relationship between budgetary control and performance

The relationship between budgetary controls and performance in Gtel Mobile 3 Abstract Master Thesis in Finance and Control, Jean Moulin of De Lyon III University and Hanoi Commercial Un

JEAN MOULIN LYON 3 UNIVERSITY VIETNAM UNIVERSITY OF COMMERCE

MASTER FINANCE AND CONTROL

THESIS

September 2013

THE RELATIONSHIP BETWEEN BUDGETARY

CONTROL AND PERFORMANCE IN GTEL MOBILE

JOINT STOCK COMPANY

Prepared by: Nguyen Thi Phuong

Supervised by: Professional Nguyen Van Thanh

The relationship between budgetary controls and performance in Gtel Mobile 2

Further, the author would like to thank the supervisor PHD, Professional Nguyen Van Thanh for his advice and feedback

The dearest appreciation and thankful are sent to my family for giving me great support of time and encouragement

Hanoi, August 10, 2013

The relationship between budgetary controls and performance in Gtel Mobile 3

Abstract

Master Thesis in Finance and Control, Jean Moulin of De Lyon III University and Hanoi Commercial University

Author: Nguyen Thi Phuong

Supervisor: PHD, Professional Nguyen Van Thanh

Title: The relationship between budgetary controls and performance in Gtel Mobile Joint Stock

Company

Key words: budgetary controls, budgetary procedure, budgetary participation, budgetary

motivation, budgetary evaluation

Background and discussion of the problem: Budgetary control is a management tool to help

managers to plan and control the use of resources in systematic and logical manner to ensure that they achieve their financial objective In Gtel Mobile JSC case, it was acknowledged that budgetary control influents company performance However, the problem is the significant variances between budget and actual In Gte Mobile, budgetary control established and presented through budgetary procedure, budgetary participation, budgetary motivation and budgetary evaluation Therefore, the study the level of relationship between budgetary control and performance in Gtel Mobile JSC is the case study in this thesis

Questions: The thesis will answer the following questions

- What are the levels of budget controls in Gtel Mobile JSC?

- What are the levels of performance in Gtel Mobile JSC?

- What is the relationship between budget controls and performance in Gtel Mobile JSC?

Purpose: This study will analyze and evaluate the situation of budgetary control in Gtel Mobile

JSC, finding out the limitations of budgetary control in Gtel Mobile JSC Then the author will recommend solutions for effective budgetary control and improve performance in Gtel Mobile

Limitation: This research is study in one company and in a limited period of time only so the

result is not generalization and the result of this period may be different from other periods Moreover, the feedback of questionnaires could be bias as the senilities of the questionnaires and the cultures of Vietnamese companies as well as people Further, the limitation of knowledge and information of the respondents may results in unrealistic feedback

Methodology: Both qualitative and quantitative are used to analyze and evaluate to provide the

results

The relationship between budgetary controls and performance in Gtel Mobile 4

Results: The relationship between budgetary control and performance is strong positively

However, budgetary procedure, budgetary participation, budgetary motivation and budgetary evaluation have no relationship each other and there is no effect between each of them alone on performance The study also found that there are critical limitations of budgetary control such

as lack of knowledge of budgetary control of participants, complication of budgetary

procedures, lack of application to support budgetary control

Recommendation: The author suggests Gtel Mobile to review and improve budgetary

motivation scheme, budgetary participation and budgetary procedure to enhance the performance Training budgetary control system and procedure is essential and priority to improve participation and responsibility on implementation of budgetary control An investment of budgetary application to support and improve budgetary control then improve performance should be considered and evaluated to improve performance and enhance benefits

to the company

The relationship between budgetary controls and performance in Gtel Mobile 5

Table of Contents

CHAPTER 1 - INTRODUCTION 7

1 The essential of research 7

2 The purpose of research 8

3 Research objectives 8

4 Scope of research 9

5 Summary of chapter one 9

CHAPTER 2 - LITERAL REVIEW AND HYPOTHESIS 10

1 Review the concept and definition 10

1.1 Budgetary Planning and Control 10

1.2 Budgeting 12

1.3 Types of budgeting 12

2 Budgetary controls 13

3 Objective of budgetary control 15

4 The need of budgetary control 15

5 Limitation of budgetary control 16

6 Measurement of Organizational performance 17

7 Essentials of an effective budgetary control system 19

8 The relationship between budgetary controls and performance 21

9 Research Model and hypothesis 23

10 Summary of chapter two 25

CHAPTER 3 - RESEARCH METHODOLOGY 26

1 Research design 26

2 Study population 26

3 Sampling 26

4 Sources of data 27

5 Data collection instruments 27

6 Measurement of variable 28

7 Limitation of study 28

The relationship between budgetary controls and performance in Gtel Mobile 6

8 Summary of chapter 3 29

CHAPTER 4 - ANALYZING, INTERPRETATION, PRESENTATION AND DISCUSSION OF FINDINGS 30

1 Introduction of Gtel Mobile 30

2 Respondents’ data analysis 30

3 Level of budgetary controls analysis 33

4 Levels of performance in Gtel Mobile 37

5 Performance measurement in budgetary control 41

6 Relationship between budgetary controls and performance 42

7 Factors effecting budgetary controls in Gtel Mobile 51

CHAPTER 5 - SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION 53 1 Summary of findings 53

