The Effect of Budgetary Controls on Financial Performance of Manufacturing Companies in Kenya

Abstract

Budgeting and budgeting Control occupies an important place among techniques used in planning and control functions of an organization. In budgeting, the focus is not only to prepare the budget but more importantly to have a follow-up operation for budgeting and act according to known data. The main objective of this study is to assess the effects of budgetary control on the financial performance of selected manufacturing companies in Kenya. A descriptive research design was used in this study. Stratified sampling technique will be used. In this study, 10 largest companies from each subgroup of the manufacturing companies will be selected. The respondent will be the head of the finance department or an equivalent. Hence the sample size will be 50 respondents. Both primary and secondary data would be used. Descriptive analysis would be used to mainly summarize the data collected. The study concluded that; their budgets have clear goals and objectives, their organization has long term and short term budget plans, all departments prepare budget plans prior to the budget year, when budgeting, outcome goals and objectives are linked to programmes, budgets cover all the aspects of the organization’s mission and that managers set priorities for the coming year at budget conference/Committees. The study concludes that; budget deviations are reported to budget committee/executives, the deviations from the budget targets are frequently reported, the costs of activities are always reviewed by the executive committee, managers hold budget conferences/meetings regularly to review performance, managers always take timely corrective actions when adverse variances are reported, control of the budget activities is done by the head of departments, the managers or their equivalent have budget policies to check on spending, comparison is made between plans and actual performance and the difference is reported often, there is a regular follow up on budget plans by the budget committee/departmental heads and that; budget performance evaluation reports are prepared regularly. The study concluded that the financial managers or their equivalent are involved in the budget setting process, the financial manager or the equivalent are sensitized on the budget control process, each department prepares a budget prior to the overall budget, all the stakeholders to the budget are involved, all departments are always involved in the budgeting process, approved budgets are shared with all departments and that, leadership and support is given to all the subordinates throughout the budget by managers. The study concluded that budget committee is effective against risk and are not overloaded, budget committees are expected to focus on the optimization of shareholders’ wealth and prevent the maximization of personal interests by the top management, the budgetary control measures put in place in our organization have a great influence on financial performance and that budget committee focus on improving the company performance and competitiveness. The results showed that the value of co-efficient of determination (adjusted R square) is 0.785 for all the variables studied (planning, monitoring and control and participative budgeting). The results showed that there was a significant relationship between financial performance in manufacturing companies and the three variables (planning, monitoring and control and participative budgeting), as shown by the p value; (p=0.000<0.05). The equation Y = 10.64 + 0.416X1 + 0.413X2 + 0.042X3 was henceforth obtained.