PERCEPTIONS OF NIGERIAN SUPERVISORS ON BUDGETING IN NIGERIA BASED ON QUESTIONNAIRE SURVEY.
Budgeting is an essential element, which is vital to management accounting techniques, which can benefit all aspects of business if it is understood a properly used. A budget is a financial and quantitative interpretation of events prior to a defined period of time of a policy to be pursued in order to attain a given objective. Top management has used budget figures to determine viability of a unit in the organization when it lays emphasis on meeting budget requirements. Most of the past studies had projected the views of top management with little or no emphasis on its subordinates. We had been indoctrinated with the budget preparers' viewpoint but how about the budget operators?
The above views in mind have necessitated this study. The theoretical framework of the study is to determine the perception of Nigeria supervisors towards budget pressure. When the views of the supervisors are known, top management can use some of the findings for future planning and decision making. This research is limited because it focuses on manufacturing firms in big cities without due consideration to rural manufacturing firms. The various industry groupings are not considered thereby the research cannot be conclusive. Budget related literature were reviewed which has indicated that there are various behavior among the supervisors. The issue of goal congruence, motivation and deviant behavior avoidance are some of the objectives of budget preparation. Some reactions are supposed to emerge from supervisors who are pressured to meet the budget figures. These behaviors are manipulation of the budget reports, emphasis on the short-run budget and poor communication to top management on the budget variance,
The review looked into the critical areas in the budgeting process. These critical areas focus on the interactive goals setting in the areas of Research and Development Marketing Strategy and Financial Strategy. The preparer of the budget must design some possible assumptions to support the budget, which can be classified as external and internal assumptions. In viewing a budget, management should be able to determine if sales revenue is inflationary oriented or business growth. Furthermore, some tools like break even analysis, cash-flow analysis and asset management should be incorporated into the budget system. The study identifies the various weak budgeting processes, which are classified into symptoms and possible causes. This analysis of symptoms and causes are essential ingredient in the performance evaluation.
The research methodology was designed to gather information from broad range of manufacturing firms in Nigeria. Questionnaires were sent to randomly selected manufacturing company's supervisors in Nigeria. The names were picked from Daily Times Trade and Industry Directory and Industry Directory of Ministry of Labour of various issues. Two hundred (200) questionnaires were sent to big cities in Nigeria while fifty (50) were distributed in Port-Harcourt. Two hundred and twenty-five responses were received which represents 90 per cent response rate. The respondents were grouped into groups 2-4 for effective analysis.
Statistically, the percentage analysis method was used to determine the relationships between the groups of supervisors with regard to the twenty-three independent variables. The polarization approach was used to compare the two immediate groups while the extreme group was excluded from the analysis.
The findings of the study have revealed that the behavior of supervisors change as the emphasis put on the budget variances increase, we found that there is no significant difference between the two groups of supervisors in the frequency of certain budget related activities like participating in budget preparations using budget to plan and having to transfer fund relating to operations in other to reduce budget variance. From the responses, we can conclude that the more the control established over budgets the more defensive the supervisors become. Supervisors in group one who viewed budgets as pressure devices were more likely to submit explanations and corrective measures in writing. This action encourages self-preservation and individualism. With participatory budgeting approach is used by management the supervisors are of the view that it encourages co-operation and the success of the budgetary systems but when budget is imposed, it reduces intuitive and it restricts the autonomy of the supervisors.
The study was designed to gather information from a broad range of manufacturing firms in Nigeria irrespective of their product line. The research questionnaire with a covering letter contained twenty-three (23) sentences that represent different types of the budget-related behaviors that supervisors might be involved. The items on the list were selected from relevant literature on budget-related behavior (Table 1). The supervisors were asked to indicate how often the described events take place in their current job. A five point scale of "Always" to "Never" was used to measure their responses. Responses for each of the twenty-three variables were then used as inputs into a two group analysis.
Questionnaires were sent to randomly selected company supervisors in different manufacturing firms in Nigeria. The names were picked from Daily Times Trade and Industry Directory of various states. Two hundred questionnaires were mailed to various manufacturing establishments in Lagos, Kano, Kaduna, Aba, Enugu, Jos, Benin, and Ibadan while fifty were physically distributed in Port-Harcourt.
The questionnaire was designed to identify the relationships between the manners in which budget data are used to evaluate manufacturing supervisors, thereby we can draw conclusions from such findings. These are various ways we can classify the response which can reveal the manner in which budget data are used for evaluations. However, in this study, we focused on two classifications as follows:
a) The supervisors who perceived that budget variances were used by their supervisors as a pressure device by emphasizing on the "budget figures".
b) Those who perceived the budget variances were used in a more flexible manner to their evaluations.