2 Conclusion 55

3 Recommendations of the study 55

4 Suggestions for further research 56

References……….……… ………57

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CHAPTER 1 - INTRODUCTION

1 The essential of research

Global economic downturn recent years effect almost countries over the world and directly impact the business and operation of many companies The US housing bubble burned in 2006-

2007, the government bad debt in EU after that caused the value of securities tied and damaged financial market globally It is major recession of financial market leaded to financial crisis in 2007-2008 and impact seriously economic and European sovereign debt crisis The consequences of this recession caused a lot of companies and banks became bankruptcy, unemployment, obstacles of economic recovery

Vietnam is not out of the list and recent years from 2011 to now, a lot of companies could not survive, increase of inventory balance, banking system is on crisis of bad dept, unemployment,

a lot of companies cease operation or bankruptcy

All of these required all companies to focus on predicting, planning, forecasting, budgeting and control income and revenue more strictly for survival In which budgetary control is essential to maintain and improve performance of the company on daily, weekly, monthly, quarterly and yearly

A budgetary planning and control system is essentially a system for ensuring communication, coordination and control within an organization Communication, coordination and control are general objectives for more information is provided by an inspection of the specific objective of

a budget planning and control system

Planning and control appear at all level of performance hierarchy to different degrees Although, the plan implies a “top-down” approach to management, it could describe a cascade

of goals, objectives and plans down through the layers of the organization The plan made at the higher levels if the performance hierarchy provides a framework within which the lower levels must be achieved The plans at lower levels are the means by which the plans at the higher levels are achieve Plan set the targets, while control involves measure actual result against plan called performance, take corrective action to adjust actual performance to achieve plan or to change plan altogether

As per John (1996), stated that during the 1960s, 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 The companies faced problems in 1980s and 1990s when they were not willing to spend money on innovations in order to stay with rigid budgets, they did not concerned about know customers were being treated, only meeting sales targets became essential

It is policy of Gtel Mobile JSC that the budget of each departments and company master budget should be consolidated and prepared and the monthly financial statement and operational key performance indicators can be compared with the budgets However, the effective budgetary control has been a problem, where the monthly budgeted/forecasted targets are not actually met, and the gap is rather high

Accounting is the process of identifying, measuring, accumulating, analyzing, preparation, interpreting, and communicating information that help managers to fulfill organizational

The relationship between budgetary controls and performance in Gtel Mobile 8

objectives (Horngren, Sundem and Stratton, 2001) Management accounting system is an important component of accounting system, which help to provide information to managers for decision making An important part of management accounting is budgeting system

Budgets are known to have an important role to transmit the expectation of top management to lower levels As per Lucey (1993), budget is quantitative expectation of plan of action prepared

in advance of the period to which it relates, expressed in money terms approved prior to the period Lucey also argued that performance is influenced by many factors including planning and coordination, classification of authority and responsibility, effective communication both internal and external, control of resources available both human and non-human and motivation

of lower and middle management

It is demonstrate that management understands the company’s business and has been successfully driving it in the direction they had planned if the actual deliveries through the financial year turn to be close to the budget In vice versa, if the actual results diverge wide from the budget, this indicates out of control signal For this reason, budget based control means manager’s evaluation according to budget goals In this context, budget control can motivate but also can negative effect managers’ attitudes The behaviors of managers on performance are still the subjects of strategic management control system that are being research recently by various researchers stating that all large business reforecast their forecasted activities, as month pass, the actual income and expenses incurred will be compared

to the budget and forecast

As such, many organizations recognize the need to have developed and comprehensive budget control system in order to minimize budget variances, control cost and maximize efficiency Budgetary control is crucial as cash itself and any overestimation of revenue, excessive of cost, stock, waste could result to poor performance

Gtel Mobile JSC acknowledged that its performance is influenced by budgetary control systems However, a deficit in revenue 10% and expenses is lower than budgets by 21%, and EBITDA favorable by 37% That is the reason the author is interesting in analyzing the effect

of budgetary controls on business performance in Gtel Mobile JSC

2 The purpose of research

The purpose of the study will be to establish the effectiveness of budgetary controls on performance of Gtel Mobile JSC particularly in term of revenue and operating cost through activity planning, coordination and communication between departments, allocation of resources, motivation to objectives, assessment and control of results and performance evaluation of managers

3 Research objectives

3.1 Research objectives

- Analyzing and evaluating the situation of budgetary control in Gtel Mobile JSC

- Finding out the limitations of budgetary control in Gtel Mobile JSC

- Recommendation for Gtel Mobile JSC for effective budgetary control and improve performance in Gtel Mobile

3.2 Research questions:

- What are the levels of budget controls in Gtel Mobile JSC?

