“The effectiveness of Budgeting and Budgetary control in Business Organizations: A case study of ADV Telecoms”
Introduction
A budget is a master document prepared by organization outlining how funds will be sourced and then later used. A budget is just a guideline and is not a must that actual revenue and expenditure must tally with the estimates of the budget. For this reason it is possible that an organization may find use of budget effective or ineffective in its operations. It all depends on the mechanisms that the organization has put in place. It is for these and other reasons that I am planning to carry out this research. Budgetary control on the other hand is management’s exercise of authority over implementing the contents of the budget. Control is vital so as to help the organization realize or achieve its set objectives (Bourne, 2002).
Since it is not possible to study all organizations in Australia, am going to use ADV telecom as my case study. ADV telecom is an Australian telecommunications company that has its headquarters in Australia and branches in the USA, UK and Canada. Its products include call termination, broadband phone, calling cards and hoisting IPBX. Since its inception ADV has positioned itself as an innovative, quality oriented and affordable telecommunications company in Australia. Results obtained from this research may be applicable to all organizations regardless of their size, activity, level of production, number of years in business and etc.
Research problem
The research problem of this dissertation is to critically analyze the effectiveness of Budgeting and Budgetary control in Business Organizations with special reference to Australia’s ADV telecom.
Research question
In this dissertation proposal, am going to explore three major research questions. These are the questions that I hope will help me come up with concrete and valid results of this particular research. These are as follows:
To what degree does ADV telecom embrace Budgeting and Budgetary control in its operations?
How effective/ineffective has been Budgeting and Budgetary control in ADV telecom’s operations?
Does budgeting and budgetary control practiced in ADV telecoms result to lack of initiative and innovativeness, and if so, why
Has Budgeting and Budgetary control helped ADV telecoms realize its objectives?
Literature Review
This particular part of the research will examine in length the existing literature on Budgeting and Budgetary control in Business Organizations. This will start from earlier writings of Management gurus, contemporary world and the latest developments of this important topic. The stand of management authors will also be looked into.
For a long time, the effectiveness of traditional Budgeting and Budgetary control in Business Organizations has been questioned by many authors in the subject. For instance a recent study by Stevens (2000) came up with very interesting findings. Stevens explored not only the extent to which organizations embraced traditional budgetary requirements in their organizations but also the validity of this phenomenal in modern business culture. He found out that business organizations had invested heavily on IT infrastructure, wide range of management tools, activity accounting and business process re-engineering. Even with these new advancements, Stevens found out that Budgeting and budgetary control process remained predominantly the same. In addition he realized that some organizations may have failed due to break down of corporate ethics which was brought about by use of budgets to force realization of certain goals. On the same note a study by Daum found out that traditional budgeting process is not effective because it disempowers the staffs that are in the front line, accelerates down the organization’s response to new market developments and does not encourage information sharing.
Writing on the same topic, Daum (2002) commented that traditional budgetary process is increasingly becoming an unnecessary obstacle in business rather than a road to progress. Daum says that budgeting has been seen as taking too long, too complicated and inflexible. This literally means that we can not adapt fast enough to new market trends like economic trends, changes in tastes and preferences and even adapting to competitor’s strategies.
Conceptualization
This section covers the concept of effective budgeting and budgetary control systems associated with companies. As per the research questions; the extent to which ADV telecoms has embraced budgeting and budgetary control systems as well as the impact of budgeting and budgetary control systems in an organization. This part shall discuss the impact budgeting and budgetary control has on the competences of an organization. The competitiveness of an organization can be identified as a function of budgeting and budgetary control. ADV telecoms competitiveness depends entirely on the level of its initiative and innovation. At the same time ADV telecoms like other organization innovation and initiative are constrained by the control culture, external environment, and task/ industrial factors. For the purpose of this study, behavioral implications which are either positive or negative resulting from ADV telecoms organizational structure and budgetary management control culture will be looked at.
Organizational structure
Organizational structure is the hierarchy that facilitates the three levels of interpersonal relationship in an organization namely, upward, downward and horizontal. The organizational structure of an organization affects the effectiveness of budgeting and budgetary control systems. Which top management makes the budget together with the subordinate the company nay end up incurring more expenses hence making the budget ineffective? On the other hand when top management acts authoritatively in budget planning the subordinated lack a point for then to also claim for the share of participating in planning for resources hence the organization saves on this wise (Daum, 2002). ADV telecoms budgeting and budgetary control systems rely on this aspect for it to be competitive.
Behavioral issues
Budgeting is also affected by behavioral issues because human factor is involved in the entire process of its preparation. The interaction of people in budgeting process has got two behavioral issues namely; (Daum, 2002).