The basis for categorizing the supervisors into groups was based on their responses to a question on how their immediate superiors use budget variances in their performance evaluations. The supervisors were placed into one of the three groups based upon their responses to the following statement:
My superior tends to use budget variances as a pressure device by laying emphasis on the budget figure
The supervisors who agreed or strongly agreed with the above statement were placed in Group one. Those who indicated that they disagreed or strongly disagreed with the statement were placed in Group two. The extreme Group three comprised supervisors who failed to indicate clearly whether or not they believe their supervisors used budget variances as a pressure device. Our objective on the above exercise was to determine if there were significant differences between the behavior of those supervisors who feel that budgets are used as pressure devices and those who do not.
Data : Interpretation and Analysis
To ensure effective analysis, the immediate polarization approach was used. This approach involves comparing the immediate two groups and extreme group was excluded from the analysis. This approach provides for the creation of distinct and easily identifiable groups. Based on the above criteria, 100 supervisors were placed in Group one and 75 were placed in Group two. The remaining 50 were placed in Group three and they are excluded from the analysis because of their indeterminant responses.
A total of two hundred and fifty (250) questionnaires were sent out, two hundred and twenty-five (225) responses were received which represents 90 per cent response rate. The research questionnaire included a list of twenty-three (23) statement that represent different types of budget-related behaviors that supervisors might engage in them. The items on the list were selected from relevant literature on budget-related behavior.
The supervisors were asked to indicate how frequently the described events take place in their current job. A five point scale of "Always" to "Never" table was used to measure their group analysis, (see Table 2 for complete list of the statements).
The above characteristics table indicates that twelve (12) supervisors which represent 12 per cent are required to submit in writing the causes of large budget variances. In terms of frequency analysis it is ranked four (4). There is a high degree of flexibility built into the behavior characteristics because independent variable No. 4 has the highest response which indicates that thirty (30) which represent 30 per cent are allowed to device corrective measures in their respective departments. It ranks No. 1 within the frequency hierarchy.
Eight (8) of the respondents are required to report the actions taken to correct causes of budget variances. It ranks lowest with the frequency line; we can perceive these responses to indicate that top management does not interfere with the supervisor's actions which are adopted to achieve budget objectives.
Flexibility is viewed by the supervisors as means of encouraging grassroots budget. Majority of the supervisors (twenty-three) which represent 31 per cent say that they are consulted about specific factors that are included in the budget. This response has the highest frequency of one (1). Their views are followed by supervisors who feel that find it easy to transfer fund from one account to another to another when budgeted funds for the activities have been exhausted. Eighteen (18) respondents which represent 24 per cent expressed this view and it has frequency of two (2). The least respondents which is four (4) which represent 5 per cent with frequency of 6 are of the opinion that the budget is not ratified until they are satisfied with it. This response shows that the organizational goals are not designed to suit individuals.
It can be stated that budgeting system that embrace both expected results and actual performance are the type of accounting data that contemporary business managers are interested in the objective of these systems is to change human behavior thereby decision making can be directed towards the aspiration of top management. When budget data are used intelligently, it dictates the performance and expresses managerial targets. These targets become performance criteria for evaluating managers at all levels of the organization. It is the amount of premium put into these criteria, during its daily operations and during performance evaluations that influence the extent to which management is effective in modifying supervisor's behavior.
This paper focuses primarily upon the changes in supervisor's behavior as the degree of emphasis placed upon budget variances increased and management's ability to accept desired behavior from supervisors through the use of budgetary systems. It is an acceptable norm that budgets form the basis for performance evaluation and it is adequate to encourage certain budget related behavior in supervisors. We found that there is no significant difference between the two groups of supervisors in the frequency of certain budget related activities such as participating in budget preparation using budgets to plan and having to transfer fund relating to operations in order to reduce budget variance (See Table 3). Though some of the above actions are commendable but it has some negative effects. A good example of such effect is using favourable indirect labour variance to reduce adverse direct labour variances any conceal a lack of motivation or proper training within a profit center. Management must recognize the guide against some budget related behaviors that are likely to occur irrespective of the emphasis laid on budgets as a measure of performance.
It is possible that budget related behaviors change as the degree of emphasis laid on budget variances increased. Management has opportunity to influence supervisor decisions or activities by varying the level of emphasis. Comparing the budgeting-related behaviors listed in Tables 1 & 2, they revealed some of these changes and they give several significant insights concerning the type of changes that may occur.
