ROLE OF BUDGET AND BUDGETARY CONTROL SYSTEM ON THE

EFFECTIVENESS OF PUBLIC ENTERPRISE: THE CASE OF

ETHIOPIAN ELECTRIC UTILITY

BY: HANA GEBREMEDHIN

ADVISOR: DEGEFE DURESSA (PhD)

A THESIS SUBMITTED TO ADDIS ABABA UNIVRESITY COLLEGE OF BUSINESS

AND ECONOMICS DEPARTMENT OF ACCOUNTING AND FINANCE IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF
SCIENCE IN ACCOUNTING AND FINANCE

DECEMBER, 2023

ADDIS ABABA, ETHIOPIA

 DECLARATION
I declare that the thesis entitled” Role of budget and budgetary control system on the
effectiveness of public enterprise: the case of Ethiopian electric utility” is my original work
under the supervision and guidance of Dr. Degefe Duressa , department of Accounting and
Finance, Addis Ababa university. This work has not been previously submitted for any higher
institution for any diploma, degree or other similar work.

Declared by

Hana G/medhin

Student Name
 APPROVAL SHEET

The undersigned certify that they have read and hereby recommend to the Addis Ababa
University to accept the thesis submitted by Hana G/Medhin entitled „The Role of Budget and
budgetary control system on the Effectiveness of public enterprise : the case Ethiopian electric
utility in partial fulfillment of the requirements for the master of degree in accounting and
finance.

Approved by board of examiners

 Acknowledgement
First and foremost I am grateful to Almighty God for giving me grace, wisdom and strength in
all my endeavors. My special thanks and gratitude are extended to Dr. Degefa Duressa (PhD)
my thesis advisor, for his reliable guidance, invaluable comments and assistance in
understanding this study. I extend my thanks to my dear sisters and brother, their contribution is
priceless and their role will always remain unchallenged as a great landmark in my academic
pursuit. Finally, I wish to express my deep gratitude and appreciation to all my friends,
individuals and research respondents.

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 Table of contents
Contents Pages
Acknowledgement .......................................................................................................................... i
Table of contents ........................................................................................................................... ii
List of Tables ..................................................................................................................................v
Acronyms and Abbreviations ....................................................................................................... vi
Abstract ...................................................................................................................................... vii
CHAPTER ONE.............................................................................................................................1
1. INTRODUCTION ......................................................................................................................1
1.1. Background of the study ...................................................................................................... 1
1.2. Statement of the Problem ..................................................................................................... 2
1.3. Objective of the Study .......................................................................................................... 4
1.3.1 General objective of the study ........................................................................................ 4
1.3.2. Specific objectives of the study ..................................................................................... 4
1.4. Research Questions .............................................................................................................. 4
1.5. Significance of the study ...................................................................................................... 5
1.6. Scope and limitation of the Study ........................................................................................ 5
1.6.1. Scope of the study.......................................................................................................... 5
1.6.2. Methodological Limitation ............................................................................................ 5
1.7. Definitions of Terms ............................................................................................................ 6
1.8. Organization of the study ..................................................................................................... 7
CHAPTER TWO ............................................................................................................................8
REVIEW OF RELATED LITERATURE.......................................................................................8
2.1. Theoretical Literature Review .............................................................................................. 8
2.1.1. Meaning of Budget ........................................................................................................ 8
2.1.2. Objectives of Budgeting................................................................................................. 9
2.1.3. Importance of Budgeting ............................................................................................. 10
2.1.4. Advantage of Budgeting .............................................................................................. 10
2.1.5. Limitation of Budgeting .............................................................................................. 11
2.1.6. Types of Budgets ......................................................................................................... 11
2.1.6.1. Classification According to Time ........................................................................... 11

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 2.1.6.2. Classification According to Functionality ............................................................. 12
2.1.6.3. Classification According to Flexible Factor .......................................................... 15
2.2. Budgeting Process and Preparation .................................................................................... 15
2.2.1. Budget Implementation ............................................................................................... 17
2.2.2. Budget Utilization........................................................................................................ 18
2.2.3. Budgetary Slack ........................................................................................................... 18
2.2.4. Revision of Budgeting ................................................................................................. 18
2.2.5. Budget Variance .......................................................................................................... 19
2.2.6. Budgetary Control ....................................................................................................... 19
2.2.7. Benefit of Budgetary Control ...................................................................................... 20
2.2.8. Challenges Affecting Budgetary Control .................................................................... 22
2.2.9. Installation of Effective Budgetary Control ................................................................ 23
2.2.10. Budget Report and Computerized Budgeting Systems ............................................. 24
2.2.11. Relationship between Budgetary Control and Firms Financial Performance ........... 25
2.2.12. Budget and budgetary control & translation strategic plan into operational plan. .... 26
2.2.13. Budget and budgetary control to enhance accountability and responsibility of
business units. ........................................................................................................................ 26
2.3. Empirical Review ............................................................................................................... 27
2.3.1. Summary of Literature Review conclusion and research gap ..................................... 30
CHAPTER THREE ......................................................................................................................32
RESEARCH METHODOLOGY .................................................................................................32
3.1. Introduction ........................................................................................................................ 32
3.2. Description of the organization .......................................................................................... 32
3.3. Descriptive Design ............................................................................................................. 32
3.4. Research Approach ............................................................................................................ 33
3.5. Population and Sampling Design ....................................................................................... 33
3.5.1. Sampling Frame and sampling technique .................................................................... 34
3.5.2. Sampling Technique .................................................................................................... 34
3.5.3. Sample Size ................................................................................................................. 35
3.6. Data Types and Sources ..................................................................................................... 35
3.7. Methods of Data Collection ............................................................................................... 36

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 3.7.1. Methods of Primary data collection............................................................................. 36
3.7.2. Data Collection Instrument .......................................................................................... 36
3.7.2.1. Questionnaires: ...................................................................................................... 36
3.7.2.2. Interviews .............................................................................................................. 37
3.7.2.3. Procedures of data collection ................................................................................ 37
3.8. Instruments Reliability ....................................................................................................... 37
3.8.1. Data Analysis and Statistical Methods ........................................................................ 38
3.9. Ethical Considerations of the Study ................................................................................... 38
CHAPTER FOUR ........................................................................................................................39
DATE PRESENTATION, AND ANALYSIS OF FINDINGS ...................................................39
4.1. Introduction ........................................................................................................................ 39
4.2. Response Rate .................................................................................................................... 39
4.3. Demographic Characteristics ............................................................................................. 40
4.4. Role of Budget and Budgetary Control System on The Effectiveness of the organization 42
4.4.1. Translation of strategic plan into operational plan ...................................................... 42
4.4.2. Budget and budgetary control promote coordination of activities among related and
different budgetary control unites.......................................................................................... 44
4.4.3 Budget and budgetary control enhance accountability and responsibility of business
units ....................................................................................................................................... 46
4.4.4. Promotion of Performance Measurement Serving as Basses of Performance
Measurement of Budgetary Controls. .................................................................................... 49
4.4.5. Budgetary performance evaluation and its linkage to motivation of employee .......... 51
CHAPTER FIVE ..........................................................................................................................56
SUMMARY, CONCLUSION AND RECOMMENDATION ....................................................56
5.1. Introduction ........................................................................................................................ 56
5.2. Summary of Major Findings .............................................................................................. 56
5.3. Conclusion.......................................................................................................................... 62
5.4. Recommendations .............................................................................................................. 63
Reference ......................................................................................................................................65
Appendixes ...................................................................................................................................72

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 List of Tables
Table 3.1.Census sampling method for Quantitative Data ............................................................35
Table 4.1. Response Rate ...............................................................................................................39
Table 4.2. Demographic Characteristics ........................................................................................40
Table 4.3. Budget and budgetary control and translation of strategic plan into operational plan .42
Table 4.4. Budget and budgetary control promote coordination of activities among related and
different budgetary control units. ...............................................................................44
Table 4.5. Budget and budgetary control enhance accountability and responsibility of business
units ............................................................................................................................47
Table 4.6. Promotion of performance measurement serving as basses of performance
measurement of budgetary controls. ..........................................................................49
Table 4.7. Budgetary performance evaluation and its linkage to motivation of employee ...........52

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 Acronyms and Abbreviations
EEU Ethiopian Electric Utility

NGOs Nongovernmental Organizations

ROA Return on Assets

ROI Return on Investments

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 Abstract
This study focuses on the role of budget and budgetary control systems in the effectiveness of
public enterprises, using the case of EEU. The study surveyed 110 experts from the Finance,
procurement, Audit & planning department of EEU, using a census survey method. A mixed
approach method was used, with primary data collected through questionnaires and
interviews, and secondary data obtained through document analysis. The quantitative data
was analyzed using SPSS-version 26, using descriptive statistics. The study found that
budgeting and budgetary control systems play a vital role in aligning operational plans,
resource allocation, risk identification, and progress tracking with the strategic plan. These
systems also have positive effects on responsibility alignment, accountability, transparency,
individual empowerment, and performance management within the organization. The study
also highlights the positive influence of budgetary performance evaluation on employee
motivation. Based on these findings, the study concludes that budget and budgetary control
systems effectively support decision-making, resource allocation, and performance evaluation
within public enterprises. The study recommends that EEU and other public enterprises
recognize the importance of aligning operational plans with the strategic plan, coordinating
activities among different budgetary control units, enhancing accountability and
responsibility, and linking performance evaluation to employee motivation. The study also
suggests integrating budgeting with strategic decision-making, continuous evaluation and
improvement of the budgeting process, and improving the availability and accessibility of
timely and accurate information for budgeting and budgetary control processes.

