BUDGETARY CONTROL: AN EFFECTIVE TOOL FOR PLANNING AND CONTROL IN THE BANKING INDUSTRY CHAPTER ONE
INTRODUCTION1.1 BACKGROUND TO THE STUDY
Resources are scare both locally and internationally but this is greatly in contrast with the tendency for them to be wasted and underutilized by the human factor involved in the production of goods and services. It is observed that with more and more firms springing up every day in almost all the industry only the fittest of their firms will survive the growing competition in the market. Every firm is therefore expected to produce at the minimum cost possible so as to remain in business and also to achieve the corporate objectives of profitability and survival. Under such condition supra, there is a great need to do a realistic planning of the activities of the firm putting into consideration the limiting factors and the objectives of the firm. By other to achieve this, budgets as tool of planning and control becomes indispensable. A budget according to Horngren (1982) is a quantitative expression of a plan of action and an aid to coordination and implementation: a budget is a plan of what is to be done in the organization usually expressed in quantitative of financial terms.
The Oxford Advanced learner’s dictionary defined a budget as an estimate or plan of the money available to somebody and here it will be spent over a period of time. It can be gathered from this definition above that a budget will take cognizance of the available resources before marking the plan for their utilization It is interesting to know that budget is a mere plan it cannot implement itself. For actualizing budget, implementation is a must. There is a need for budget as enhance the actualization of the set plan through its ability to control and check any variance of actual results from those budgets. Batty (1982) has defined budgetary control as a system which uses budgets as a means of planning and controlling all aspects of producing and / or selling commodities or services.
Pandey (1985) has observed that although many people will complain about budget and its process, budgets are indispensable in a large modern organization. The benefit that occurs from budgets and its control is much greater than cost involved. From the foregoing, considering the scarcity of resources and high competition that permeate most businesses, budgets when rightly applied, would be an effective tool for planning and control especially in banking industries. The choice of Guarantee Trust Bank Plc occupies a forefront in the services of a high range of banking industries in Nigeria. This is related to the fact that it is banking industries in a very competitive industry and lots of challenges faces Nigeria banking industries as they struggle with economic depression and high inflation resulting from IMF / World Bank led structural adjustment plan (SAP) implemented by the Nigeria government. There programme were initiated to promote the liberalization of the domestic economy, operating efficiency, productivity growth, privately owned enterprises development, economic growth , trade and investment. The economic liberalization policies have nurtured an open economy, and have minimized the hurdles that the banking industries need to class in order to obtain raw materials and inputs and other resources for productive activities. However, it has created unprecedented change in their business environment both in the domestic market and form imports into the country. Thus, banking industries need to develop and implement a well conceived strategic plan in order to be competitive in the business environment.
1.2 STATEMENT OF THE PROBLEM
Budget has been a tool for measuring the effectiveness or performance of an organisation; its effective use will either make or mar the efficiency of the organisation. It is on this premise that this study seeks to assess its effectiveness in the area of planning and control with special reference to Guaranty Trust Bank Plc.
1.3 OBJECTIVES OF THE STUDY
The objectives of the study include:
i. to determine whether budgets are set and pursued in banking industries;
ii. to investigate the management control practice in terms of budgets being tool for management control;
iii. to identify the reasons why budgets are not often realized;
iv. to find the effectiveness of budgeted control in actualizing the budgeted results;
v. to encourage banking industries to seek the realization of their budgets through the efficient application of planning and control.
1.4 RESEARCH QUESTIONS
Some of the questions that would be asked in the course of the study include.
i. Why budgets are set in banking industries?
ii. Why do budgets often different from the actual results?
iii. Do banking industries often achieve their budgeted results?
iv. In what ways would budgetary control useful in planning and control of the operation of banking industries?
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