THE IMPACT OF POOR BUDGETARY IMPLEMENTATION ON CONSTRUCTION COMPANIES

THE IMPACT OF POOR BUDGETARY IMPLEMENTATION ON CONSTRUCTION COMPANIES

(A STUDY OF SELECTED COMPANIES)

ABSTRACT

The study intends to investigate the impact of poor budgetary implementation in construction companies. The purpose is to specifically identify the major causes of poor budgetary implementation practices in construction companies using megastar technical and Construction Company Ltd, Aleed Construction Company, Anasami Construction Nig Ltd, Sametech Construction and C &C Construction Co. Ltd as case study. It is to determine the impact of poor budgetary implementation in construction companies and offer useful and meaningful suggestions for improving on the identified problems based on the findings. The study was carried out for the five companies. The researcher made use of primary and secondary sources of data. The primary sources with respect to this study include the various management staff of the companies and the account staff of the companies selected. Information obtained from these people were by asking face to face questions and recording their responses, and then questionnaires were also administered to them for more response. A statistical approach (yaro yamen) was used in determining both the sample size and the proportion of the sample. Then the researcher used simple percentage and chi-square analysis to analyze the data collected. The study revealed that inadequate or poor budgetary implementation practices are as a result of deviation from the budgetary principles and standards, manipulation of budget by corrupt officials; late release of fund budgeted, etc. Recommendations were made based on the findings. The researcher recommended that there should be timely release of budget so as not to disrupt smooth operations of the companies. There should be an efficient monitoring of how the budget is implemented in the companies. It was also recommended that all employees of the companies should understand how a budget is implemented in the companies. The management of the companies were also adviced to motivate employees by encouraging employees through incentives and benefits in order to achieve the objectives of the organization.

CHAPTER ONE

1.0       INTRODUCTION

1.1       BACKGROUND OF THE STUDY

In the traditional sense, the primary purpose of preparing budget is to understand and control costs. Budget preparation is very useful in a project as a planning and controlling tool. Budget could be employed by the company to get priorities among projects competing for limited resources. It enables the company to set the machinery in motion for meeting the interim valuations as when due and also used to justify the elimination of uneconomic projects as well as the revision of its objectives to meet the demand of a manageable project.

Results of descriptive/non parametric statistical technique indicate that one of the major problems confronting the construction sector in Nigeria is inadequate managerial control in the form of sound budget planning and control. The primary concern during implementation of budget is to ensure the fulfillment of the financial and economic aspect of budget outlays. The financial tasks include programmed spending of the amounts for the purpose specified and avoiding lapses or a rush of expenditure towards the end of the financial year. Budgetary implementation is the enforcement of the set objectives taking appropriate actions to bring performance in line with planned targets.

1.2       STATEMENT OF THE PROBLEM

Numerous problems militate against an efficient budgetary implementation. Benneth (1975:23) was of the view that “statute differences or more accurately role conflict between budget staff and line personnel is an important source of unfunctional consequence of a budgetary system. This implies that the basic problem of budgetary implementation arises from differences in the way budget staff and line personnel understand the budgeting system.

Line employees see budgets as merely emphasizing history, being too rigid, unrealistic, unattainable and ambiguous. The budget staff are seen as over-concerned with figures, unconcerned with line problems and cut off by a language of their own (ie presenting complicated format). These problems would affect the effectiveness of budget system directly or indirectly through their effects on communication, motivation and participation.

Again, under the volatile conditions in which they work, managers often lack up to- date information on which to base their decisions. There is always a time lag involved in the process of preparing and approving estimates of proposed expenditures in most companies. This time lag matters less in a stable economy where factors affecting budgetary decisions change slowly. But in the fast changing financial conditions of low income countries, it can make formal budgetary procedures impossible to follow.

Another important problem of budgetary implementation is the unrestricted transfer of funds from one category of expenditure to another. Lewis (1967:208) opined that “the characteristics of the African financial environment and changes that take place after the budget has been approved”. So all these lead to the study of “The Impact of Poor Budgetary Implementation in Construction Companies (A study of Megastar Technical and Construction Company Limited, Aleed Construction Company, Anasami Construction Nig Ltd, Sametech Construction and C & C Construction Co. Ltd).