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- What are the levels of performance in Gtel Mobile JSC?

- What is the relationship between budget controls and performance in Gtel Mobile JSC?

4 Scope of research

4.1 Study scope

The study will be limited to the performance as a dependent variable and budgetary controls as

an independent variable The study will consider the ways used in budgetary controls and the way they are manipulated to influence performance of the organization

4.2 Geographical scope

The study will carried out in Gtel Mobile JSC located in 280B, Lac Long Quans st., Tay Ho District, Hanoi, Vietnam This is one of 5 mobile operators in Vietnam

4.3 Time scope

The study will cover the period between January, 2012 to March, 2013

5 Summary of chapter one

In summary, the study will be analyzing the role of budgetary controls on the performance of the company business The study will establish to correlation between budgetary controls with business performance and provide recommendation to support managers improve their operational efficiency

Even though the author have been holding key position in Finance department, she understand that the budgetary system is good in place however problem is still there when evaluating the variance, so from this research will help the author having opportunities to find out the root cause and the weaknesses of the system to improve the system and situation as part of the author’s responsibilities Moreover from the research, this also gives opportunities to measure the attitude options of respondents towards budgetary controls for education and addressing later on for improvement

The study will also fulfill the requirement for the award of Master Degree of Finance and Control of Jean Moulin University De Lyon III

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CHAPTER 2 - LITERAL REVIEW AND HYPOTHESIS

In this chapter, a number of issues will be discussed in relation to budgetary controls and organization performance The discussion will be based on the work done by various institutions, previous researchers, writers about budgetary and performance management

1 Review the concept and definition

Budget is a short term financial planning tool of management for operations and resources of

an organization for a given period of time Budget highlights potential problems and advantages earlier, allowing management to take steps to avoid these problems or use advantages wisely, a budget is a tool that helps managers in both their planning and control (Silva and Ariyarathna Jayamaha, 2012)

Lucey (2003) defined a budget as a “quantitative expression of a plan of action prepared for the business as a whole for departments, for functions such as sales and production or for financial resources items such as cash, capital expenditure, manpower purchase, and others”

A budget is a plan of action expressed in quantitative terms It is financial and or quantitative statement prepared and approved prior to a defined period of time for attaining a given organizational objectives (Kamukara, 1992)

1.1 Budgetary Planning and Control

A budgetary planning and control system is an essential system for ensuring communication, coordination and control within an organization (BPP Learning media)

Mike Tayles (1998) define Budgets are central of the process of planning and control

As framework, planning and control cycle including 7 steps

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The planning and Control Cycle

Evaluate each strategy

Choose alternative courses of

The relationship between budgetary controls and performance in Gtel Mobile 12

1.2 Budgeting

The Tennessee Board of Regents (2006) defined budgeting as the process whereby the plans of

an organization are translated into an itemized, authorized and systematic plan of operation, expressed in dollars for a given period Budgeting at both management level and operation level establish what to be achieve in the future

According to Dr M.S Sridha, Budgeting is a planning process in which expenditure and revenue of the organization over a specific time period are accounted for ‘Budget’ is a plan document and a financial statement, which provides details of the proposed revenues and their utilization for expenditure for a specific period, usually a year It is a means of check and control on what money should have been received and how they are to be spent

Budget control is defined as the establishment of budget relating to 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 basic for its revision (The Institute of Cost and Management CIMA)

As per Collis and Hussey, 2007), budgeting control by which financial control is exercised by managers preparing budgets for revenues and expenditure for each function of the organization

in advance of an accounting period It involves the continuous comparison of actual performance against the budget to ensure the plan is achieved or to provide a basic for its revision

Performance measurement is the process whereby an organization establishes the parameters to evaluate if the implementation is reaching the desired results This process often required statistical evidence to determine progress towards specific defined objectives Performance measurements include financial performance measurements and non-financial performance measurements

Budgeting is viewed as enabling the different functions of management control further, state that the budgets represent their numbers and their benchmarks against which their performance

is measured (Herath and Indrani, 2007)

According to Bugdale and Lyne 2010, budgets tend to become more important for control, not for planning Conversely, budgets become less important for control but more important for planning in a more uncertain environment

