CHAPTER ONE 1.0 INTRODUCTION. 1.1: BACKGROUNG OF THE PROBLEM.

At the core of proficient financial management is the budget .The absence of effective budgetary system in an organization, can lead to ineffectiveness as well as inefficiency in the whole process of monitoring and administering the operations of the organisation. Budgeting process is important because it allocates resources, in turn, revealing the program preferences of the parties involved in budgeting, after the budget is developed. Hence, as budgeting facilitates control by providing definite expectations in the planning phase, which can be used as a frame of reference for judging the subsequent performance of the organisation, the management of the same should improve the budgeting as well as financial reporting processes, in order to have a relevant tool for performance evaluation and control, and thereby achieving financial management proficiency.

1.2: STATEMENT OF THE PROBLEM. Budgeting is the process of developing financial plans to implement the programs. Budgeting includes both the technical (arithmetic) process by which organisations construct budgets and meetings in which managers and other employees develop plans that drive budgets. Budgeting is a management process and budgets are its output. Together they constitute a system that managers can use to ensure that the organisation uses resources effectively and efficiently to achieve intended operating goals and strategies. Budget predicts future with reasonable precision and removes uncertainty to a great extent; which makes it a very important tool for an organisation to achieve its objectives and goals set. Quite unfortunately, most of the organisations fail to use budgets to achieve their objectives. Therefore this research will try to find out, how the organisations can prepare effective budgets, and how those budgets can enhance and facilitate the achievement of organisational objectives.

1.3: RESEARCH OBJECTIVES. 1.3.1: Main objective. The main objective of the study is to evaluate the effectiveness of implementing budget policies in attaining objectives of the organisation. 1.3.2: Specific objectives. i. ii. iii. iv. v. vi. To evaluate the efficiency and effectiveness of budgeting at Tanzania Telecommunication Company Limited (TTCL). To examine the strength of budgeting system in communication and coordination of various operations at Tanzania Telecommunication Company Limited (TTCL). To find out factors that hinder budget implementation at TTCL and if possible to give recommendations on how to eradicate them. To find how management and subordinates participate in the budgeting process. To evaluate whether budget guidelines and policies are followed by TTCL so as to advise the management an appropriate measure to improve overall efficiencies in operations. To determine the weaknesses that exists in the budgeting system and budgetary control process.

1.4: RESEARCH QUESTIONS. i. ii. iii. iv. Are policy makers in the organisations aware of the impact of effective budgetary system in achieving the organizational objectives? In what ways, does budgeting assist in achieving the organizational objectives? In what specific ways does the existence of functional budgets facilitate the achievement of objectives by functional managers? How does budgeting control system contribute to the effectiveness of budgeting to achieve organizational objectives?

1.5: SIGNIFICANCE OF THE STUDY. The study will be beneficial to the organization itself (TTCL), the researcher and community as a whole. Basing on the findings which are the outcomes of the study, management and other users will understand how the effective implementation of budget policies can lead to achievement of organizational goals. From the research findings, the researchers will point out conclusions and suggestions to enable the organizations make more appropriate decisions on budget policies and their implementation. So basically, the research is expected to result into the following;

a) At the end of the study the findings will help to understand the extent on how budgeting affects the organisation in achieving its objectives. b) Will enable the organisation to prevent unnecessary budget variances, if any through recommendation on the budgetary control. c) The study will help the management of Tanzania Telecommunication Company Limited (TTCL) to emphasize improvement of budgeting system where weakness will be pointed out. d) The research findings will help the organization to eliminate weaknesses or change the system or type of budget adopted for the aim of improving the whole budget system. e) To understand the problem extensively and to evaluate to what extent it affects the organization. f) The findings of this study will be a good source of information for other organisation. g) It will help the researcher to come up with knowledge of assessment of effectiveness of budget in achieving organizational goals.

1.6: SCOPE OF THE STUDY: The research will be conducted at Tanzania Telecommunication Company Limited (TTCL) in Dar es Salaam. The expected findings of the research work will apply only at TTCL but not necessarily that the findings to be applied to its branches, or any other organization.