Designing the budget process where it is identified who should be involved in the planning and budgeting process and the standard to which the budget should be set to have a positive impact on people’s motivation and performance.
Influencing the budgeting process. How do people try to change the budget and manipulate it towards their own ends?
Management style
Another factor to consider in effective budgeting and budgetary control in an organization is management style. Organizations which have inflexible and slow management styles result in ineffective budget development where as organizations which is flexible promotes and encourages an organizational culture of control, Voluntary coordination and novelty (Bourne, 2002). This section has dealt with concepts associated with effective budgeting and budget control systems in an organization. Those concepts will continually be referred to when the researcher’s shall be studying the effectiveness of budgeting doing budgetary control systems in ADV telecoms case study.
Methodology
In-depth interviews
Primary data will be collected through in-depth interviews with employees of ADV telecoms who are involved in preparing budgets and other management level employees (Potter, 2006). Both structured and non structured interview techniques will be employed and will take the form of friendly discussion at ADV telecoms. To ensure that the interview takes the required direction i.e. does not deviate from the intended purpose, the interviewer will be guided by a set of basic questions on the topic of research. However, through the discussion flexibility and necessary deviations will be maintained to keep the environment friendly and comely. In-depth interviews shall be conducted so that the researcher can understand properly the existing budgeting and budgetary control systems at ADV telecoms (Potter, 2006). Some selected respondents who shall include heads of budgets, senior manger in network planning department, project planning and budgeting division’s manger, and chief engineer in charge of innovations shall be selected from ADV telecoms and interviewed separately by oral means for about one hour each. In addition to the above respondents, senior manger in networking and planning and other manager who are responsible for spearheading company development and are involved in providing necessary information on capital budget shall be interviewed so that more information the topic of study is achieved. To enrich discussions all the interviews shall be recorded instead of taking notes during the interview sessions. Key information which shall be gathered shall include budgeting and budgetary control processes of ADV Telecoms Company, problems encountered by project manages in implementing the budgetary process and how budgeting and budgetary control process impact innovations and initiative in the company(Potter, 2006).. The in-depth interviews were selected as tools of collecting qualitative data because of its ability to gather personal information and views and other relevant information concerning budgeting and budgetary processes without bias. And because the study investigates behavioral aspect of budgetary and budgeting control, the data collected from each respondent shall be subject to personal bias (Davila, T, et.al, 2005). Therefore to avoid gathering wrong information, the interviews were conducted in a manner to scrutinize the validity of the information gathered from different parties.
The results from the interview shall provide plenty of information and an in-depth understanding of the prevailing conditions around budgeting and budgetary control at ADV telecoms organization. In-depth- interviews are also expected to assist in collecting extra information that is relevant to the characteristics of respondents and the environment which often are important in interpreting the results. Any unsystematic raw data which will be collected will be edited and arranged so that errors and omissions are detected. Incase further r clarification will be required, relevant respondents will be contacted as will be found necessary. Finally, the findings will be complied and then analyzed.
Participant observation
Another qualitative method of data collection which shall be used in data collection on effectiveness of budgeting and budgetary control at ADV telecoms is participant observation. As the name depicts, this is a way of collecting information from the target group trough observation (Potter, 2006). The researcher participates in all the activities of the individuals being observed rather than just being an observer. The research has got two roles that of an observer and participant. According to the research question “the effectiveness of budgeting and budgetary control in ADV telecoms limited organization, information can best be gathered by the researchers being involved in budgetary activities of ADV telecoms so that they may realize the effectiveness of the organizations budgetary process and its effectiveness. By participating the researcher will be able to know the three qualitative aspects of budget approach which include authoritative, consultative, and participatory (Potter, 2006). The researcher will participate in ADV telecoms budgetary meetings and seminars so that they will be able to get “emic” perspective of ADV telecoms concerning the effectiveness of budgeting and budgetary control systems practiced in that organization. During participation the researcher shall conduct minor interviews based on open ended questions and collect all relevant materials that shall be found useful for data set up. Participatory observation also enables the researcher to build good relationship with the staff members and this improves the interaction hence more information can be extracted concerning the budget by observations of the relationship between the budgetary team and the management team(Potter, 2006).. To collect enough information by using this kind of tool, the researchers will ensure that they attend all financial, social and any meeting relevant to discussing the effects of budgeting and budgetary control systems available at ADV telecoms. Participatory observation qualitative method of collecting raw data is one of the best methods for it gives the researcher a chance to examine the subject behaviors, make notes as well as make conclusions which are not influenced by the subjects(Potter, 2006). Thus this kind of method is the best especially where sensitive are like finances and budgets are discussed.