Key words: budget budgeting budgetary control monitoring and control financial performance

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 CHAPTER ONE
1. INTRODUCTION

This chapter presented the background on the Role of budget and budgetary control system on
the effectiveness of public enterprise the case of Ethiopian electric utility It also highlighted the
problem statement, purpose of the study, research objectives, significance of the study, scope of
the study, definition of terms and organization of the study.

1.1. Background of the study

Across the world, electric utilities have recognized the importance of efficient resource
allocating and financial management to ensure sustainable operations and meet the growing
energy demand (Alhassan et al., 2019; Apergis and Payne, 2019). On the other hand, the
importance of budgeting and budgetary control systems in the energy sector has been widely
recognized. For instance, studies have shown that effective budgeting practices contribute to
improved financial performance and operational efficiency in electric utilities worldwide (Zhu
and Sun, et al 2019). As such, the budgeting practices and budgetary control systems, have been
widely studied and implemented in international energy companies as means to enhance
financial performance, monitor costs, and optimize resource allocation (Niederländer et al.,
2018). Studies conducted in different countries have revealed the benefits of budgeting in terms
of cost reduction, revenue enhancement, and improved decision-making (Niederländer et al.,
2018).

In Africa, the energy sector has undergone significant transformations in recent years.
Governments across the continent have prioritized investment in electricity infrastructure and
adopted reforms to enhance the sector‟s efficiency. Budgeting and budgetary control play a
critical role in managing the financial resources allocated to the energy sector. Research
conducted in the region has emphasized the importance of aligning budgeting practices with
strategic objectives to optimize resource allocation and improve overall performance (Mekonnen
et al., 2020).

In such regards, Ethiopia has made substantial progress in expanding access to electricity via the
Ethiopian Electric Utility (EEU). The EEU is a state-owned enterprise that provides electricity
services to millions of people in Ethiopia, including the Addis Ababa city. The EEU operates in a

1
dynamic global energy landscape that requires efficient and effective management of resources
to meet the growing demand for electricity (Alhassan et al., 2019). As an essential public utility,
it faces various challenges in ensuring effective financial management and operational
performance. Budgeting and budgetary control systems are critical tools for organizations to
manage their resources and achieve their goals.

The main motivation for conducting this study is the need to understand the role of budgeting
and budgetary control systems in the effectiveness of public enterprises, specifically focusing on
the case of EEU. Public enterprises, as essential public utilities, play a crucial role in providing
services to the public, and it is important to ensure their financial management and operational
performance are effective.

Budgeting and budgetary control systems are widely used tools in organizations to allocate
resources, track progress, and align operational plans with strategic goals. However, there is a
lack of research specifically examining the impact of these systems on public enterprises,
especially within the context of EEU.

By conducting this study, aimed to fill this gap in the literature and provide insights into the
specific challenges and benefits of implementing budgeting and budgetary control systems
within a public enterprise like EEU. Understanding the role of these systems can help improve
financial management practices, enhance operational efficiency, and ultimately contribute to the
overall effectiveness of public enterprises.

The findings from this study will not only benefit EEU but also other public enterprises facing
similar challenges. It will provide valuable recommendations for improving budgeting and
budgetary control practices, enhancing accountability and responsibility, and linking
performance evaluation to employee motivation. Ultimately, this research will contribute to the
body of knowledge in the field of public enterprise management and provide practical insights
for organizations seeking to optimize their financial management and operational performance.

1.2. Statement of the Problem

Budgeting and budgetary control play a crucial role in the financial management and operational
performance of electric utilities. However, there is a significant research gap regarding the Roles
of budgeting and budgetary control systems on the effectiveness of the EEU located in Addis

2
Ababa city, Ethiopia. To address this gap, it is important to examine the specific challenges,
practices, and outcomes related to budgeting and budgetary control system within the EEU,
while considering the findings of related studies conducted in similar contexts.

There are plenty of previous studies conducted in the energy sector that has highlighted the
importance of budgeting practices and budgetary control systems for improving financial
performance and operational efficiency. For instance, a study done by Machado, Rossetti and
Lima (2020) revealed that effective budgeting practices positively Impact the financial
performance of electric utilities. Similarly, another study carried out by Netherlander, Hirsch,
Dullinger and Eisl (2018) emphasized on the relationship between budgeting practices and
financial performance in the energy sector.

Despite the international recognition of the importance of budgeting and budgetary control in the
energy sector and the regional efforts to enhance budgeting practices, there is a dearth of
comprehensive research on their Roles specifically within the EEU. Besides, the specific
challenges, practices, and outcomes related to budgeting and budgetary control within the EEU
are not well-documented. This research gap limits the understanding of the challenges, practices,
and outcomes related to budgeting and budgetary control systems within EEU. Consequently,
there is a pressing need to investigate how budgeting practices and budgetary control systems
influence EEU‟s effectiveness in the local context to facilitate evidence-based decision-making
and improve the utility‟s financial and operational performance.

In the local context, Mekonnen, Sharma and Mekonnen (2020) also investigated budgeting and
budgetary control practices in the Ethiopian energy sector. They identified gaps in budgeting
practices and recommended the alignment of budgets with strategic objectives to enhance
financial management and operational performance. Therefore, this study aims to fill the
research gap by investigating Role of Budget and Budgetary Control System on The
Effectiveness of the Enterprise from the view of how far the budget and budgetary control
translate strategic plan in to operational plan, To evaluate how much budget and budgetary
control promote coordination of activities among related and different budgetary control, To
evaluate how budget and budgetary control enhance accountability and responsibility of business
units. To evaluate the promotion of performance measurement serving as basses of performance

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measurement of budgetary control and to examine whether budgetary performance evaluation is
linked to motivation of employee.

1.3. Objective of the Study

1.3.1. General objective of the study

The general objective of this study is to assess the role of budget and budgetary control system
on the effectiveness of public enterprise: the case of Ethiopian electric utility

1.3.2. Specific objectives of the study

1. To assess how far the budget and budgetary control translate strategic plan into
operational plan.
2. To evaluate how much budget and budgetary control promote coordination of
activities among related and different budgetary control units.
3. To evaluate how budget and budgetary control enhance accountability and
responsibility of business units.
4. To evaluate the promotion of performance measurement through budgetary control.
5. To examine whether budgetary performance evaluation is linked to motivation of
employees.

1.4. Research Questions

In conducting this research, to assess the role of budget and budgetary control system on the
effectiveness of public enterprise: the case of Ethiopian electric utility the study will attempt to
answer the following questions:

1. To what extent does budget and budgetary control translate strategic plans into
operational plans?
2. How effective is budget and budgetary control in promoting coordination of activities
among different budgetary control units?
3. How does budget and budgetary control enhance accountability and responsibility of
business units?
4. In what ways does budget and budgetary control promote performance measurement?
5. Is there a link between budgetary performance evaluation and employee motivation?

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1.5. Significance of the study

The aim of this study is to examine Role of budget and budgetary control system on the
effectiveness of public enterprise: a case study of Ethiopian electric utility Specifically, the study
findings may help to implement effective budget and budgetary control system which lied‟s to
overall performance effectiveness of the public enterprise Ethiopian electric utility and this
will have an immense advantage for various stakeholders; managers, Benefiters and policy
makers to form corrective actions and review the budget and budgetary control system more
over this study will contribute for farther study‟s with relevance to Role of budget and budgetary
control system .