There are some deductions we can make from this study (a) It appears that the more the control established over budgets the more defensive the supervisors become. Supervisors in group one who viewed budgets as pressure devices were more likely to submit explanations and corrective measures in writing. This requirement can encourage self-preservation attitude which may make the supervisors to be individualistic towards their departments. Practically, budgets are supposed to improve communications and cooperation between organizational units. As defensive activities increase, departmental bias in preference to organizational goals.
Secondly, it appears that the level of participation in budget affairs is affected. Though the two groups participated in preparing the budgets and they use budget for planning, but group three supervisors (Table 2) indicated higher level of participation. They felt that they were consulted more often about special factors that they would like to have problems that they mentioned received special treatment in the new budget. Generally, it has been accepted that participation by all levels of management and all departments enhance the success of a budgeting system. The involvement of supervisory personnel encourages co-operation among departments and it increases awareness of each department's importance in the overall processes of the organization. Top management that uses budgets as "Pressure Device" may disencourage high level of participation. When supervisors dictate the budget to subordinates and it dictates slack in the budgeting system.
If budget is used as a pressure device or when emphasis is placed on budget figures it restricts the autonomy of the supervisors. However, when a budget is established for a department it implies that a degree of authority has been delegated by top management to the lower level managers. This action gives the supervisors full discretion over the operational activities within his department. Group three supervisors appear to act more autonomously while group one supervisors found it necessary to stop some activities to other accounts while group one supervisors cannot. But we have to understand that some activities are critical to the long-run success of a department. The inability of the supervisors to perform certain activities because "budgeted" funds have been exhausted, may have adverse effect on the long-run profits of the organization. Therefore a certain degree of flexibility should be given to the supervisors concerning the ways budgeted funds should be used. Supervisors should be accountable for the results of their decisions within the framework of the freedom allowed. However, management may establish greater control which can be the day-to-day monitoring of supervisory behavior.
In a question that deals with motivation and successful operation of a budgetary system it is generally accepted that participation in budget affairs, mostly in budget preparation helps to motivate personnel and it leads to a higher level of commitment to organizational goals and successful budget operation. Management deals with human behavior and despite the existence of complex budgetary systems individuals run the affairs to organizations. The idea that emphasis should be placed on performance evaluation improves motivation and commitment may ne sound. But it requires a lot of intelligent administration to succeed in practice. Generally, supervisors concentrate on the areas where their performances are measure and their performances affect their rewards.
The basis of this research is to ascertain how supervisors perceive budget pressures. Two hundred and fifty (250) questionnaires were distributed to various manufacturing firms in Nigeria in which two hundred and twenty-five (225) responses were received. This represent 90 per cent response rate. There were twenty-three (23) budget related-behavior statements which were grouped from Tables 1-4 and a five point scale of "Always" to "Never" was used to measure the responses. The limitation of this research is to focus on the manufacturing sector of the economy. It was restricted to the industrial cities in Nigeria without due consideration to supervisors in rural manufacturing firms.
This research reveals that using budgets as a pressure device by placing emphasis on meeting the budget in measuring performance appears to trigger some undesirable supervisory actions. Therefore, administration of the budget should be flexible so that changed conditions can allow some adjustments in the budget. Superiors should place the proper emphasis on budgetary activities so that cost-consciousness, co-operative attitude are encouraged towards budgetary control in supervisors. A skeptical attitude of supervisors may undermine an organizational efficiency; therefore, supervisors should be encouraged to be prudent towards their budget. Our findings have implications for management accounting specialization because it has placed too much emphasis on the techniques of budgeting while the organization objectives have been isolated. It is time we start asking question concerning the role budgeting should play in the overall evaluation of manufacturing supervisors. We should focus on the changing view which is concerned with the increased emphasis on its human and social implications.
Because budgeting involves setting of standards, preparation of budgets reports. The preparer of budget should be aware of the behavioral and attitudinal implications of using budgetary system must provide information that assists supervisors and their superiors in identifying those courses of action which are in the best interest of the organization. Therefore, in addition to possessing sufficient technical knowledge in the area of budgeting and cost behaviors the preparer of a budget must consider the motivations, attitudes, values and behaviors of individuals within the organization.
A budgetary system is ineffective whenever the operation of the system, the interpretation of the reports are used motivates an individual to embark on actions which are not in the best interest of the organization. The sophistication of a budgetary system is ineffective if it cannot influence human behavior and attitudes. Accountants and budget preparers can help management use their reports more wisely and efficiently by preparing them in manner that is conducive towards achieving organizational goals.
Professor PATRICK I. OSIEGBU, Ph.D.