The researcher must be careful so that he/she may not be influence and loose objectivity by going native. Generally participatory observation method engages the researcher in the activities of the case being studied and enables the researcher to try to learn the kind of life in the organization as an “insider” while remaining an “outsider”. The researcher shall make objective notes in the field note book, record all the informal meetings and interaction with the workers of ADV telecoms and also record al the information communicated through mass media (Potter, 2006).
Participant observation shall provide the researcher with the understanding of the operations of ADV telecoms in the line of budgeting and budgetary control systems practiced their. This method will also enable the researcher to understand other factors which were not known when the research was being designed. This will be a boost to the research since the research will provide the exact situation as it is at the budgetary department of ADV telecoms and data will be analyzed so that the conclusions derived at will be accurate and relevant.
Qualitative content analysis
Qualitative content analysis is a method of analyzing written, observed, verbal or even visual communication data. It is mostly used in arts and social sciences where qualitative data collection method is widely applied. This method was for the first time used to analyze newspapers, hymns and magazines. Qualitative content analysis is an objective and systematic means of quantifying and describing otherwise qualitative phenomena. Using this method the researcher is able to test theoretical issues to understand the data collected. By grouping a given qualitative phenomena with same characteristics, it becomes possible to analyze it the same way you could do to quantitative data (Mayring, 2000).
In this particular research, I am intending to use this method to some degree so as to help me get some information on qualitative aspects of this project that can not be quantified. Such data will cover issues to do with employee’s attitude towards use of Budget and budgetary control, employee satisfaction, how effective has it been in addressing these concerns among other phenomena’s. In order to effectively realize the potential of this method I will do it step by step, taking the necessary precautions so as not to fail mid way.
The first step will consist of collecting data on the various issues that I would like to address. Of course this will be deduced from the research questions. Data will be obtained from both primary and secondary materials. This will include interviews, opinions, attitudes and even observations made to my respondents in this survey (Berg, 2001). For example I may ask the finance manager as to what degree does he conform to budgetary requirements of the organization? Similarly an employee may be asked to give opinion on how budgeting affects him or her. After collecting data the next step will be to define the unit of analysis that I‘d like to use. All the data whether in the form of sentences, words or even paragraphs will need to be unitized before they are encoded. This is to make the analysis and comparability of findings easier. It is important to note here that under qualitative analysis we use themes rather than physical linguistic units to encode information (Berg, 2001).
The third step will be to categorize the themes and coding scheme. This will involve placing the themes in categories according to how they share characteristics or what I want to achieve. This can be done both deductively and inductively using three major criteria which are earlier studies, relevant theories or better still the data I will have collected. To ensure consistency I will develop a coding manual which among other things will define category names, rules for assigning codes and examples. Next I will pilot test the system just to be sure that everything is in order and will output the desired information. If the coding system proves to be valid and working I will go ahead with my research otherwise I will revise everything or make necessary amendments to avoid arriving at invalid results (Mayring, 2000).
The fifth step will be to code all the text that I will have collected for subsequent analysis. During this process I will try and avoid “drifting into an idiosyncratic sense of what the codes mean” (Schilling, 2006). I will also maintain an open and flexible mind so as to accommodate any new developments that may emerge. When am through with this I will proceed and analyze my data to get the answers to my research questions.
Finally I will draw my concusions from this and proceed ahead with reporting the findings of my research. Qualitative content analysis together with the other two methods are an indispensable tool in conducting researches related to social sciences owing to their nature, thus all efforts should be made to perfect it and enhance our research horizons.
References
Berg, B.L. (2001). Qualitative Research Methods for the Social Sciences. Boston: Allyn
and Bacon publishers
Bourne, M, (2002), New Departures in Planning and Budgeting
Daum, J H, (2002). Beyond Budgeting: A Model for Performance Management and Controlling
in the 21st Century, Controlling and Finance.
Davila, T, et al, (2005) “Managing budget emphasis through the explicit design ofconditional
budgetary slack”, Accounting, organizations and Society, Volume 30,
Mayring, P. (2000). Qualitative content analysis. Forum: Qualitative Social Research,1(2). Retrieved July 28, 2008, from HYPERLINK “http://217.160.35.246/fqs-texte/2-00/2-” http://217.160.35.246/fqs-texte/2-00/2- 00mayring-
e.pdf
Potter, W. (2006). An analysis of thinking and research about qualitative methods. Mahwah: NJ.Lawrence Erlbaum Associates.
Schilling, J. (2006). On the pragmatics of qualitative assessment: Designing the process
for content analysis. European Journal of Psychological Assessment, 22(1), 28-37.
Stevens D. E., (2000). Determinants of Budgetary Slack in the Laboratory: An Investigation of
Controls for Self-Interested Behavior, New York: Willey and sons
