One the primary functions of the management is planning. Most of the planning relates to individual situations and individual proposals. However, this has to be supplemented and reinforced by overall periodic planning followed by continuous comparison of the actual performance with the planned performance. Budgetary control has, therefore, become as essential tool of management for controlling costs and maximizing
“Budget” and “Budgeting” are concepts traceable to the bible days, precisely the days of Joseph in Egypt. It was reported that “nothing was given out of the treasure without a written order”. History has it that Joseph budgeted and stored grains which lasted the Egyptians throughout the seven years of famine.
Budgets were first introduced in the 1920s as a tool to manage costs and cash flows in large industrial organizations. Johnson states that it was during the 1960s that 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. Companies then faced problems in the 1980s and 1990s when they were not willing to spend money on innovations in order to stay with the rigid budgets; they were no longer concerned about how customers were being treated; only meeting sales targets became essential.
Budgeting in business organizations is formally associated with the advent of industrial capitalism for the industrial revolution of the eighteenth century, which presented a challenge for industrial management.
Glautier and Under (1987) state that “the emergence of scientific management philosophy with its emphasis on detailed info’ as a basis for taking decision provided a tremendous impetus for the development of management accounting and indeed budgeting techniques”.
However, budgeting at the early stage of its development was concerned with preparing and presenting credible information to legitimize accountability and to permit correct performance evaluation and consequently, rewards.
Over the years, the function and focus of budgeting has shifted considerably and business organization became more complex and their environment became dynamic coupled with the emergence trend, the term budget and budgeting have been differently defined and examined by various scholars in several ways.
The Institute Of Cost and Management Accountants (UK) defines a budget as “a financial and/ or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and the employment of capital.”
Omolehinwa (1989) defined a budget as a plan of dominant individuals in an organization expressed in monetary terms and subject to the constraints imposed by the participants and the environments, indicating how the available resources may be utilized, to achieve whatever the dominant individuals agreed to be the organisation’s priorities. The impressive thing about this definition is that, it recognizes the constraint imposed on budget by other participants who are to ensure that the objectives and targets enunciated in the budget are achieved.
Pandey (2003) defines budget as a short term financial plan. It is an action plan to guide managers in achieving the objectives of the firm. The Tennessee board of Regents (2006) defines budgeting as the process whereby the plans of an institutions 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 looks at the future and lays down what has to be achieved. Control checks whether the plans are being realized and put into effect corrective measures, where deviation or short-fall is occurring. Egan emphasized that without effective controls, an enterprise will be at the mercy of internal and external forces that can disrupt its efficiency, and be unaware; such enterprise will not be able to combat such forces. When a budgeting and control system is in use, budgets are established which set out in financial terms, the responsibility of managers in relation to the requirement of the overall policy of the company. Continuous comparison is made between the actual and budgeted results, which are intended to either secure, thorough action of managers, the objectives of policy or to even provide a basis for policy revision.