Professor of Finance
ANASTASIA C. ONUORAH, M.B.A., M.Sc.
e-mail: anastasiaonuorah@yahoo. com
Department of Accounting, Banking and Finance Faculty of Management Sciences Delta State University, Asaba, Delta State of NIGERIA
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TABLE 1 BUDGET-RELATED BEHAVIOR SCALE How frequent do the events below take place in your current job? (a) Always (b) Often (c) Occasionally (d) Hardly (e) Never (circle one) S/ Statements Scale 1 I participate in preparing projected budgets A.B.C.D.E 2 I investigate both favourable and adverse A.B.C.D.E budget variances in my department or unit 3 I use budget to plan activities in my A.B.C.D.E department or unit 4 I suggest change in budget figures in my unit A.B.C.D.E 5 I use my department staff to find out causes of A.B.C.D.E budgeting variances 6 I evaluate my subordinates by means of the budget A.B.C.D.E 7 I often suggest on how to improve the budget A.B.C.D.E 8 I am required to submit an explanation in writing A.B.C.D.E about causes of large budget variances 9 I find it necessary to stop some activities in A.B.C.D.E my department when budget funds are exhausted 10 I am consulted about special factors that I would A.B.C.D.E like to be included in the budget bring prepared 11 I am required to trace causes of budget A.B.CD.E variances to group or individuals in my department 12 I find it easy to transfer fund from one account A.B.C.D.E to another when budget funds for the activities have been exhausted 13 The revised budgets embrace changes A.B.C.D.E I suggested 14 I do investigate budget variances in my A.B.C.D.E department 15 I have to adjust figures relating to A.B.C.D.E operators to reduce budget variances 16 The budget is not ratified until I am A.B.C.D.E satisfied with it 17 I am required to report actions I have taken to A.B.C.D.E current causes of budget variances 18 I discuss budget performance expectations A.B.C.D.E with subordinates 19 Special problems I mention receive special A.B.C.D.E treatment in the new budget 20 Corrective measure for budget variances A.B.C.D.E in my department is under my control 21 I use budgets to measure how efficiently my A.B.C.D.E department is operating 22 My superior listens to my views on budget A.B.C.D.E matters 23 I go to my supervisor for advice on how A.B.C.D.E to achieve my budget figures. TABLE 2 BEHAVIOR CHARACTERISTICS OF SUPERVISORS WHEN BUDGETS ARE USED AS PRESSURE DEVICES S/N Independent Variables Responses Per cent Frequency 1 I am required to submit an explanation in writing about causes of large budget variances 12 12 4 2 I offer suggestion for 9 9 5 the improvement of budget systems 3 I discuss budget performance 20 20 3 expectations with my subordinates 4 Corrective measure for 30 30 1 budget variances in my department is under my control 5 I find it necessary to stop 21 21 2 some activities in my department when budgeted funds are exhausted 6 I am required to report 8 8 6 actions I have taken to correct causes of budget variances 100 100 TABLE 3 BEHAVIOR CHARACTERISTICS OF SUPERVISORS WHEN BUDGETS ARE USED WITH FLEXIBILITY IN EVALUATION S/N Independent Variables Responses Per cent Frequency 1 I personally investigate 16 21 3 budget variance in my department 2 Special problems I 6 8 5 mentioned receive special treatment in the new budget 3 The budget is not 4 5 6 ratified until I am satisfied with it 4 I am consulted about 23 31 1 special factors I would like to be included in the budget being prepared 5 New budgets include 8 11 4 changes I have suggested 6 I find it easy to transfer 18 24 2 fund from one account to another when budgeted funds for the activities have been exhausted 75 100 Source: ibid TABLE 4 BEHAVIORS THAT ARE NOT SIGNIFICANTLY DIFFERENT FROM GROUP 1 AS COMPARED TO GROUP 2 1 I participate in preparing future budgets 2 I offer suggestion for the improvement of budget systems 3 I use the budget to plan activities in my department 4 I suggest changes in budget figures for my department 5 My staff do assist me to locate causes of budget variances 6 I evaluate my subordinates by means of the budget 7 I am required to trace the cause of budget variances to groups or individuals with my department 8 I have to shift figures relating to operations to reduce budget variances 9 I use budgets to measure how efficiently my department is operating 10 My superiors listen to my opinion on budget matters 11 I go to my superior for advice on how to achieve
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|Author:||Osiegbu, Patrick I.; Onuorah, Anastasia C.|
|Publication:||Journal of Financial Management & Analysis|
|Date:||Jan 1, 2018|
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