1.6. Scope and limitation of the Study

1.6.1. Scope of the study

The scope of this study geographically delimited at the Ethiopian electric utility head office
Conceptually it would be better to study all the various aspects of Role of budget and budgetary
controlling system but because of time and budget constraints this study is delimited on
determining the Role of budget and budgetary control systems on the effectiveness of the public
enterprise. From the view of how far the budget and budgetary control translate strategic plan in
to operational plan, to evaluate how much budget and budgetary control promote coordination of
activities among related and different budgetary control, to evaluate how budget and budgetary
control enhance accountability and responsibility of business units, to evaluate the promotion of
performance measurement serving as basses of performance measurement of budgetary control
and to examine weather budgetary performance evaluation is linked to motivation of employee.

1.6.2. Methodological Limitation

Since the researcher were a civil servant in EEU and in duty with in working hours in the public
enterprises during this study there was high shortage of time in collecting, organizing and
analyzing relevant data from different sources but because of shortage of time the researcher
could not fatherly study. However the researcher by providing all after work time to this study
with commitment solved the limitation.
Moreover, the researcher also not realize the survey from another viable perspective for example
why Ethiopian road construction authority and EEU public enterprises must agree and work

5
together when the road is constructed, but in case of our country practically there is no
agreement between them; so because of time limitation the researcher were not fatherly study
these deficiencies need future researchers to revise their specific method for collecting data that
includes this missing elements.
Some organizations do not even acknowledge the link between budgetary control and
performance and this influences their functions negatively. Different organizations varying from
small scale businesses to large scale businesses fall short to identify the power of budgets and
budgetary control over functioning results. These organizations move without concentrating
more attention to enhancing their performances via their budgets. According to Mohammed
(2013) managing public expenditure allocation in developing countries is becoming difficult task
as the roles of the government have been expanded and financial resources are in scarce supply
to meet this ever-increasing social needs and population growth.

Due to inadequate financial resources as opposed to an increasing demand for public service,
there is a need to improve resource allocation through proper economic policy and expenditure
planning. Additionally, there were inefficiencies in budget implementation due to problems of
experienced man power, application of policy and procedures, lack of monitoring budget timely.

Similarly, Yesuf (2015) studied the practice of budgeting and budget monitoring as a
management tool for managing variances in non-governmental organizations operating in
Ethiopia. According to the result, the overall budgeting system in the sample organizations
misses the important participation of concerned staffs.

1.7. Definitions of Terms

A budget is a financial statement that is prepared and approved prior to a defined period. It
serves as a guide and sets forth a plan of action for achieving specific objectives during that
period. It is a predetermined statement of managerial policy that provides a standard for
comparison with the actual results achieved. By comparing the actual results with the budgeted
ones, managers can assess the effectiveness of their actions and make necessary adjustments.

Budgetary control refers to the implementation of budgets that are aligned with the
responsibilities of executives and the requirements of a policy. It involves continuously
comparing the actual results with the budgeted ones, with the purpose of either taking individual
actions to achieve the objectives of the policy or revising the policy based on the results

6
obtained. Budgetary control provides a framework for monitoring and controlling financial
activities to ensure that they align with the organization's objectives.

Firm performance is the process through which organizations align their resources, systems, and
employees to strategic objectives and priorities. It involves activities that ensure that the goals
and objectives of the organization are consistently being met in an effective and efficient
manner. Firm performance entails the allocation of resources, the implementation of systems and
processes, and the management of employees in a way that contributes to the achievement of the
organization's strategic objectives. By focusing on firm performance, organizations can enhance
their competitiveness and achieve sustainable growth.

A public enterprise is a business organization that is wholly or partially owned by the state and is
controlled through a public authority. It operates in sectors that are considered to be of public
interest, such as transportation, healthcare, and energy. Public enterprises are subject to specific
regulations and oversight, as they have a responsibility to serve the public and ensure the
provision of essential services. The control exerted by the public authority aims to balance the
public interest with the efficiency and profitability of the enterprise.

1.8. Organization of the study

The study is organized in five chapters, the first chapter presents introduction, brief statements
on the research problem, general and specific objective‟s, research questions, the importance of
the study, the scope and organization of the study. Chapter two presents review of related
literature. Chapter three describes the research approach, design and methodology to
be employed in the study Data analysis, results, discussion and explanation of the study is
presented in the fourth Chapter and Chapter five presents conclusions and recommendations.

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 CHAPTER TWO
REVIEW OF RELATED LITERATURE

This chapter present literature review on previous studies on the Role of budget and budgetary
control system on the effectiveness of public enterprise this section of the study contains the
various budget and budgetary control systems theories, Role of budgetary control ,the link
between budgetary control and firm performance, furthermore all the sections attempted to
address the specific objectives and fulfill the general objective of the study although this chapter
contains empirical findings of previous studies on Role of budget and budgetary control system
and conceptual framework of the study finally, this chapter ends with summary of the literature
review

2.1. Theoretical Literature Review

2.1.1. Meaning of Budget

A budget is a spending plan based on income and expenses. In other words, it's an estimate of
how much money you'll make and spend over a certain period of time, such as a month or year.
(Or, if you're accounting for the incoming and outgoing money of everyone in your household,
that's a family budget (Achim, 2009).

The word budgeting defines as “the processing allocating budget of an organization's financial
resource to its units, activities and investments” (Blumentritt, 2006), while (Horngren et al.,
2004), sees budgets as the quantitative expression of proposing plan of action by managements
for a specified periods and an aid to coordinate what need to be done to implements that plan.
Rigorous plan of any economic activities is an essentially elements for the success of that
activity. Without planning the activities of any economic entity would detach from surround
reality the capacity for provision and plan of any activities in a market economy condition
assures the survival and development of this activity (Achim, 2009).

According to Muhammed (2013) budget is centrals to the processing of plan and controls which
are major activity of managements in all organization. It is seen as documents which predict
revenue and expenditure of a particularly economic entity, for a specified period (Ahmed,
Suleiman and Alwi 2003). Budget is based on estimates; it may or may not be true. It is not
substitutes of managements because; the efficiency and utility of the budgetary system depend

8
on the skills and experiences of the management. It cannot be executed automatically because
continuous effort is necessary for the executions of the budgets. This makes organizational
manager to focus more on managements issues than on budgetary control (Surajkumar, 2011).

2.1.2. Objectives of Budgeting

Budget has always played key roles in managing institutions, both privates and publics, being
important control systems in many companies (Ekholm and Wallin, 2000, Merchant and Van
Der Stede, 2003). The major objectives of budgeting are to keep controls of the activity
done in an organization by providing a road map for futures activities and setting a series of
goals to be achieved and the means to achieves them (Abdel-Kader and Luther, 2006).

Therefore, the management‟s efficiency can be appreciated by the achievements of predefined

objectives and the means used to their achievements. Manager is responsible for the realizations
of the indicators within their budget and for any variance from the estimated values, cases in
which they are required to take remedial action. Budget are used by managements for different
uses (Riley, 2012) to control incomes and expenditures, establish priority and set targets in
numerical term, provide direction and coordination, so that business objective can be turned into
practically reality, assign responsibility to budget holders or managers and allocate resources,
communicates target from management to employees, motivate staff, improve efficiency, and
monitor performance.

According to Achim (2009) budgeting purposes or budget functions are planning operation that
ensures the companies‟ strategic objective‟s realization. Budgeting process stimulates manager
to predict the entire problem before their appearance and thereby avoid making hasty decision in
the event of certain undesirable situations in the future. We can say that budget “guarantees” that
they will plan future operations depending on how it was accomplished. The previous budget,
taking into accounts all the factor that have influence on change regarding previous budget
indicator, Coordinating various activities of different types of sub-divisions, Coordination of
each employee, and group‟s interest. Each sub-division of an economic entity has its own
objectives and this can lead to situations in which these goals are contradictory in relation to
other responsibility centers. So, the budgets have the role to reconciles and regulate this
contradiction in favors of the economics entities so that this situation can be prevented.
Stimulation of manager from all business level to achieve predetermine goal of each

9
responsibilities center. This budget feature strongly manifests in case of participative budgeting
when responsibility center manager can propose various quantitative indicators. Therefore, the
budget‟s indicator is indicator not forced to realize from the centers but settled by
mutual agreements with the managements of each responsibilities center. Controls of currents
activity, ensuring discipline according to the business plans. Carefully drafting of budget ensures
the optimums standard to compares undertaken activities achievement, to determine deviation
and to take measure to eliminate them. The evaluations of plan fulfillment by each
responsibilities centers and their manager; managements performance can be appreciated by
compare the result with those expected to be achieved; and training managers & other employees
from financial services of a company.

2.1.3. Importance of Budgeting

There were conducts a lot of researches regarding the roles and the importance of budget within
a company. Different author evidences the facts that budget are the most used tools for plan and
control within company in both developed and developing country (Dugdale and Lyne, 2006).
Others benefit of budget such as prevent information asymmetry between top manager and
lower-level manager, enhancing employees work attitudes, providing motivations to department
and committees head and resulting in a greater levels of goal commitment by lower-level
manager (Oak and Schmidgall 2009).