Variance is the difference between predetermined revenue and actual revenue or budgeted cost and actual cost (Collis and Hussey, 2007)

1.3 Types of budgeting

Budget can be categories into operating budgets and cash budgets

Operating budgets are functional or departmental budgets that may exist in an organization and among others includes revenue budgets, production budgets, material usage budgets, material purchase budgets, labor budget, sales and administration expense budgets Operating budgets are typically generated for as single fiscal or calendar year with quarterly and monthly reporting cycles Managers with direct budget cost center responsible and accountable for budgetary success or failure On the other hand, the strategic planning function has a time horizon of at least 3-5 years The time horizon different often creates confusion in coordinating the 2 processes

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Cash budgets are statement which estimated future cash receipts and payments are tabulated to show the forecast cash balance at the defined intervals of the organization

Budgets can also categories into expenditure and operating budgets Expenditure budgets are for non-current assets or projects where returns are expected in the future It is normally regard

as long-term budget and it is usually reflect strategic plans

In many organizations, they have three budgets together where they are under development or expansion of their project, their budget will include expenditure budgets, operating budget and cash budget

The approach of setting budget in each environment can be different As traditional budgeting system, incremental budgeting is used In this, managers add an additional percentage to the previous period’s results to take account of expected changes in price level or inflation next year The limitation of traditional budgeting is not create a budget that relevant to the particular conditions expected and non-recurring revenue and expense are included

In contrast, Zero based budgeting is built by managers from zero, each figure is built in the budget where it can be justified from the expected conditions and policies This approach makes the budget more relevant than incremental budgeting However, this method of process

is the massive amount of managerial time for the exercise

Each department or functional managers will draw up functional budgets Budgets also prepared for non-functional budgets by various managers and accountants

The master budget is consolidated of all function and non-functional budgets and is the final coordinated budget for the period The master budget is a set of statements including Profit and Loss, Cash Flow, Balance sheet resulting from plan of operation This will help management to know the financial and resources status in order to take action in time

2 Budgetary controls

Budgetary process is part of management control system in the organization Budgetary process encourage managers to plan, consider the stakeholders involved, provides information for improve decision making, increases and enhances communication and coordination among departments and for performance evaluation

According to Gustafsson (2010), the budget has in the past a control function, however today there are several objective among organizations Budgeting in this regard is viewed as enabling the different functions of management control further, state that the budget represents their number and their benchmark against which their performance is measured (Herath and Indrani, 2007)

A budget is management tools to express the plan for the coming period Budgets are prepared

at various level, master budget consist of operational budget and financial budget Operational budget relating to planning of revenue and expenses of each cost center/department while financial budget relating to financial plan such as borrowing, raising debt, equity, leasing and cash management A lot of research concluded the roles and problem of budget, proper budgeting process can help enterprise like:

communicate objectives, opportunities and plan to managers strategic plan of coming year

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required to carry out

achieve the goals and motivate staff to work efficiently as it set the target and standards which motivate staff to achieve To provide the basic for management to control and performance appraisal against the budget by comparing budget and actual

adjustment/corrective actions when there is deviation from plan through reallocation

The budget process must be undertaken with the full cooperation of managers who understand the budgeting process Budgets should produce figures that represent expected performance under current operation conditions (The institute of Working Future, 2011, p2-5)

Many research stated that budgeting is one of the most important for indicating all business activities, and therefore requires detailed attention and as result when organizing and administering the budgetary system, a number of characteristics should applied, these includes: Budget cost center, is part of an entity for which budgets are prepared and controlled by the manager (Collis and Hussey, 2007)

Budget committee, is a committee that consists of senior members of the organization such as department heads and executives chaired by Managing Director and it requires every part if the organization to be represented on the committee

The committee coordinates the preparation of the budget including the issue of a manual, issuing of timetables of preparation of the budgets, provision of information to assist budget preparation, comparing the actual results with the budget and investing the variances

Budget officer is a person or group of persons that controls the budget administration and specifically the job involves, coordinating between the budget committee and manager responsible for budget preparation, dealing with budget control, ensuring that deadlines are meet and educating people about budgetary control

Budget manual is a document that describe chart of organization, details of budget procedures, accounts codes for items of expenditures and revenue, time tables and process of budgeting It clearly defines the responsibilities of persons involved in the budgetary control system As per Pizzey (1989), a budget manual will contain details of the system for drafting the budget that is what forecasts are to be prepared, who are responsible for preparing them, and the timetable for making decision

In order to evaluate managers and organizational function’s performance, a responsibility cost center can be defined as functional unit and headed by a manager who is responsible for the activities of that unit

A good budget controls should be characterized with the following attributes:

motivation and so will improve the quality of budget decisions and the efforts of individuals to achieve their budget targets Although obviously, this will be depended

on the personal of the individual, the nature of task and the organization culture