1.7: LIMITATION OF THE STUDY. During conducting this research the researcher may be faced by the following constraints; 1.7.1: Accessibility of documents. Failure to access the important documents. The important literatures may not be available in the organisation. Some of the senior staff may be too busy and occupied to be interviewed. The attitude of some employees to hinder data may lead to insufficiency of information.

1.7.2: Time constraint. The time allocated for my research (12) weeks, is not enough for me to come up with all the data and information that I need.

CHAPTER TWO 2.0: LITERATURE REVIEW. 2.1:Introduction. This chapter gives the details about the theoretical background end empirical review laid down by the different authors, with respect to effectiveness of budget in relation to achievement of organizational objectives. 2.1.1 THE CONCEPT OF BUDGET The word budget has been derived from the French word bougetts which means a small bag. It emphasizes a bag containing the financial proposals. Hence the term opening the budget. The use of the term budget for the annual financial plans of the Government dates back to 1733. [Bhatia, Op .cit. p. 247] 2.2: Definition of Budgeting. Budgeting means deciding or estimating in advance the course of action and expressing them in financial terms. Initially the budgets may be developed in terms of varieties of quantities, but finally they must be expressed in the money units of Tanzanias shillings. According to the Oxford Advanced Learners Dictionary Special price edition 2001 the word budget means an official statement by the government of a countrys income from taxes, etc. and how it will be spent. A budget is a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planned income to be generated and/or expenditure to be incurred during that period and the capital to be employed to attain a given objective- CIMA. [ACCA Study Text, 1988:102]

Shirima L.L (1987) defines budgeting as allocation of resources prepared in advance relating to the future period based on forecasted key variables. It is adopted by achieving certain objectives, which relates planned expenditure to planned revenues and which will form a basis against which actual expenditure and revenue can be measured and controlled.

According to Horngren (2003:176) A budget can be defined as the quantitative expression of a proposed plan of action by management for a specified period and an aid to coordinating what needs to be done to implement that plan.

Robert N.A. (1970), defines budget as a merely plan expressed in quantitative terms and communicate these plans through papers in some orderly and systematic fashion. According to Harper (1995:319) a budget is a quantitative economic plan in respect of a period of time. This is an important definition and the meaning of each of the following key words should be fully appreciated: (a) Quantitative. A budget must comprise quantities. An enterprise may plan to build up a reputation for fair trading but it is not possible to budget for such a reputation since this is an intangible that cannot be quantified. (b) Economic. To be a plan must be in economic terms. An enterprise may plan to make the strongest steel in the world but such a plan cannot be properly referred to as a budget. (c) Plan. A budget is a plan. It is not a hope or a forecast but an authoritative intention. (See 2.1.4 for the distinction between a plan and a forecast.) (d) Time. A budget is always in respect of a period of time. Budgets are five-yearly, yearly, quarterly, monthly, weekly, daily, or other time period. Note that while quantitative economic plans can also relate to cost units such plans are not budgets. (They are, in fact, termed standard costs) Shirima (1987) defines budget as follows; A budget could be seen as a statement of intention, a statement of expected income and expenditure under a certain anticipated operating condition. It is in the nature estimates, it is a quantified plan for the future of estimates, it is a quantified plan for the future activities and a quantitative plan to coordinate and control the use of resources for a specified period. Horngren (1982), a budget is a quantitative expression of action and aid to coordinate and implement. Budget can be prepared for the whole organization or for sub-units within the organization. Budgeting, wrote Moscove and Wright (1990:580) is the formulation of plans-both long and short- range that seek to establish carefully studied actions and provide measures through which deviations from planned achievements can be evaluated. The budget is the conversion, usually by segments and on a short-range basis, of plans into figures (both monetary and non-monetary) for the future1.
1

S. A. Moscove and Arnold Wright, Cost Accounting with Managerial Applications, 6th ed., Houghton Mifflin Company, 1990.

2.3 Reasons for budget formulation. Budgets facilitate communication, different departments use budget to communicate performance. Budget facilitates coordination, i.e. it forces individual sub units to work together in the organization. Budget motivates managers to achieve the organizational goals. Budget is helpful in controlling whether the organization is running the organization plan. Budget is helpful in performance evaluation within the departments and the organization as a whole.