According to Uyar and Bilgin (2011) the reasons for budgeting, in the order of their importance
are control expenses, increase profitability, aid long-term planning, coordinate the operation, aid
short-term planning, evaluate performance, motivate managers, and motivate employees and
communicate plans with employ.

2.1.4. Advantage of Budgeting

Budgeting is an essentials part of the planning process of a business, but budgets also form an
essentials part of the control process. According to Achim (2009a) budget are considered to be
extremely beneficial to company. The usages of budget have a number of advantage such as:
require the use of planning in business managements; represent the frameworks for assessing
performances due to indicated parameter that the companies need to realizes in order to achieves
the objective; promote communications and coordination for engagements and balancing all
department and function of the company in orders to achieves its set objective; undertakes

10
responsibilities center manager to foresee the consequence of decision made or to be taken,
budgets representing a landmark in decision-making, managements need to intervene only in
situation where there are deviation from budgeted indicators; ensure participation in the planning
activities of both managements and performers that drives involvements in achieving or
exceeding budgeted indicators.

2.1.5. Limitation of Budgeting

We should also consider the criticisms mentioned by different authors regarding the process of
budgeting. The most mentioned “black ball” of the budgets is about the time consumed with this
activity (Wu et al., 2007). Some authors consider as a problem for budgeting the way budget are
used (Horngren at al., 2006). While others sustain the idea that budget process are fundamentally
flawed (Hope and Fraser, 2003a).

With all this criticism the majority of economic entities continue to use budgets in order to
control the realization of establish objectives. This means that budgets, if they are used
appropriately and adapted to a company‟s needs can be a tool for obtaining value added. The key
for this is to implement practices that generate commitment to budgets, adopting clear
procedures to prepare budgets, creating linkages to connect the budget with the company‟s
strategy and analyzing budget variances and taking corrective action. To this we can add the
clear definition of managerial responsibilities, drawing up a plan of action for each individual
budget and continuous monitoring of performance. The response to all criticism of budgets is
found in the multiple roles of budgets that combined can enhance performance (Uyar and Bilgin,
2011).

2.1.6. Types of Budgets

Different types of budgets have been developed keeping in views the different purposes.
Some of the important classification of the budgets is discussed below.

2.1.6.1. Classification According to Time

Types of budgets vary based on their intended purposes. One way to classify budgets is by their
timeframe. Three main types of budgets are categorized based on time: long-term budgets, short-
term budgets, and current budgets. Long-term budgets outline the organization's plans for the
long run, typically spanning five to ten years. Examples of long-term budgets include capital

11
expenditure budgets, research and development budgets, and long-term financing plans. Short-
term budgets, on the other hand, are prepared for a shorter period of one or two years. These
budgets may include cash budgets and material budgets, among others. Current budgets are
designed for very short periods, such as a month or a quarter, and are adjusted to reflect current
conditions. (Palanivelu 2009).

2.1.6.2. Classification According to Functionality

Functional budgets are budgets which relate to any the function of an organization. The
following are functional budgets commonly used as:
Sales Budgets: According to Paresh (2010), the sales budget is the foundation on which all the
other functional budgets are built, especially in the case of the consumer products industry. The
sales managers are directly responsible for the preparation and execution of the sales budget.
Kamukama Nikon (2008) states that sales budgets indicate the intended amounts and sales in
units and value that the company plans to achieve in the coming period. This budget must be
prepared before any other budget, as it forms the foundation of all other budgets.
Production Budget: The purpose of production budget is to ensure the availabilities of finished
goods to meet the demands of the sales department. A well planned and properly coordinated
program of production is helpful to management in exercising the control necessary to ensure the
proper implementation of the whole budget of program. The production budget tends to ensure
the production of finished goods in quantities sufficient to meet the requirements of the sales
budget without the accumulation of excessive inventories (Paresh, 2010).
Cash or Financial Budget: Paresh (2010) the objective of this budget is to show the flow of
funds and their requirement. It takes into accounts the amount received from sales cash sales and
payment received from debtors as also on account of other financial arrangement made and the
payment to be made in cash of both capital and revenue nature. It provides information on the
probable profits to be realized during the budgets period and assist the management in making
long- term plans for the continuing success of business. In other words, the budget shows
weather the arrangement should be made for over draft, loans, and etc it is also called ways and
means budget According to LarryM. (2010) financial budgets are a company must assess
financing need, including evaluations of potentials cash shortage these tools enable companies to
meet with lenders and demonstrate why and when additional support may be needed.

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Selling and Distributions Cost Budget: The selling and distributions cost budget is a forecast
of the costs of selling and distributing the goods during the budget period. The budget is
generally based upon the sales volume as per sales budget. However, certain other related
information should also be taken into considerations in the preparations of selling and
distribution cost budget. The preparations of the selling and distribution cost budget are the
responsibility of the sales manager. However, they will be assisted in this work by the
advertising manager and the accountant (Paresh 2010).
Purchase Budget: According to Paresh (2010) this budget provides details of the purchases
which must be made during the period to meet the needs of business. A number of factors must
be considered in preparing this budget, including the opening and closing stocks, internal
manufacture, purchase orders planned before the budget period, maximums and minimums stock
quantities. Purchase budgets are essential as they enable the purchase department to plan the
purchases in advance in order to take advantage of long-term contracts. It also serves as a guide
for timely provision of funds for purchasing and stocking of needed raw materials, components,
consumable stores. If materials consumption based on productions budgets is prepared, the
purchase budgets can be prepared by adding the closing stocks and deducting the opening
stocks of materials. Arora M. (2006) purchase budget is budget assigned to be prepared by the
procurement managers of the organization. It also serves as control device and as a means of
measuring efficiency of purchases.
Personal Budget: A personal budget incorporates the requirements or direct labor and indirect
labor to carry out the budget plan as lay dawn by the sales, manufacturing, maintenance, research
& development and capital expenditure budgets. Main objectives of the personnel budgets are as
follows; efficient personnel management; minimizations of labor turn over; measurement and
stabilization of the ration between direct labor and indirect labors; provision of a suitable
yardstick against which the actual labor force may be compared and controlled (Paresh, 2010).
Plant Utilization Budget: Plant utilization budget is a forecast of plant capacities available for
future production requirements as specified in the production budget. These budgets are
expressed in labor or machine working hour or other convenient units. The following are the
main functions of this budget; it indicates the budget machine hour utilization both locally or
department wise, machines or groups of machines; over leading on some departments, machine
or group of machines, so that alterative course of action like overtime working, sub-contracting,

13
extension of plant can be taken; it shows under loading of some departments (Paresh, 2010).
Research and Developments Cost Budget: Research and developments cost budgets is a
forecast the research and development cost to be incurred with in a budget period. Such expenses
must have prior approval of the management and should be governed by the business objectives.
Research costs are incurred for finding out new products, techniques and methods of production
and for achieving improvement in them (Paresh, 2010).
Capital Expenditure Budgets: Paresh (2010) capital expenditure budget is a forecast of the cost
of assets to be procured usually on the basis of the asset‟s requirement budget. The latter is
developed from the production budget after taking into consideration the availability production
capacities, probable reallocation of the existing assets and possible improvement in the
production technique. The budget may be split up into different projects in case of costly assets
or into groups of assets of identical nature. Separates budget may be prepared for different item
of assets such as building, plant and equipment, transport machineries. In the preparation of the
budget, the following factors may be given due consideration; whether the requirement is for a
long or a short period; whether the existing assets need replacement by identical or improved
assets; whether adequate financial resources are available to fulfill the requirements; the period
of delay in acquiring the assets; the alternative means of satisfying production requirements.
Larry M. (2010) described the capital budgets are budgets that reveal the need for capital
expenditure relating to new facilities and equipment. These longer-term expenditures decision
must be evaluated logically to determine whether investments can be justified and what rate and
durations of payback is likely to occur.
Master Budget: According to Paresh (2010) the master budgets is a summary budget of the
functional budgets. Master budgets are the blueprint showing the proposed activity and the
anticipated financial results during the coming year. Before the budget plant is put into over
action, the master budgets is considered by the top management and revised if the position of
profit disclosed there is not found to be satisfactory. After making suitable revisions, the master
budgets is finally approved and put into action. Garrison (2005), master budget is a primary
budget in corporations‟ functional budgets. Master budgets are prepared by the budget officers
and it remains with the top-level managements. Master budgets are the products that consist of
all individual budgets.