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Analyzing cost and revenue should be conducted on the basic of products, cost center or department

3 Objective of budgetary control

In overall, the purpose of budget control is to help managers to plan and control the use of resources in systematic and logical manner to ensure that they achieve their financial objective The budgeting control system if regarded essential since it works as the mechanism of planning, coordinating, motivating, and controlling (Chang et al., 2003)

According to Mike Tayles (1998), Budgets as they generally understood from the cornerstone

of management control and the management control system, they are a multi-purpose management tool supporting planning, coordinating, communication, performance evaluation and motivation

Organization once they define the forth coming period, the next step is to set out their financial strategies in detail by preparing financial and non-financial budgets that cover every aspect of the firm’s activities

It is important for any organization to make an overall plan which will ensure the business as a whole will achieve its agreed objectives As such the budget will force the management to think

a head to anticipate what is likely to happen in the future Therefore, it is essential that organization should develop a formal planning and control system which will state clearly objectives for both the firm as a whole and for each individual functional manager specifically

4 The need of budgetary control

As per Dr M.S Sridhar, Budgetary control is one of the oldest and traditional control techniques used by managers Budgetary control is the process of comparing what was planned with what has been accomplished during the budget period It is not a past-oriented or post-action control but a future-oriented control system It is not a post-mortem type assessment but

a continuous examination of the progress made and comparing it with the cost standards and time lapsed so that the manager is able to make adjustments in the operation on a day-to-day, week-to-week, month-to-month basis for rest of the period of the budget

According to Ecoman (a competency and training) analyzing the detailed need for budgetary control as, Budgetary control integrates the organization’s strategic planning with budgets and processes of cost control, identifies the budgeting and financial skills required for better decision making, whether for continuing business or project or a new business venture, identifies sources of financial and business data that provide insight into business and financial strategies when converted into budgets

According to Dr M.S Sridha, a control system is required to measure progress made towards attainment of goals stated in plans, to uncover deviations, if any, to indicate corrective actions and to affect corrections to the organization before the deviations become serious As budget is only a futuristic plan how far the actual operations of the information centre have conformed to the budgeted program will be known only after completion of the budgeted period (i.e., financial year) Knowing post-factor how much deviation or under spending or ineffective utilization of resources has taken place is, like discussing the ways of avoiding an accident after the accident has occurred Hence, continuously monitoring the operations to examine how the operations are carried out, whether there are any deviations, the causes for deviations and ways

The relationship between budgetary controls and performance in Gtel Mobile 16

to rectify deviations within a week or a month will be of immense help Though a budget is prepared once in a year, the budgetary control process is a day-to-day, week-to-week, fortnight-to-fortnight, month-to-month and quarterly-to-quarterly activity for a check on all revenues and expenditures budgeted and stated before hand Continuous review of the situation is done taking into account the actual as well as committed expenditure till date so that the goals are reached by the end of the year rather than leaving it to chance

In addition to the above, budgetary control is need because of the following advantages:

revenue and costs into areas of responsible managers in order to monitor and evaluate performance under their personal control

the future, which is probably the most important feature for any business to succeed through how to increasing revenue, how to control cost or eliminate the wastes

achieve financial objectives Effective budgetary control will help to utilize the resource efficiently

communication effectively of all functions and activities among departments within organization

monitoring of achievement in fairly and transparency through employees participating

in setting up budgets and implementing it to achieve the objectives and receive rewards

regularly against actual as well as define responsibility of individual managers for corrective actions and decisions Help manager learn from past experiences

analyzing variance between actual performance and budget plan

and investigation, to prevent fraud as well as detection of fraud

management’s time solving case by case or exceptional principle

5 Limitation of budgetary control

In various theories and studies stating that budgetary control have various drawbacks Budgetary control is subjected to human judgment, interpretation and evaluation The budgetary control system requires good and adequate standards and in some case it is hard

to develop it, it requires skills, experiences, cost money and effort to make the system work successfully

Budgets are mostly inflexible and rigid and do not respond to internal or external environmental changes Budget standards may not be revised as frequently as required Krishna (2010) stipulated that the biggest problem of traditional budgetary control is that focus on expenses and paying little attention on the results obtained as the results of expense incurred For example, Marketing and sales manager may fail to cash on an opportunity to sell more by increasing incentive of salesmen because such incentive is not programmed in the budget or may exceed of the budget

The relationship between budgetary controls and performance in Gtel Mobile 17

Another problem of budgetary control is relating to the method of budgeting In many organizations, the budgets are prepared traditionally based on past performance rather than future requirements It is potentially create the feeling of planned false on working when organization is only following the past trends and ignore opportunities of future

