The relationship between budgeting practices and performance of organizations in the water sector in Kenya.

Abstract

The importance of the budget cannot be over emphasized considering its role in operationalizing an organization’s strategic plan. Budgeting is defined as a forward looking set of numbers which projects the future financial performance of a business, and which is useful for evaluating the financial viability of the business’s chosen strategy or deciding whether changes to the overall plan are required. Since the enactment of the Water Act 2002, no study that the researcher is aware of has been done to determine the extent to which organizations in the water sector have embraced budgeting practices and how these modern practices have improved their performance. This study therefore sought to determine the relationship between the budgeting practices and performance of organizations in the water sector in Kenya. The research design employed in the study was a cross-sectional research design where the researcher studied financial performance of water service providers for 2010/2011 financial year and sought to determine the relationship between budgeting practices and performance of these organizations in that period. In this study four aspects of budgeting practices were studied namely; budgeting approaches, budget planning, budget controls and participatory budgeting. Performance was measured by the degree of efficiency in revenue collection and regression analysis used to determine the resulting relationship. The study found that budget planning and participation in budgeting by members of staff each have significant p-value of 0.001 which is less than the acceptable 0.05 level of significance and thus have a positive effect on revenue collection efficiency. On the contrary, budget control practices and budget approaches adopted were found to have insignificant p-values of 0.651 and 0.485 respectively. Though the p-value of the entire model is also significant at 0.002, the study concludes that budget planning and participation in budgeting by members of staff are critical and should be emphasized in order to improve performance of the water service providers.