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2.1.6.3. Classification According to Flexible Factor

Fixed or Static Budget: Carl (2005) defines a fixed budget as a budget that reflects the
anticipated outcomes of a responsibility center at a specific activity level. Unlike a flexible
budget, a fixed budget remains unchanged even if activities or production volumes change. This
budgeting approach is commonly employed by many companies, as well as for administrative
functions in manufacturing firms like purchasing, engineering, and accounting. Richard (2006)
supports this idea, stating that a fixed budget remains constant throughout a given period and is
not adjusted based on changes in production volumes or activity levels. Typically, fixed budgets
pertain to expenses of a fixed nature.

Flexible or Variable Budget: Unlike fixed budgets, flexible budgets, as described by Carl
(2005), display the anticipated outcomes of a responsibility center across various levels of
activity. These budgets are particularly valuable in estimating and managing factory costs and
operating expenses. Similarly, Richard (2006) defines flexible budgets as budgets that are
designed to adjust accordingly with changes in output volumes. Sometimes referred to as slide
scale budgets, flexible budgets offer cost or expense schedules that highlight how each element
should vary in line with variations in activity levels.

2.2. Budgeting Process and Preparation

Budgeting is the process of identify, gather, summarize and communicate financials and non-
financial information about organizations future activities. It is an essential part of the
continuous planning an organization must do to accomplish its long-term goals; each person
chain of communication in developing a budget as well as in implementing it. Individuals feel
they have a voice in setting the budget targets, they will feel personally motivated to ensures that
their departments attain those targets and stay within the budget. The key to a successful budget
is therefore, participating budgeting a process in which personnel at all level of an organization
activity engage in making decisions about the budget (Belverd 2005).

Budgeting provides standard for evaluating performances can affects the attitude of employee
evaluated by them. It can be used to create a positive effect on employee‟s attitudes, but it can
also create negative effects if not properly applied. The budget processes have three important
guidelines. First, employee affected by budgets should be consulted when it is prepared or
participatory budgeting. Second, goals reflected in budgets should be attainable. Third,

15
evaluation should be made careful with opportunity to explain any failure. Budgeting can be a
positive motivating force when these guidelines are followed (John, 2007). In developing the
budgets, each level of managements should be involved to participate. The advantage of
participate budgeting are first, that lower-level manager has more detailed knowledge‟s of their
specific areas and thus are able to provides more accurate budgetary estimate. Second, when
lower-level manager participates in the budget process, they are more likely to perceive the
resulting budgets as fair. The overall goals are to reach agreements on budgets that manager
considers fair and achievable, but which also meet the corporate goals sets by top managements.
When these goals are met, the budgets will provide positive motivations for managers. In
contrasts, if the manager views the budgets as being unfair and unrealistic, they may feel
discourage and uncommitted to budget goals. The risks of having unrealistic budgets are
generally greater when the budget is developed from top management down the lower
management than vice versa (Jerry, 2008).

According to Pauline (2003), the principal stages of the budgeting process sequences are
communicated the detail of objectives and strategy to those responsible for preparation of
budgets; Communicate the details of budget preparation procedures to those responsible for
preparation of budgets; Determine the limiting factor which restricts overall budget flexibility
and forms the focus of budget cascade; Prepare an initial set of budgets; Negotiate budgets with
line managers; Accept budgets in final form. Coordinate and review budgets. And carry out
ongoing review of budgets as they are implemented.

Budgeting is an outcome cooperative of activities. In the smallest organizations, the task of

budget preparation may be entrusted to the accountant. But, in larger concerns the budgets
should be prepared by each departmental functional manager and not by the accounts
department. A budget committee is constituted, consisting of the departmental heads and headed
by an experienced officer, who may be designated as the budget officer that is normally the
Finance in Charge or General Manager. It is the functions of the Budget Committee to receive
and approve all forecasts, of departmental budgets and submits periodic reports showing
comparison of actual and budget. The budget committee may also carry out special studies of
deviations from the budget and consider a revision of budget to meet changed business
conditions (Paresh, 2010).

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The budget process has to be administered effectively in term of plan, final approvals and
subsequent monitoring of implementations. A budget committee is usually formed to manage
each stage of the budgetary process. The budget preparation procedures will need to be set out in
a manual which is available to all participants. A continuing cycle evolve in which initials budget
are prepared, negotiation take places with line manager, the initial budget, are revised the final
budgets is accepted and later on, there is a review of actual and budgeted performance (Pauline,
2003).

2.2.1. Budget Implementation

Budgetary implementation is a guiding line that articulates how enterprises or self-perpetuating

funds are to be supported, how inter-fund borrowing and payment are to be made, how
accountability is to be maintained for balancing expenditure with appropriation, and the required
standards that will govern accounting reporting and auditing (Jerome, 2004). According to Allen
(2004), good budget implementation involves a realistic budget that is implemented with few
significant deviations from plans, a low level of corruption in public expenditure, high
transparency in public finance, public funds being spent for authorized public purposes, reported
expenditure corresponding to actual expenditure, reliable external and/or internal controls,
spending units having reasonable certainty about the funds that will be available, and a
managerial culture that promotes compliance with formal rules. There are common problems in
implementing the budget, such as the approved budget being unrealistic, resulting in actual
spending being less than the authorized budget. There may be extra-budgetary funds outside the
budget process that are hoarded by spending units, leading to extreme uncertainty concerning
available resources and irregular monthly or quarterly allotments. Additionally, funds may be
diverted to unauthorized purposes or private accounts, and there may be significant arrears that
are not included in financial statements, causing a significant discrepancy between actual and
reported expenditure for certain activities. An efficient budget implementation should verify that
payments are made on time and according to the budgets and cash plan, without additional
prioritization. The use of modern technology should make it possible to reconcile the need to
decentralize controls for efficiency with the need to centralize data on budget execution for
expenditure control (OECD, 1997).

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2.2.2. Budget Utilization

According to Allen and Tommasi (2001), successful budget utilization depends on numerous
factors. These factors include the ability to deal with changes in the macroeconomic environment
and the implementation capacities of the company concerned. Additionally, the budget system
should assure effective expenditure control. To begin with, a realistic budget is essential, and a
good budget utilization system should have a complete budgetary or appropriation accounting
system. The budget utilization system must ensure not only accurate aggregate expenditure
control but also efficient and effective use of resources in accordance with budget priorities. It is
crucial for the procedure to be appropriately balanced in order to avoid conflicts between these
objectives. Moreover, according to Tommasi (2007), budget utilization is the phase where
resources are used to implement policies incorporated in the budget.

2.2.3. Budgetary Slack

Budgetary slack is building into budgetary estimates of allowance over and above that necessary
to achieve a given objectives such as include under optimistic sales target and overestimated
expense level (Duncan, 1996).

According to Carl (2005), undesirable to plan lower goals than may be possible. Such budget
“padding” is termed as budgetary slack. Managers may plan slack in the budget in order to
provide for unexpected event or improve the appearance of operations. Budgetary slacks can be
avoiding it lower and middle level manager are required to support their spending requirement
with operational plans. Slack budget can cause employees to develop a “spend it or lose it”
mentality. This often occurs at the end of the budget period when actual spending is less than
budget. Employees may attempt to spend the remaining budget in order to avoid having the
budget cut next period.

2.2.4. Revision of Budgeting

Formal revision to the budget by the government during the fiscal year usually in response to a
change in budget conditions or the adopted budget was unrealistic (Allen, 2004).It is difficult to
make accurate forecasts for the implementation of certain programs or for developments in
economic parameters such as inflation, interest rate or exchange rates. Some immediate needs
that were not foreseen during budget execution may appear during budget execution. To limits

18
the effect of these problem, rules for transfer must be flexible; appropriation for debt services
cannot be a spending limits and should be revised according to development in interest rates or
the exchange rate contingency reserves may be included in the budget. However, their amount
must account for only one up to three percent of the total budget; otherwise, budget execution
will involve bargaining the uses of reserves and the budget will become an allocation of reserves
(OECD, 1997).

2.2.5. Budget Variance

Budget variance is the differences between budget amounts with actual amount. When the
variance is significance them in terms of being adverse and favorable, we should emphasis the
point that the level of significance applies to both positive and negative feedback scenarios.
Favorable variance impressions are good while adverse variances are bad. The level of
significance must be investigated and acted up on as necessary (Duncan, 1996).

Standard costs are preset costs for delivering a products or services under normal conditions.
When the actual cost variance from standard costs, management follow-up to identify potential
problems and take corrective actions. Cost variance is the differences between actual and
standard cost. A cost variance can be favorable or unfavorable. A variance from standard cost is
considered favorable if actual cost is less than standard cost. It is considered unfavorable if actual
cost is more than standard cost (John, 2007).