De-motivating manager if the budget is imposed from top management or the budget is unachievable

The budget is rigidity and set in stone which may lead managers to constrained with original budget and make no attempt to spend less for saving or exceed target revenue and prevent managers fast response

Managers may over estimate costs into budget to prevent blame in the future should they over spending

Budgetary control can create conflict between departments and managers due to dispute on allocation of resources and targets are not attainable causing by uncertainty situation

6 Measurement of Organizational performance

Objectives should be monitored and measured closely to ensure the performances are in line with what are planned The process of measuring performance often based on statistical information to determine the differences between actual performance and defined objectives

Performance evaluation is not an easy task Managers desire a fair performance evaluation

so they want to know in advance what is expected from them Traditionally, there is use of budget as benchmark for evaluation of organization as well as manager’s performance to compare its actual performance with past performance and with budgets

Budgets are crude tools for improvement performance Poor performance may not change after applying budget cutting as a discipline action Sometime, over spending could be resulted for improve performance

According to Behn, 2003, Fundamental purpose of measure is improving performance Giving people significant goals and then use performance measure including interim targets

to focus people’s thinking and work, and provide periodic sense of accomplishment Performance target may also encourage creativity in developing better ways to achieve the goal, thus measure to motivate improvement may also motivate learning

Evaluation process consists of two variables, organizational data and benchmark that create framework for analyzing the data Therefore, organization should have strong information system which should records and provide data promptly and reliable In other hand, organization should have built an appropriate budget which can be achievable and agreed among participations so it could be agreed as benchmark for comparison for performance measurement

Organization need to have encourages and celebrates of their accomplishment to tie people together, give them a sense of their individual and collective relevance Moreover, by achieving specific goals, people gain sense of personal accomplishment and self worth (Locke and Latham, 1984) By this, organization can create motivation managers and people involve and thus improvement of performance

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According to National Academic of public administrations centre (NAPA, 1999), Performance measure can be used to validate success, justifying additional resources, earn customers, stake holders and staff royalty by showing results and win recognition inside and outside organization To convince employees that the organization is doing well, managers need to understand what aspects of performance that many employees personally care

Evaluation of performance and analyzing of information from performance, managers are able to find the reason behind of poor performance From such analysis, problems can be addressed and take corrective action, adjustment to improve performance

Based on the research result of Aberdeen (2011), the researcher classified top performance into three classes as follow:

actual performance to budget)

period

budgeting process with technology Industrial Average

Middle 50%

of aggregate performance scores

actual performance to budget)

period

budgeting process with technology Laggard

Bottom 30%

of aggregate performance scores

actual performance to budget)

period to prior year

budgeting process with technology

Based on above research results, the researcher classify into five class where one (the very poor performance) and five (excellent performance or the best class) to be the benchmark for scale performance of Gtel Mobile

The relationship between budgetary controls and performance in Gtel Mobile 19

Above Average

4 marks Good performance

Average

3 marks average

performance

Poor performance

2 marks

Very poor performance

1 marks

Analyzing secondary data, the performance scale of Gtel Mobile as follow:

revenue

Budget accuracy of EBITDA

7 Essentials of an effective budgetary control system

Various studies and framework found that a budgetary control is effective, the following essentials has to be in place:

agreed job descriptions should be defined

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understood among organizational managers and applied

management for the system of budgetary control

budgets

them appropriate and useful

exercise

system

can make realistic predictions and appropriate decisions

The relationship between budgetary controls and performance in Gtel Mobile 21

A common Budgetary process and budgetary control

8 The relationship between budgetary controls and performance

Result-oriented objectives are the basic for controlling operation Controlling involves monitoring the implementation of plans through performance reviews They are used to compare actual results with objectives on regularly basic A rigid budgetary control style may lead to de-motivate subordinates as it may cause subordinate dysfunctional behaviors such as budget game A rigid control system means that subordinates’ performances are

Communicating details of budget policy and budget guidelines

Determine the factors that restrict output (key budget factor or limiting budget factor), Make assumptions and

predictions

Preparation of revenue budget

Preparation of costs, inventories,

The relationship between budgetary controls and performance in Gtel Mobile 22

evaluated primarily their abilities to attain budgetary objectives during each reporting period

As per Brownell (1982), when budget control is rigid, the managers would want to know

detailed targets and assessment criteria Therefore when budgetary control increased,

budgetary participant will increase He advocated that budgetary participation is an

important moderating variable in the relations between type of budgetary control and subordinates’ performance Brownell (1982) found that budget application that including

budgetary control have no direct effect on performance, while budgetary participation

effects performance directly and negatively But in case where budgetary control is high, there is a meaning positive relation between performance and budgetary participation