2.4 Administration of budgets. An organization will establish a budget committee that will be made up of the senior representatives who represent the major subunit of the firm. The function of the budget committee is to ensure that the organization budget is realistically prepared. A functional manager will be required to present his or her budget to the committee that may approve it, or require the functional manager to make revisions before approval. A budget officer will normally be appointed to coordinate the budget for the whole entity. The budget officer prepares and issues to every subunit manager a budget manual. The manual should indicate the objective and procedures to be followed in budget formulation. The manual saves as a reference document, the manual should also indicate the scheduling of budget preparation activities as well as deadlines for different subunits to complete and present their budgets.

2.5 Budget in non profit organization. Non profit organizations are those organizations, which do not inspire for profit. Their budgets begin with heads of departments preparing estimates needed to finance ongoing and additional estimates for expected new activities. Means of funding the planned activities will then be thought, if enough funds are not obtained or promised some planned activities may have to be phased out.

2.6 Approaches to budget formulation 2.6.1 Types of budgets i. Line-item budget

This is a traditional approach where by amounts based on historical records, adjustments are made to make account of cost changes or changes in operational level. In this case emphasis is in the nature of expenditure not purpose. This budget is also called incremental budget because the current level of operation is the basis of next period budget. ii. Zero-base budget

This is also known as priority based budgeting. This type of budget is common for non-profit organization. Every activity must be justified before consideration in the annual budgets. Justified activities and the required financing are then prioritized. Budget allocation is done on the priority basis. iii. Planning programming budgeting system.

In this case, the overall goals are first established, and then the programs necessary to achieve the desired goal are identified with their objective and their expected benefits. The identified programs are ranked according to the cost benefit criteria. Budget allocation is done on the benefit ranking.

2.6.2 Budgetary Control Boild (1976) says that, the term budgetary control means establishment of departmental budgets relating to the responsibilities of executives as the requirement of the policy. And the continuous comparison of actual with the budged results, either to secure, by individual action, the objectives of that policy or to provide a firm basis for its revision.

Noman (1981) defines control as the process of ensuring that a firms activities conform to the plan and that its activities are achieved. There can be no control without objectives and plans since these predetermined and specified the desirable are behaviour and set out the procedure that shall be followed by members of the organization to ensure that the firm is operating in desired manner.

2.7 Effective budgetary control system Maheshwari (1993) states that the following points deserve management attention in order to make system of budgetary control really effective. i. Consultation with the non-financial executives. In order to make each manager emotionally committed to the budget and effective formulation of budgets, consultation should be real and not by the way, or a mere obligation. Also the budget controller should solicit participation of non-financial executives in formality. ii. True delegation of authority and responsibility. Each executive should have a maximum opportunity to make decision within the scope of his or her authority. This will result in him/her having personal growth, self-realization and recognition. iii. Total corporate exercise. Budget should be a total corporate exercise, piecemeal budgeting can not be effective. iv. Past experience. Past experiences are useful guide for the future. Therefore, it is necessary that the points revealed by past experience should be taken into consideration while formulating plans for the future. v. Good reporting system. A budget cannot be successful unless there is proper feedback system. The reporting system should be so devised, that is, it does not tell only about the major various. For this purpose periodical statements should be prepared. vi. Evaluation 9

The cause of variation should be analysed and the management should be kept informed about major variances.