2.2.6. Budgetary Control

Bartle (2008) indicates that budgets today provide a focus for the organization, aid in the
coordination of activities and facilitates control. Through budgeting, at both management level
and operation level looks at the future and lays down what has to be achieved. Control checks
whether the plans are being realized and put into effect corrective measures, where deviation or
short-fall is occurring. Bartle emphasized that without effective controls, an enterprise was at the
forgiveness of internal and external forces that can disrupt its efficiency, and be unaware; such
enterprise will not be able to warfare such forces. When a budgeting and control system is in
use, budgets are established which set out in financial terms, the responsibility of managers in
relation to the requirement of the overall policy of the company. Continuous comparison is made
between the actual and budgeted results, which are intended to either secure, thorough action of
managers, the objectives of policy or to even provide a basis for policy revision. Budgetary

19
controls refer to the principles, procedures and practices of achieving given objectives through
budgets. The budgetary control system helps in fixing the goals for the organization as a whole
and concerted efforts made for its achievements (Scarlett, 2008).

According to Paresh (2010), budgetary control is planned to help the management in the
allotment of responsibility and authority, to assist in preparation of estimates and plans for the
future, to help for the analysis of the variance between budgeted and actual results and to
develop the basis of measurement of operation of standards with which the efficiency of
operation can be assessed. The budgetary control involves the following steps: preparation of
budgets for each center pertaining to the individual responsibilities; actual performance
measurement; comparison of actual and budgeted performance to ascertain the deviation as
variances; and analysis of the cause of variance and reporting the same to motivation the right
people to take the right action at the right time.

An evaluation assists management in identifying problems and taking corrective action if

necessary. Evaluation using expected or budgeted performance is potentially superior to using
performance to decide whether actual results trigger a need to corrective action. This is because
past performance fails to consider several changes that can affect current and future activities.
Changes in economic conditions shifts in competitive advantages within the industry new
product development increased or decreased advertising and other factors reduce usefulness of
comparison with past results. In hi-tech industries, for instance, increasing competition,
technological advances and other innovation often reduce the usefulness of performance
comparisons across years. Budget performance is computed after careful analysis and
investigates that attempts to anticipate and adjust for changes in important company and
economic factors. Therefore, budgets usually provide management an effective control and
monitoring systems. Budget uses standards for evaluating performance and can affect the
attitudes of employees evaluated by them. It can be used to create a positive effect on
employee‟s attitudes. It can also create negative effects if not properly applied (John, 2007).

2.2.7. Benefit of Budgetary Control

It enables economies in the enterprises (Preetabh, 2010), highlighted the benefits of budgetary
controls as profit maximization; a budgetary control aims at maximizations of profit or an
organization through, proper plan and coordination of different function, proper control over

20
various capital and revenues expenditures and putting resources into best use. Coordination;
achieved through working of different departments and sectors (Waren, 2011) noted that within
an organization, different departments have a bearing on one another, this therefore makes
coordination of various executive and subordinates necessary in achieving of budgetary
targets. Other budgetary benefit as indicated by (Preetabh, 2010) include: Specific times aims;
the plans, policies and goals are decided by the top managements. All effort is put together to
reach the common goals of the organizations. Every department is givens a target to be achieved.
The efforts are directed towards achieving come specific aims. If there is no definite aim then the
efforts will be wasted in pursuing different aims. As a tool for measuring performance, budgetary
controls provide comparisons between the budget targets and actual targets and deviation
determined; performance of each department is reported to the top management which enables
introduction of management by exception (Margah, 2005) assert that budgetary controls are
important tools for a county‟s economy. This is because it allows planning for expenditure thus
facilitating systematic spending. Finances are put into optimum use, extending the benefits to
industry and national economy. This reduces wastage of national resources.

A budgetary control could help in determination of organizational weakness. According to

Merika (2008), the deviations in budgeted and actual performance will an able the determination
of weak spots. This enables an organization to concentrate on those aspects where performance is
less than stipulated. The management moreover takes a corrective action measure whenever there
is a discrepancy in performance. By fixing targets for the employees, they are made conscious of
their responsibility. Everybody knows what is expected to do and continues with his work
uninterrupted.

According to David (2004) budgetary control therefore provides a means of measuring and
evaluating performance for each individual activity with the business as a means of controlling
the overall performance of the business. Therefore, budgeting can be seen to be an essential part
of planning and control processes within an organization. As such it has the following benefit are
it provides a formal way in which the objectives of the organization and its long-term plan can be
translated into specific plan and tasks. The providing clear guide lines to managers regarding
current operations. It facilitates the comparisons and selection between alternatives course of
actions and their evaluation. It provides a means of communicating organizational plans to all
members of the organization. Constraints up on production capability are highlighted or

21
limiting factors. Preparing budgets provides an opportunity to review operations and revise if
necessary. And performance at all level of organization can be measured and evaluated against
an accepted standard of the budgeted plan.

Achim, (2009a) the most important advantages of budget execution control are useful to
managers at different hierarchical levels because it is a daily guide for their activity; allows
senior management to achieve a synthesis analysis of the business‟ activity which allows it to
objectively assess low-level managers work; allow the knowledge of the meanings and
importance of deviations in comparisons with forecasts, that leads to increased efficiency in key
areas of economics managements of the entity; enhances coordination of activities carried out in
different functions of the company, allowing decentralization of responsibilities; and leads to
technical and economical updating where necessary.

2.2.8. Challenges Affecting Budgetary Control

Neely (2001) carried out a study on weaknesses of budgetary controls. The study was primarily
based on review of empirical literature from similar studies. Neely‟s finding-maintained
weaknesses of budgetary control systems which poses a challenge in the use of the systems.
These weaknesses included restraining of responsiveness and acting as barriers to change,
budgets are rarely strategically focused and often contradictory, they add little value especially
given the time required to prepare them, they concentrate on cost reduction and not value
addition, they strengthen vertical command and control, they do not reflect emerging network
structure that organizations are adopting, they encourage gaming and perverse behaviors, they
reinforce departmental barriers rather than encourage knowledge sharing and make people feel
undervalued.

According to Prendergast (2002) claimed that budgeting for planning and control purposes have
a number of problems. A lot of problem focusing is involved in the budgeting process; the
uncertainties in business environment may provide a challenge in bringing out reliable and
accurate predictions and could bring meaningful effect to an organization. A study on
challenges facing budgetary control systems in developed. Countries by (OECD, 2007)
showed that budgets fail due to reasons such as budgets used as pressure tool, central decision-
making process, lack of job security and managers‟ lack of training.

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2.2.9. Installation of Effective Budgetary Control

The purpose of a budget system is to serve the need of management in respect of judgments and
decision it is required to make and to provide a basis for the management function of planning
and control (Pauline, 2003). The organization which has to achieve an effective system of
budgetary control will need the following steps:

A. Organizational Chart

According to Palanivelu (2009) a concern must have a well-defined organization chart for
budgetary control. It is essential in order to have clear determination of authority and
responsibility of each individual. Determination of authorities helps to minimizes conflict among
the personnel. Richard (2006) the organization chart was depends and the nature and size to the
company and the extent of the control desired.

B. Budget Centre

Budget center is a part of the organization for which budget is prepared to cover entire
operational activates of the organization. It is necessary for cost control purpose. With the help of
the different budget centers performance should be evaluated in an easy manner (Palanivelu,
2009). Chartered institution of management accountant has defined a budget center as a section
of an organizing for which separate budget can be prepared and central exercised. An
organization can have divided into several segments; which are clearly defined for the purpose of
budgetary control accruing to responsibilities of departmental heads (Richard, 2006).

C. Budget Committee

According to Plaintively (2009) budget committee should be established for the purpose of
incorporation and executions of plans in small organizations either the cost accountant or
chartered accountant prepares the budget. The committee consists of various section heads, the
chief executive and the budget controller. The ultimate aim of budget committee is to prepare a
master budget with the help of the department wise budget which has already been prepared by
the departmental executives. According to Richard (2006), in small concern, a budget office or
the chief accountant prepare the budget and coordinates all the work involved. In large concerns
budget committee is formed consisting at chief executive, budget officer, and budget central
example: sole manager, purchase manager, production manager, chief accountant standard, and

23
quality control manager etc. The decision of this committee becomes binding on others and
directly responsible to the chief execute and acts as a secretary at the budget committee.