According to Cheng-Tsung Lu (2011), argued that when budgetary motivation and

budgetary attitude were high, the budgetary performance would also be high He also

suggested that when budgetary motivation is high the budgetary performance is

increased, and when budgetary evaluation is high, the managers’ motivation tend to be high

In order to implement budgetary control system efficiently, it requires the support from top management and perception of members involve in budgetary control process The perceptions are included budgetary attitudes, perception of budgetary procedure and

manuals Cheng-Tsung Lu (2011) found that when budgetary participation is high, the

participation’s attitudes to be more positive, and when budgetary attitude is more positive,

the budgetary performance increases He also found that when budgetary motivation is

higher, the performance is increased

According to Silva and Ariyarathna Jayamaha (2012), he confirmed that the sound

budgetary process which includes budgetary planning, coordination, control, communication and evaluation contributes higher level of organization performance

In Gtel Mobile JSC to respondents agreed that the company has a sound budgetary control system, revenue and EBITDA is improving year by year, however, the big gap between actual results and budgeted financial statement is a question

The information and observation in Gtel Mobile showed that budgetary control directly effect on performance In the point of view of the author, budgetary controls in Gtel Mobile consist of four major factors including budgetary procedures, budgetary participation, budgetary motivation, budgetary evaluation In which the effective budgetary procedures include appropriation of budgetary manual/guideline, how budgetary process and budgetary monitoring

This study will examine the level of relationship between budgetary control and performance as well as the effect of each factors on others

To examine how the budget manual (BC1) is practical and appropriate in Gtel Mobile, the responds of the question 12 in Questionnaires will be used to evaluate level of budgetary control

To examine to what extend proper budgeting process (BC2) contribute to performance of Gtel Mobile, the responds of the question 13 in questionnaires will be used to evaluate the level of budgetary control in Gtel Mobile

The relationship between budgetary controls and performance in Gtel Mobile 23

To examine budgetary monitoring (BC3) contribute to performance of Gtel Mobile, the responds of the question 18 in questionnaires will be used to evaluate the level of budgetary control

To evaluate the level of participation (BP) as part of budgetary control as independent variable effecting to performance, the responds of the question 10 in questionnaires will be used

To examine to what extend the motivation (BM) as part of budgetary control system effecting performance, the responds of the question 15 in questionnaires will be used

To examine the budgetary evaluation (BE) in Gtel Mobile, the responds of the question 16

in Questionnaires will be used

9 Research Model and hypothesis

BC – Budgetary procedure

BC1 – Budgetary manual (question 12)

BC2 – Budgetary process (question 13)

BC3 – Budgetary monitor (question 18)

BP – Budgetary participation (question 10)

BM – Budgetary motivation (question 15)

BE – Budgetary evaluation (question 16)

BCt – Budgetary control (combine all factors above in average)

PF – Performance

The questions 14 (revenue grow and EBITDA improvement – Q14), 17 (current performance compare with previous year – Q17), 25 (performance of Gtel Mobile compared with competitors – Q25) will be used to evaluate the levels of performance of Gtel Mobile The author will assumes that the responds of all three questions above contribute the same levels of performance, the PF = (Q14 + Q17 + Q25)/3

The relationship between budgetary controls and performance in Gtel Mobile 24

In this study, the researcher will examine the following hypothesis:

H1 (BP and PF): As budgetary participation provides responsibility and opportunities for

participants to budgeting control process, therefore when the participation is high, the performance is high and vice versa It is positive relation

H2 (BP and BM): Because budgetary participation encourage participants initial and

agreed on the budget objectives and give them opportunities to show their ability performance and promote their self worth Therefore, when budgetary participation is high, the participants’ motivation tends to be high

H3 (BM and PF): Budgetary motivation has major purpose to help participants to achieve

the targets and performance measures Therefore, budgetary motivation will positively effect to performance

H4 (BE and BM): Budgetary evaluation help to force of controlling budget, it help to

motivate participants on achieving the targets and get awards from evaluation results As such, budgetary evaluation effects positively motivation and therefore budgetary evaluation

is indirect effects performance through budgetary motivation

H5 (BC and BP): Because control system should be established by top management and

participation members and participants are under controlled by the system, it call budgetary procedure which combine of manual to guide employees, process of budgeting and monitoring the process to ensure managers and employees are following procedure to

H8

The relationship between budgetary controls and performance in Gtel Mobile 25

ensure whole organization follow the same directions to meet the set targets, therefore, budget procedure effect performance indirectly through budget participation When budgetary procedure is proper and strict, the budgetary participation will be high

H6 (BC and BM): Budgetary procedures are implemented by participation, as such

budgetary procedures motivate managers to perform better and result-orientation to meet the objectives, as so when budgetary procedure is clear, budgetary motivation tends to be high