2.8. LIMITATIONS OF BUDGETARY CONTROL SYSTEMS According to Arora (Op cit: p.585), the budgetary control process is limited by the following factors: i) The Budget plan is based on estimates Budgets are based on forecasts and forecasting cannot be an exact science. The strength or weakness of budgetary control system depends to a large extent on accuracy with which estimates are made. Thus, while using the system, the fact that budget is based on estimates must be kept in view. ii) Danger of Rigidity Budget program must be dynamic and continuously deal with the changing conditions. Budgets will lose much of their usefulness if acquire rigidity and are not revised with the changing circumstances. Budgeting is only a management tool. Budget cannot take the place of managementthe budget should be regarded not as a master but as a servant. It is necessary that the entire organization participate enthusiastically in the program for realization of budgetary goals. iii) Expensive technique The installation and operation of budgetary control system is a costly affair as it requires the employment of specialized staff and involves other expenditure which small concerns may find difficult to incur.

2.9: Stages in the budgeting process. Drury (1995) the whole budget process has been divided into stages, which must be followed to come up with an effective budget. The stages are eight, running from gross root communication to budget review. The stages are:10

i.

Communication details of objectives policy and guidelines to those responsible for preparation of budgets. The persons responsible for budget preparation are placed at various levels of the organisation. The bottom line is composed with persons dealing with routine operations like engineering marketing or accounting. Therefore, the management communicates the details to those personnel.

ii.

Determining the factors that restrict output. This involves determining factors like shortage traffic, trade union pressure and the like.

iii. iv.

Preparation of sales/revenue budget under this stage, the personnel in the cargo traffic section estimate revenue that may be collected in the subsequent financial period and prepare a budget. Initial preparation of various budgets. Like in the preparation of revenue budget, the personnel in various departments like the casual labourers department estimate revenue or expenditure, as the case may be for individual departments.

v.

Negotiation with supervisors. After the departmental heads have prepared the budgets for their respective departments they are required to negotiate the contents of the budgets with their superiors. If the budgets are rejected re-preparation is a must.

vi. vii. viii.

Coordination and review of budgets under this stage the budgets so prepared by the individual department are coordinated and reviewed to bring about harmony among them and with time. Financial acceptance of budgets. This stage involves the management arriving at a decision whether or not to accept the budget. On-going review of budgets. As it is important to keep more with time and changing economic condition, this stage is involved in the review of the budget in connection with time and economy.

2.10: Budgeting Budgeting represents a means of coordinating the organization into a plan of action listing what equipments, personnel and material that will be needed to achieve these objectives.

2.11: Principle of budgeting A budgeting system will be another failure if it is not initiated and supported by top management. Top management should realize that budgeting is not merely an accounting tool, but it is an important management tool. Management should not view budget as an item on which all companys problems can be blamed. 11

It is important in the initial phase of budgeting process that management members recognize that coordination among all segments is needed. The individual responsible for meeting those goals must be aware of their existence. The budgeting process should allow for flexibility because conditions inside and outside the organization can change which may require revision of the budget.

CHAPTER THREE 3.0: RESEARCH METHODOLOGY.

INTRODUCTION

This chapter discusses the research process and the nature of research design that will be used. Research process involves identifying a problem and translating it into a research problem, and research design specifies the procedure for collecting and analyzing data necessary in solving the problem identified. This chapter points out a number of aspects which will be considered in the research design, research specification and procedures that will use in carrying out the study. Research procedures involve decision on information generated, the data collection method, the measurement approach, the objects measures and the way in which data will be analyzed. 3.1: Research design The research design used will be the case study design which will be conducted at TTCL. This design has

There are three types of research design, namely Case study design, Survey design and Experimental design.

been adopted because the method allows broader inquiry that will lead to appropriate answers to the study investigation of the way the host organization practices the budget policies in achieving the objectives.

objectives and questions. It is appropriate in the sense that, it gives an opportunity to have an in-depth

The case study design is the most appropriate for the study because it is flexible in terms of data collection

methods as it allows the researcher to collect information from various sources, such as published both, time and cost.

organization documents, public documents etc. Also, according to Kothari 2002, this research design saves