D. Budget Manual

It is a written document which sets out the authorities and responsibilities of persons engaged in
regular operational activities. It clearly lays down objectives of the organization and the
procedure to be followed by the executives concerned. It is the responsibility of budget officer to
prepare and maintain this manual (Plaintively, 2009). Chartered institution of management
accountant a budget manual is a document which sets out the responsible of the person engaged
in the routine of and the forms and records required for budgetary control (Burkhead, 2005).

2.2.10. Budget Report and Computerized Budgeting Systems

Budget reports contain relevant information that compares actual results to planned activities.
This comparison is motivated by need to both monitor performance and control activities. Budget
reports are sometimes viewed as progress reports or report cards on management‟s performance
in achieving planned objectives. These reports can be prepared at any time and for any period.
Three common periods for a budget report are a months, quarter and year (John, 2007). After
developing budgets, many firms use computerized budgeting systems. Such systems speed up
and reduce the cost of preparing the budget. This is especially true when large quantities of data
need to be processed. Computers are also useful in continuous budgeting. Reports that compare
actual results with amount budgeted can also be prepared on a timely basis through the use of
computerized system (Carl, 2005).

According to Jerry, (2008) the use of budget reports is based on the belief that planned objectives
lose much of their potential value without some monitoring of progress along the well. Budget
reports provide management with feedback on operation. The feedback for a crucial objective,
such as having meeting budgeted annual sales and operating expenses, monthly budget reports
may suffice. Budget reports are prepared as frequently as needed. From these reports
management analyzes any differences between actual and planned results and determines their
causes, management then takes corrective action or it decides to modify future plans.

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2.2.11. Relationship between Budgetary Control and Firms Financial Performance

Financial performance simply means an attempt by a business organization to maximize profits.

Technically, however, the term refers to the process of measuring a firm‟s outcome in monetary
terms. Financial performance is used to gauge an organization‟s overall performance over a
given period or compare the performance of similar businesses within an industry either in
isolation or in aggregation.

Financial performance can be measured using three indicators namely; internal based
performance measures such as Return on Assets (ROA) and Return on Investments (ROI),
market-based performance measures such as Tobin‟s Q model computed as Price/Equity‟s Book
Value, sales and market share and lastly, shareholders return measured in terms of total
shareholder return or economic value added. For purposes of this study, Return on Assets
(ROA) will be used as a measure of performance. Reason being, ROA is a better measure of a
firm‟s financial performance since it gives a clear picture of the extent by which a firm utilizes
its assets to make profit as opposed to simply showing healthy return on sales (Akeem, Terer,
Kinyanjui and Kayode, 2014). The other ratio to be used is the Gross Profit Margin.

Financial performance of a firm can be presented in three ways namely: as a measure of the
market which reflects stakeholders‟ level of satisfaction in the market, as an accounting measure
reflecting business efficiency level and as surveys depicting estimated financial performance
(Javed, Younas and Imran, 2014). Therefore, as argued by Iavorskyi (2013),

Financial performance assists various stakeholders in the business to answer the following two
fundamental questions: What is the organization‟s financial position now? How is the firm‟s
financial performance over a given period? These questions are answered by utilizing the firm‟s
financial statements through a process called financial analysis. According to Pradeepan (2011),
financial statements entail a set of data, that is usually analyzed using certain accounting
procedures with a view to conveying certain financial characteristics of an organization.

Financial performance analysis incorporates interpretation of financial statements with the aim
of establishing the financial soundness a firm (Osuji and Odita, 2012). Financial performance
often scrutinizes a firm‟s performance in terms of productivity in general. Such generalization
comprises total business performance measured in terms of a firm‟s overall liquidity,
profitability, fixed asset performance, working capital management, cash flow performance as

25
well as social performance. Thus, liquidity performance indicators may be used by creditors to
gauge a firm‟s creditworthiness for purposes of investing in it. Likewise, cash flow performance
may be useful to shareholders since they can be used to gauge a firm‟s future growth prospects
(Nasimi, 2016).

2.2.12 Budget and budgetary control & translation strategic plan into operational
plan

According to Kenno et al. (2018), budgeting is an essential aspect for most organizations.
However, managers and researchers have significantly deviated from the original purpose of
budgeting, which was to establish a methodology for allocating expenses (Key, 1940). Numerous
studies have explored various perspectives to explain this deviation, focusing on the procedural,
realistic, actionable, and achievable aspects of budgeting. These perspectives encompass three
major theoretical frameworks: economic, psychological, and sociological. From an economic
standpoint, budgeting is based on the assumption of rational individual behavior and aims to
identify problems and provide solutions that reflect real-world scenarios. Psychological theories,
on the other hand, examine how budgeting affects and is influenced by factors such as individual
motivation. Lastly, sociological theories offer insights into organizations and their interaction
with the external environment, shedding light on how individuals within those organizations
react and interact.
According to Blumentritt et al. (2006), the strategic plan has a long history within organizations
and continues to be one of the most prevalent management tools. It is primarily defined as a
systematic approach to strategy development and described as a process that includes activities
such as periodic evaluation of performance goals, budgeting, and translating priorities into
resource allocation decisions. The aim of strategic planning is to influence and guide the
organization's direction for a defined period, comprising various activities aimed at fulfilling that
purpose. Therefore, the relationship between the strategic plan, budget, and performance
outcomes is undeniably interconnected.

2.2.13. Budget and budgetary control to enhance accountability and responsibility of

business units

According Omolaye (2015), financial accountability in the public sector globally is all about
holding and ensuring that public office holders give an accurate account of what they have done

26
with the resources, to ascertain how efficiently the resources have been used and consistently
with established regulations. In ensuring enhanced financial accountability, budget planning
must be held sacrosanct at all Ministries, Departments and Agencies (MDAs) in the public sector
(Omolaye, 2015). The requirement of such accountability becomes crucial as a result of its aids
to develop a nation and provide relevant data for rational economic decision. Globally, financial
accountability in the public sector is associated with a degree of freelance and effective control
system. Also Gilbert (2012) noted that financial accountability results from holding an individual
accountable for effectively performing a financial activity, like a key control procedure within a
financial transaction process. Financial accountability in the public sector across the world is
given utmost attention as a result of public fund entrusted in the care of the public officeholders.
Those in authorities assume fiduciary standing with connected responsibilities requiring them to
render stewardship accounts to those for whom the authority is held in trust

2.3. Empirical Review

Manoharan, K. (2017) examined some aspects of budget and budgetary controls system and
organizational performance in the case of selected Indian company with the objective of
investigating the relationship between budgetary control and organizational effectiveness by
using statistical method. The study result that there are strong relationships between budgetary
control systems & organizational efficiency and it was concluding that there are some hurdles in
proper implementations of budgetary control systems in the organization.

Alice (2012) did a study on the effect of the budgeting process on budgets variances in non-
governmental organizations in Kenya. The aim of the study was to enhance understanding of the
donors and NGOs of the challenges they may face in implementing projects budget by
identifying gaps of budgeting preparation, budget implementation and budget control. The study
concluded that the process of budget preparation in NGOs, budget preparation involves
forecasting of the expected confirmed income. To some extent they are done in relation to the
documented process, which is referred. The budgets are approved by the senior management
before execution and are based on the organization‟s annual plans, strategic plan and overall
goal. The NGOs undertakes budgetary control involving coordination among the various
departments achieved through communication and consultation. Solutions to problems revealed
by budgetary control are developed to some extent; budget review to capture the reality during

27
implementation is also done. In addition, there is some reference to budget before undertaking
any activity to ensure funds availability; and reports on budget variance are shared with budget
holders and senior management. In conclusion, during implementation of budget in NGOs;
change of project staff or implementers of budget affect the achievement of the budgets; there
may be tendency by user department to adhere to budget process; in some period budget include
unattainable targets or standards; foreign exchange rate fluctuations in the market hinders
organization to affect their budgets while insufficient funds allocated to department or projects
affect budget implementation. Budget preparation, budgetary control and budget implementation
significantly influence budget variance.

Nyambura (2014) conducted a descriptive survey on a title, determining the effect of budgetary
control on effectiveness of non-governmental organizations in Kenya. The study finding that
there is a low positive relationship between budgetary control and performance and planning
contributed the highest towards the positive performance of the NGOs followed by monitoring,
control and at last budget participation. It was concluded that the NGOs generally have
budgetary control at different levels of the organization and most of them have planning,
monitoring controlling, controls and budget participation.

Lambe (2015) made systematic reviews of budget and budgetary controls in governments owned
organizations of Nigerian national petroleum corporation by using descriptive survey research
design with the objective of determining how budget and budgetary control affects quality
service delivery in government owned enterprises. It concluded that budgetary control aids
in effective cost control most especially in governments owned organizations.