H7 (BC and PF): Budgetary procedure effects directly on performance perception

positively

H8 (BCt and BF): Budgetary controls effects directly performance strongly and positively

10 Summary of chapter two

Budgetary control is a managerial tool which requires all operation objectives are planned

in advance in the form of budgets and they are monitored during implementation and evaluated by comparing actual results with budgeted targets An effective system of budgetary control manages to plan and control the use of resource appropriately and efficiently Financial objectives and key performance indicators should be communicated to managers of organizational functions, regularly monitoring the progress, feedback and keep management informed of the budgeted targets fulfillment

The relationship between budgetary controls and performance in Gtel Mobile 26

CHAPTER 3 - RESEARCH METHODOLOGY

In this chapter, the author will introduce methodologies of study It describes the survey population, research design, techniques used in data collection, process and analysis, how to assess, as well as limitation and constraints of the study

1 Research design

The research approach will be conducted using Gtel Mobile JSC as case study on the basic

of time series In this case, the research data will be collected gathered at once for a period

of one month including distribution and answering of questionnaires, information available obtained by the author, financial report and management report data

In this research, the author design to use both qualitative and quantitative methods Qualitative method will be used to draw information from the account records while quantitative method is used to collect information from management and employees of Gtel Mobile that will help to analyze, evaluate and confirm the effect

The author will examine the data for the periods from Jan, 2012 to March, 2013

The author will use stratified sampling technique with specific emphasis on staffs of Gtel Mobile JSC

2 Study population

The study population will comprise of 48 employees who are responsible for budgeting and held positions in management, supervision and budgeting responsibilities positions from various departments in Gtel Mobile, including general management, finance and accounting, sales, marketing, public relationship, customer service, Technical and IT, Human resources and Administration, Procurement and Logistic Various categories of staffs were selected so this will enable for researcher to find out how different departments’ behavior on budgeting and get variety points of views on the important of budgetary controls on business performance of Gtel Mobile

3 Sampling

Based on Organizational Chart of the company and functional responsibilities, the author determined the list of employees in each department to draw the sample Every employee will be listed and selected once and this will be viewing through organization chart

The population and sample size will be divided into non overlapping departments and non overlapping employees This method was used because no single employee can belong to more than one department

Sample size will comprise of forty seven (47) employees in total which representing 97.9%

of the population One employee difference between population and sample size is exceptional case, the author in this population will be excluded from sample size

The sample population and sample size was presented as table below

The relationship between budgetary controls and performance in Gtel Mobile 27

Sample population and sample size

staff

Supervisor staff

Total population

Sample size

Commercial (Sales, Marketing,

Data will be collected using both primary and secondary sources of data Primary data will

be collected through the use of direct observation, personal interview, and questionnaires with respondents Secondary data will be got from business records that including financial statement, ledgers, management reports The secondary data sources will be used mainly for supplement primary data to support more information concerning the topic and help analyzing the concerns

5 Data collection instruments

In order to obtain exhaustive information from all departments, the following methods of data collection will be used:

The relationship between budgetary controls and performance in Gtel Mobile 28

In this case, the questionnaires shall be administered by the author to allow further classification of unclear issues

Questionnaire table is attached at the end of this paper

5.3 Inside information

As the researcher is employee of the company, so she will get approval from General Director for this study and allow her to use information like manual, financial statement, management report, ledgers to support the analysis of data obtained

6 Measurement of variable

Gtel Mobile JSC is young operator, just established for nearly 5 years and launching service for 4 years, as per planned they will breakeven 5 years after launching, so as their key performance indicators at this stage will be concentrated on subscriber base, average revenue per subscriber, revenue growth, cost efficiency and improvement of EBITDA Therefore, in this case study, the author will measure variable in term of revenue growth and EBITDA improvement use as performance indicators

Respondents participating in budget preparation and performance will be asked, on a five points Likert-type scale from one (strongly disagree) to five (strongly agree) to measure their perception of the effect of budgetary controls on the performance as it impacts the success or failure of the organization This will use quantitative data analyzing based on

opinions of the respondents The budgetary controls will be used as dependent variable The performance will be used as independent variable, and using the responds of

questions 14, 17 and 25 of all respondents to summary the level of performance Five

points Likert-type scale from one (very poor) to five (very good/excellent) were used to measure the level of performance in Gtel Mobile

To examine the relationships between dependent variables and independent variable, Eview

7 software will be used to analyze and find the relationships between variables that have been assumed in hypothesis before

Time limitation also in point of research period is just one year, so the result of other period may be different

7.2 Lack of corporation

The author also expected the problem of corporation from respondents due to the author is finance person and they may be biased and not want to give the correct information Other than that, they may be aggressiveness and suspicion about the survey that will cause lack of adequate information To solve this problem, the author will educate respondents for the