The effects of budgeting process on financial performance of commercial and manufacturing parastatals in Kenya

Abstract

The budgeting process in any organization forms an integral part of any management process. The ways of generating and utilizing the revenue in the firm will give a roadmap of achieving the organizational objectives. The budgeting process of an organization affects the level of performance of a firm and it is important therefore that that organization adopt efficient budgeting processes that will be able to provide more accurate results of the firm‟s performance in the targeted period. The objective of the study was to determine the effects of budgeting on the financial performance of manufacturing and commercial Parastatals in Kenya. Towards the realization of the same objective, a descriptive research design was adopted and data was collected by use a questionnaire. A regression was also carried out to establish the relationship between the ROA and the budgeting independent variables. The researches of the findings were that the budgeting practices that are common among the firms are budget planning, budget participation, budget participation and budgetary sophistication. However, employee participation in the budgeting process resulted in greater success in actualization of the plan set out in a particular period followed by budget planning. The results therefore reinforced the need for a participatory budgeting process whereby all cadres of staff through their sectional heads are involved and their views are incorporated in the budget process. Establishment of a feedback mechanism was also found to be important in actualization of the budget.