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3.2: RESEARCH TECHNIQUE

The study will use both Qualitatives and Quantitatives technique situation entails.Where by the qualitative research tends to answer questions such as what?why?or how?data is gathered in the form of words rather than numbers. 3.3: Area of study The study will be conducted at TTCL in Dar es Salaam and the unit of study in this aspect will be budgeting obtained

and budgetary control. It is in researchers confidence that sufficient and reliable information will be

3.4: Population and unit of inquiry. Unit of inquiry is an element or aggregation of elements from which information is collected. And an element is that unit about which information is collected and which provides the basis or analysis. In this study, unit of enquiry will include one selected organization, TTCL. From this unity of inquiry an element will be established, which is an individual who is a worker as well as management, In order to obtain information the researcher will consult staff members of various levels, i.e. Top Management, Supervisors and Ordinary ranked workers from different departments, while the main area of concentration remains the finance and Planning department. 3.5: The sample and sampling procedures. In this research TTCL will be taken as a sample from the organizations which are in existence for the time being, to verify and justify the assessment on the effectiveness of budget in achieving the organizational objectives. Due to various limitations on the study undertaken, it will not be possible to cover the whole staff at TTCL thus representative sample will be selected. To obtain such representative sample in this study the researcher will use both judgmental and purposive sampling in selecting the sample size or the population to be included in the study. The population for the study will comprise of staffs in the department of accounting and finance, as well as administration department. Judgmental sampling will be used so that only those respondents considered capable of providing certain information will be approached for interviews and discussion. Purposive sampling will be used to obtain information from the top official i.e. the branch director. 13

3.6: TYPES OF DATA TO BE COLLECTED. The researcher will use both primary and secondary data sources. 3.6.1. Primary data

These are new data gathered to help solve the problems at hand. These types of data will be collected through participatory observation, questionnaire and interview, thus both qualitative and quantitative techniques will be applied. The researcher will work together with various staffs in TTCL in order to make sure that all the necessary requirements in a research to be obtained as required. 3.6.2 Secondary data

According to Molander C. (1996) secondary data are information that already exists somewhere, having been collected for another purpose. Thus the researcher will gather further information about the effectiveness of budget in achievement of organizational goals, in the organization from different articles, journals, internet searching, manuals and periodicals which will be available at TTCL and various public and higher learning institution libraries. 3.7: DATA COLLECTION METHODS. In order to determine the suitable data collection method to be employed the researcher will consider such factors as; the resources available, general level of literacy and the methods reliability. This will involve the following methods3.7.1. Participatory Observation Participation of the researcher in the daily routine functions will be of great importance, whereby the TTCL staff, which will give him a chance to participate and observe direct documents needed and looking personnel conducting their duties regarding budgetary control and noting down the events.

researcher will get different supporting material on the study. The researcher will be part and parcel of the

This technique will enable the researcher to note down the ways in which procedures are followed regarding budgeting. The researcher will participate directly in various accounting and finance activities with the aim of assessing, collecting and analyzing data significant to this study. .

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3.7.2. Interview This is a form of verbal questioning administered by one person to another for the purpose of seeking information. This method will be used in obtaining primary data and information on various aspects. The technique will be affected by means of personal interview and discussions with officials holding office. Due to the nature of the study, unstructured interview will be used to staff who are in a way, concerned with budgeting and budgetary control. This technique will be adopted due to its flexibility which gives a researcher chance of constructing questions depending on the response of respondent.

3.7.3. Questionnaires The researcher will use questionnaires, which will be targeted on preparation and implementation of budgets as well as performance evaluation. A proper number of questionnaires will be prepared and distributed to a few people where by for those which will be returned, detailed analysis will be made. 3.7.4. Documentary review.