1.3       OBJECTIVES OF THE STUDY

Major objectives of this study is to investigate the impact of poor budgetary implementation in construction companies, using Megastar Technical and construction company Ltd, Aleed Construction Company, Anasami Construction Nig Ltd, Sametech Construction and C & C Construction Co. Ltd as a case study.

The study will specifically:

1. Identify the major causes of poor budgetary implementation practices in the companies under study.
2. Determine the impact of poor budgetary implementation in construction companies.
3. Offer useful and meaningful suggestion for improving on the identified problems based on findings.

1.4       RESEARCH QUESTIONS

The following research questions are formulated for the purpose of the study:

1. What are the causes of poor budgetary implementation practices in construction companies?
2. To what extent has poor budgetary implementation practices impacted in construction companies?
3. How can poor budgetary implementation problems be improved to enhance the viability of construction companies to achieve their desired goals and objectives?

1.5       HYPOTHESIS

In order to solve the problems of poor budgetary implementation, the study intends to test and prove or disapprove the following hypothesis

1. Ho: There is no significant relationship between poor budgetary implementation and late release of fund by responsible officials in construction companies.
2. Ho: Poor budgetary implementations do not hamper the growth of construction companies.
3. H0: Poor budgetary implementation problems cannot be improved in construction companies to enhance viability of projects.

1.6       SIGNIFICANCE OF THE STUDY

The result of the study is important for the following reasons:

It is to serve as standpoint from which business managers could design an effective machinery for budgetary implementation practices. Enhancing the viability of projects embarked upon by companies to achieve the desired objectives by improving the status of the company.

Helping prospective and potential investors/industrialists to realize the need for adequate budgetary implementation towards industrial growth. The study will also give research students and interest groups in future an insight into the various aspect of budgetary procedures and its impact on the efficient resource management in companies.

1.7       LIMITATIONS OF THE STUDY

The following limitations are inherent in the study.

Lack of enough available sufficient data, because most of the vital documents needed for the research from the company were not completely provided for the researcher.

Poor information management and outdated materials in our libraries also pose a problem. Also time is another factor since no research work is exhaustible, the fact is that the time required for completion of this work is reasonably short.

However, the study has proffered much efforts to analyze the budgetary implementation procedure based on the available data taking into consideration the above limitations.

1.8       SCOPE OF THE STUDY

The scope of this study is restricted to the impact of poor budgetary implementation in construction companies. The areas especially in focus are the construction industry where Megaster technical and Construction Company Ltd, Aleed Construction Company, Anasami Construction Nig Ltd, Sametech Construction and C & C Construction Co. Ltd has been used as case study. The scope in terms of respondents include: management and staff of accounts departments of the various companies for the study. These are people that believed to provide the required information on the subject matter for the study.

1.9       DEFINITION OF TERMS

Traditional Budgeting: a short range fiscal management and expenditure control carried out through assemblage of costs by type of resources, input and by neither organizational nor functional activities. Norvick (19967:3742)

BUDGET IMPLEMENTATION: The science based art of regulating the actual to be in parity with the set standard, to meet the economic demands placed on a business enterprise.

RESPONSIBILITY HOLDER: One appointed to lead and account for the operational unit of a firm with clear definition of their areas of responsibility.

BUDGET: A financial or quantitative statement, prepared prior to a specified accounting period, containing the plans and policies to be pursued during that period. It is used as the basis for budgetary control.

MANAGEMENT ACCOUNTING: The techniques used to collect, process and present financial and quantitative data within an organization to help effective performance measurement, cost control, planning, pricing and decision making to take place.

ZERO-BASE BUDGETING (ZBB): Is a management process that provides for systematic consideration of all programmes and activities in conjunction with the formulation of budget requests and programme planning.

BUDGETARY CONTROL: The process by which financial control is exercised with in an organization. Budgets for income and expenditure for each function of the organization are prepared in advance of an accounting period and then compared with actual performance to establish any variances.

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