOGY 

3.1Introduction41

3.2Research Design41

3.3Population of the Study42

3.4Sample and Sampling Techniques42

3.5Method of Data Collection42

3.6Method of Data Analysis43

3.7Limitations of the Research Method44

3.8Validity and Reliability of the Instrument44

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1Introduction46

4.2Data Analysis and Presentation Based on Respondents Characteristics and Classification                        46

4.3Presentation and Analysis of Data According to Questionnaire50

4.4Testing of Hypothesis60

4.5Implication of Findings65

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION 

5.1Introduction66

5.2Summary of the Findings66

5.3Conclusion68

5.4Recommendations69

5.5 Suggestion for Further Study 70

Reference 71

Appendix 73

CHAPTER ONE

1.1Background of the Study

Business organizations, including those in the transport industry, individuals and government have discovered overtime that planning is essential to the actualization of goals and objectives. Business environment faces so many challenges such as economic, technological, social challenges and political pressures. All these affect the organization positively and negatively. Hence their survival and growth depends largely on how the management of such organizations plan and utilize the resources at their disposal. 

Management needs to have a plan of action or actions which are capable of making the organization operate effectively and profitably. Planning is an age long concept which is the most basic of al managerial functions planning is deciding in advance what to do, how to do it, when to do it necessary measures must be put in place to achieve the plan.

Budget has been defined by so many authors, for an organization to be efficient and effective it needs to budget its revenue and expenditure.

Otley (1978) described budget as a statement of expected result expressed in financial or material terms.

Widavsky (1974) interpreted budget to mean the following 

•A plan of work

•A prediction 

•A link between financial resources and human behavior to accomplish policy objectives.

•A mechanism of making choice alternatives expenditure.

•In the government sector, a record of performances prevailed in the government of national policy.

 Ozaze (1990) viewed budget as the plan of the dominant individual in an origination expressed in monetary terms, and subject to the constraints imposed by other participants and the environment indicating how the available resources may be utilized to achieve whatever the dominant individual agree to be the organization priorities. Budgeting is defined by 

Horgren (!967) as a predetermined statement of management policy during a given period of which provides the standard for comparison with the result actually received the budget provides formal basis for monitoring the progress of the organization as a whole and its component parts, towards the achievement of the objectives specified in it.

The budget can be a power tool for decision making and for motivating people to achieve organizational objectives for a budget to be effective it needs a budgeting control.

Budgetary control is more than an administrative techniques; it ensure that the functions budget are carried out in a well-organized and coordinated way. It also strengthens communication and participation and can be said to form a manner of business administration.

The tool “BUDGETING” will be examined in this study as well as how it is used in the transport industry.

1.2Statement of the Problem

Budgeting is a powerful tool in the hands of the management in the transport industry; it helps to achieve the organization objectives either in the long or short run.

Some problems are:

a.Budgeting goals are not realized due to low level of understanding of the budget system by middle and low level of management staff of the industry.

b.Lack of budgeting control to implement the budget of the organization.

c.The implementation of budgetary programme and control are not properly carried out.

d.Most times numerous pressures in the job may impose constraint upon managers, which will affect the quality of information which they collect for the budget.

e.Most transport industry do not understand the importance of budget in running their activities

1.3Objective of the Study

The objectives of the study include:

1.Finding out the usefulness of budgets in enhancing corporate objectives.

2.To determine whether or not budgetary system contribute to the improvement of the transport business activities.

3.To examine the nature and types of budget.

4.To examine how budgeting control assist in the cost reduction in the transport industry.

5.To find out how budgeting aids in decision making.

1.4Research Question

1.Is budgeting a financial tool in the management decision making in the transport industry?

2.Does budgeting and budgetary controls affect the quantity and quality of service delivery in the transport industry?

3.How relevant is budgetary in determining the achievement of the organization objectives?

1.5Research Hypothesis

Hypothesis One

     H0: Budgeting is not a financial tool in management decision making in the transport     industry.

H1:Budgeting is a financial tool in management decision making in the transport industry.

Hypothesis Two

H0:Budgeting and budgetary control does not affect the quantity and quality of service delivery in the transport industry.

H1:Budgeting and budgetary control affect the quantity and quality of service delivery in the transport industry.

Hypothesis Three

H0:Budgeting is not relevant in determining the achievement of the organization’s objective

H1:Budgeting is relevant in determining the achievement of the organization’s objective.

1.6Significance of the Study

Budgeting as a financial tool from management decision making in the transport industry will throw more light on the effect of budgeting in an organization.

It will equally bring to light the need of budgeting to help management make reasonable forecast on the expected revenue and expenditure for the transport organization management will use the budgeting process as an efficient tool for planning and decision making.

This research work will not only be useful to the transportation business but to individuals in their day to day life and to the society as a whole. The academic world will equally find this research work useful and will also add to the needed available source documents for reference purpose in future research works related to thesis topic of discussion.

1.7Scope of the Study

This product work will cover how budgeting is a financial tool for management decision making in the transport industry from planning stage down to implementation stage. It would also cover the benefit of budgeting, stages in budgeting, categories of budget etc.

Recommendations would be made on how to make a successful budget. This research work will also be extended to cover what experts have written on budgeting in recent years. The materials used will be limited to the following:

1.Works of famous authors.

2.The study of Nigerian Railway corporation

1.8Limitations of the Study

The limiting factors are that of availability of data which might be difficult to maintain following the trend of privacy in government business.

Time constraints is also a limiting factor in undertaking this study, the available time was short and the short period of the study made it difficult for the researcher to carry out a wider and more thorough work on the issue at the same time carry out academic activities.

1.9Definition of Terms

The following terms were used in the course of this research projects.

•BUDGET: This simply means estimate of income and expenditure, which are planned by the organization for a specific time in Britain it means the annual statement made to the house of commons by the chancellor of exchequer, giving details of the government financial plans for the coming year.

•BUDGETING CONROL: This is a system of managing a business by making forecasts of the different activities and applying of financial value to each forecast. Actual performance is subsequently with the estimate

•BUDGTING PERIOD: The budget period coincides with accounting period. The period varies according to different organization.

•MASTER BUDGET: This is a total budget package which effectively combines in one statement, the sales, expenses, production and cash budget of an organization. 

•VARIANCE: This is the difference between the estimates and actual result.

•TRANSPORTATION: This is the movement of people and goods from one place to another by road, rail, air etc.

1.10Organization of the Study

The entire study will be divided into 5 chapters the first chapter shows the introduction consisting of the background of the study, statement of the research problem research questions, objective of the study research hypothesis, significance of the study, scope and limitations of the study etc.

The second chapter consists of the literature review. The third chapter would consist of the research methodology which focuses on the area of the study, research design, population of study sample and sampling techniques research instrument, method of data analysis and limitation of the study.

The chapter four consists of the data analysis and the discussion on the findings.

Chapter five summarizes the findings of the research work and contains conclusion and recommendations.