This is a type of data collection technique whereby various documents of the area of study concerning the subject matter will be reviewed to extract required information. The researcher will apply this method to collect and generate data through reading various documents of TTCL such as books of accounts, grants order to get the annual report that will be reviewed so as to enable to get relevant information. These will enable the researcher to substantiate the finding of the primary data. The method will be used to targeted objectives. TTCL has various documents. The researcher will be interested in those related to budgeting and budgetary control. 3.8. Data Analysis Technique.

proposals, budgets, budget reports and department files. The researcher will use judgmental sampling in

examine whether or not the budgetary control is effective, and how effective the budget is in meeting the

The researcher will analyze data item by item, taking into account the importance of each item under study. Data will be collected, classified, edited for accuracy and checked for completeness. The researcher will use both qualitative and quantitative data analysis technique. There are two types of data to be collected, these are quantitative and qualitative data where by both of them will be used. 15

3.8.1. Quantitative Data This makes use of mathematical technique to analyze data that will be measured numerically. The method will be used by the researcher in the examination and interpretation of the data that could not be quantified. 3.8.2. Qualitative Data These are factual and logical statements made to analyze the data that will not be measured numerically. They are basically include various explanatory phases of what to obtain from the field through person field observation and comments from the respondent.

4: RESEARCH WORK PLAN The quality, usefulness and reliability of data collected during research methods, temporal variation (sampling frequency and duration) of the investigated parameter, the age of the information and most of all the capability of researchers. Different identified activities to be conducted during research work has assign in rough estimate of the length of time and resource each particular activity consume. Activity Further literature review Preparation of tools to be used in data collection Assessment, identification and training research assistant Preparation and conduct of a weeks field survey Data processing and analysis Report writing presentation and production Research paper submission Totals weeks Activity time 1 week 2 weeks 1 Week 3weeks 3 weeks 2 weeks 12 weeks Date 1st March 2008 8th March 2008 23rd March 2008 1st April 2008 22nd April 2008 14th May 2008 1st June 2008

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5: RESEARCH BUDGET While research is conducted we consider to have an adequate amount of fund for the complete period of study .The money is supposed to be finance by sponsors, parent, Government, friend and other relatives The study proposed budget. No 1 Item Stationaries Amount per Item 1 Ream @ 5000 1 Flash disk 35000 5 Pens @ 500 3 Pencils @ 50 3 Files @ 1200 Meals and accommodation 84 days @ 6000 expenses
Traveling expenses during data collection process Typing Printing Transport expenses (to and from) home to field station Communication with supervisor Binding Correction of printed research paper TOTAL 20 days @ 700 60 pages @ 800 60 pages @ 600 85 days @ 400 6 times @ 5000 5 copies @ 3000 6 times @ 6000

Amount in Tshs 46,250/= 504,000/=

14,000 48,000 36,000 34,000 30,000 15,000 36,000 763,250

2 3 4 5 6 7 8 9

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BIBLIOGRAPHY Bhatia H. L (2003:247), Public Finance, 24th Rev ed., Vikas Publishing House Pvt Ltd: New-Delhi. ACCA Study Text (1988:102), Cost and Management Accounting II. BPP Publishing Ltd: London. Moscove S.A and Wright .A (1990:580) Cost Accounting With Managerial Applications, 6th ed. Houghton Mifflin Company. Harper, W. M (1995:319), Cost and Management Accounting. Pitman Publishing: London. Arora M. N (1993:585), Cost Accounting: Principles and Practice, 4th Rev. ed., Vikas Publishing House: New- Delhi. Maheshwari N. S (1993:) Accounting for Bankers, Sultan Chard & Sons, New- Delhi. Horngren, C.T (2003:176), Cost Accounting, A managerial, Emphasis, 5th Ed, Prentice Hall Int. London Kothari, C.R (1990:10), Research Methodology 2nd ed. New Age International. New Delhi Boid M. Budgets Greenwood Press. London 1976 Drury C. Management and Cost Accounting 3rd ed.Chapman Hall. London Horngren C.T. Cost Accounting and Managerial emphasis 5th ed. Prentice Hall, inc. 18

London 1982 Norman T. Management Accounting Heinemann Accountancy and Administration Series. Shirima L.L (1987) Government Accounting Ndanda Enterprises (T) Dar es Salaam Oxford University Advanced Learners Dictionary Special price ed. 2001 Molander C. (1996): Human Resources At Work, Chartwell-Bratt, Lund

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