Budgeting practices and challenges in dairy co-operative societies in Kenya

Abstract

Poor financial performance in business is attributed to poor business planning, unrealistic and conflicting goals and targets, absence of stringent monitoring and evaluation of activities. However, through effective budgeting and stringent budgetary control process, these activities can be efficiently and effectively managed. The situation amongst the dairy co-operative societies in Kenya is not different and more often we have had various co-operatives close down due to poor financial management. The objectives of the study were to establish the budgeting practices and challenges facing dairy co-operative societies in Kenya. The study targeted a sample of 35 dairy farmers’ co-operative societies in Central province out of whom 31 responded giving a response rate of 88.5%. From the findings, the study established that 83.9% of the dairy co-operative societies considered budgeting as very important to their success. The study also established that all societies undertook some initial preparations and analysis before undertaking the budget process. However, it was also established that 25% of the societies did not prepare cash budgets, 74% did not prepare budget for acquisition of fixed assets and 54% did not prepare income and expenditure budget. The study also established that the production managers and Sales Managers were not fully involved in budgeting hence compromising the completeness and usefulness of the process. The study also established that the budgeting tools mostly used in dairy co-operative society was the budget committee, followed by budget manual and interdepartmental discussion groups in that order. The study also established that 77.4% of the dairy co-operative societies did not educate their budget officers in the area of budgeting and that 93.5% of the dairy cooperative societies used addition of some percentage on the previous years budget as an approach to budgeting, while justification of all costs as if programs was in use in 51.6% of the societies. Standards to compare with actual total cost per litre of milk sold were not in use in 45.2% of the co-operatives societies. Negotiation of budgets between higher level managers and departmental heads and communication of budget information down to lower level employees was done by nearly all the dairy co-operative societies. Escalation of costs beyond anticipation was the greatest challenge faced by the dairy co-operative societies. Other challenges facing them are lack of education for all involved, lack of participation by all individuals and budget complexity