Andrew, Albert and Ngoze (2016) conducted a study on budgetary control and financial
performances in public institution higher learning in Western Kenya using descriptive survey
design with objective of investigating the effects of budgetary controls on financial performance
in public institution. The study found that budgetary control has statistically significant effects on
financial performances in public institution of higher learning in Western Kenya.

Geletaw (2017) conducted research to investigate the determinants of budget control in the
Benishangul Gumzu regional state public organizations using descriptive research design. The
study found that the composite measure of information and communication, cost reduction,
competent internal audit staff, management support, budget monitoring and evaluation,

28
organizational commitment and budget planning processes for 78 percent (Nagel kerke modified
R2 = 0.78) variance for the budget control in the public sector offices. That means, the Role of
these seven independent variables contributed for the dependent variable budget control were 78
percent, and the remaining 22 percent were other variables that are not included in this study. It
was concluded that existences of effective budget control in the office links with internal control
management system, improves organizational effectiveness and efficiency, reduce information
asymmetry during decision making,

Zebider (2018) did a study on assessment of budget utilization and budget control practices the
case of Ethiopian Postal Service Enterprise. The study findings are budget utilization practices in
the organization are rated at moderate level, gaps are observed in making regular follow-up and
executing projects within the deadline, and lack of adequate skill and experience for some types
of projects especially for new developments; e.g. branding, postal saving bank, & logistics
projects. A budget control practices are the current commitment level of the management toward
budget control is insufficient; the number of skilled audit experts to perform strict internal
control is insufficient and the budget control mechanism of the firm is in moderate level. It
was concluded that mainly due to low rated practice of regular follow-up, lack of skilled
manpower, lack of commitment of management members, and lack of strongly controlling
mechanism.

Mulu (2018) assessment of budget implementation and control system: a case of Ethio Telecom
South West Addis Ababa Zone the study found that the strategic plan of the company is not
effectively communicate to lower level management, the top management reducing the approved
budget without negotiation and less participation of lowers level managers, budget holders are
not using the approved budget based on the annual plan time‟s specification and activities; there
were time dalliance to accomplish tasks and underutilization of approved budget, top
management not focused on budget utilization, budget revision and approval process. Lack of
management attention on budget variance, no effective budgetary control that contributes to the
achievement of goals and objectives, do not use budget achievement as performance
measurement criteria, did not use budget as benchmark for performance evaluation, and did not
use measurement & evaluation system of revenue budget performance-based analysis. The
researcher concludes that lack of integration work between budget holder and budget approval
the company did not propose the needed budget. The organization more affect by

29
underutilization of the estimated budget and relevant reports explained that such underutilization
arose from low capacity to utilize approved budget, budget controlling is not considering
divisional activities and work nature, and budget evaluation did not provide specific feedback for
budget utilize.

Tilahun (2010) did a study on budget management and control with special emphasis on Ethiopia
Ministry of Defense. The aim of the study was on the process by which military budgets are
developed, implemented, recorded, and monitored. The researcher targeted all budget holders in
the Ministry of Defense for his study. The researcher concluded the unavailability of adequate
and experienced manpower has added for the worsening results of plan and budget preparations
disparities. The nature of the institution forces to consider unforeseen situations, additional duties
of budget users are not usually backed up by supplementary budgets, lack of awareness of
budget users about the role of plan and budget to the institution, budget holders have various
understandings during budget preparations. Budgets are prepared without considering reasonable
estimations and current market prices. The causes for idle cash are mainly due to the lack of
consistent purchase programs which lead to rush expenditure towards the end of the budget year.
Planning and budget department does not arrange regular workshops and short-term training to
improve the skill of budget personnel engaged in budget holders. Apart from accountability of
the specific budget users, the department takes the lion‟s share of responsibility for budget
preparation and implementation problems. Although much deviation has not been observed in
budgetary records, the adoption of modified cash basis of accounting system has not been
implemented fully. Audit opinions given by office of Federal Auditor General are signals of the
institution‟s weak compliance with the rules and regulations of the country.

2.3.1. Summary of Literature Review conclusion and research gap

Budgets are widely recognized as a crucial component of the control process and an essential
aspect of performance measurement under the sunshade concept. However, existing literature
highlights that there is no universally applicable approach to budgeting that suits all businesses.
Instead, the suitability of a specific approach tends to depend on various factors, such as the
company's size, strategy, structure, and management's perception of the operating environment's
uncertainty. It is important to establish effective links between budgetary control procedures
(planning, monitoring, evaluation, and control) and these business characteristics. Reviewing

30
relevant literature primarily reveals a focus on budget monitoring and practice, budgetary control
and its challenges, as well as the impact of budgetary control on the organizational and financial
performance of public, private, and not-for-profit organizations. However, findings regarding the
relationship between budgetary control and organizational performance are inconsistently
reported. For instance, Nyambura (2014) found a low positive relationship between budgetary
control and performance, while Manoharan K. (2017) reported a strong association between
budgetary control and organizational performance.

31
 CHAPTER THREE
RESEARCH METHODOLOGY

3.1. Introduction

This chapter presents the research methodology the chapter also discussed the research design,
population, sample size used in this study, data collection method, procedures and data analysis
method adopted by the research. The next chapter presented the findings and analysis of the
study. Besides, it displayed the results of the study in form of tables and charts where necessary.

3.2. Description of the organization

The Ethiopian electric utility is located in Addis Ababa, Ethiopia and operates within the utilities
industry. It is responsible for providing electricity service to consumer in the country. The
mission is to provide international quality, reliable and sustainable electricity service to all
consumers at an affordable price. They aim to achieve this by expanding the service with the
help of modern technology. The Ethiopian electric utility currently providing services to
customers based on different categories. Their vision is to become a competitive electricity
service provider that fulfill the economic and social needs of will meet the economic and social
needs of a middle-income nation by 2025.

3.3. Descriptive Design

Research design is the blueprint for the collection, measurement and analysis of data. Descriptive
research design is often used by researchers aim to describe and understand the characteristics of
a population or a phenomenon. It focuses on collecting data that accurately represent the current
state of affairs and typically involves surveys, questionnaires, observations, or interviews.

The researchers were used descriptive research design which incorporates with questionnaire and
interview in the study area. Descriptive research design/statistical research/: research that
describes phenomena as they exist. It can be used to identify and classify the element or
characteristics of the subject. It includes techniques like case studies, observation and review of
previous related studies and also it involves with collecting data in order to test hypotheses or
answer questions concerning the current status of the subjects of the study. Descriptive study

32
encompasses gathering data that define happenings and then organizes, tabulates, depicts and
defines the data gathering (Glass and et al., 1984).

3.4. Research Approach

According to Cress well (2004) there are three types of research approach: qualitative,
quantitative and mixed research approach. Qualitative Research Approach: the type by which are
depending on human observations and descriptions. It is descriptive, highly subjective and
designed to look beyond the percentages to gain an understanding of feelings, impressions and
viewpoints. This kind of method will be used to assess knowledge‟s, attitudes, behaviors,
opinions of people depending on the topic of research and experiences which are not allowed to
be used in quantitative method at all. Qualitative research implies an emphasis on the qualities of
entities and on processes and meanings that are not experimentally examined or measured
(Denzin& Lincoln, 2005).

This study followed mixed-methods qualitative and quantitative data. The researcher used both
qualitative and quantitative approaches. The qualitative approach of the research assessed the
effects of the gathered data using descriptive statistics. By doing so, the researcher aimed to
avoid the faults which either of these study prototypes usually has (Haverland and et al., 2012;
Mertens and et al., 2013).

Quantitative research is on the other hand is concerned with quantitative phenomenon. It is

based on the measurement of quantity or amount. It is applicable for phenomenon that can be
expressed in term of quantity. The study were used a mixed approach (qualitative and
quantitative research method) to collect and analyze data relevant for the study.

3.5. Population and Sampling Design

According to Singh and Masuku (2013) population is the total sum of elements from which
conclusions are drawn. As far as this study is concerned, the population comprised of employees
of Ethiopian Electric Utility found in finance, planning, audit & procurement department
according to the human resource department of EEU the above mentioned departments have a
total of 110 employees hence the target population for this study were about 110 employees
found in finance, planning, audit & procurement department.

33
3.5.1. Sampling Frame and sampling technique

Sampling frame can be defined as a complete description of all the cases in the census sampling
from which the sample is drawn (Saunders, Lewis, &Thornhill, 2016). The sample frame for this
study consisted of 110 employees found in finance, planning, audit & procurement department
of the Ethiopian electric utility in addition Four senior managers Will be interviewed this senior
manager were selected from the above listed department‟s which means one from each
department‟s finance, planning, audit & procurement department.

3.5.2. Sampling Technique

Census sampling is a Survey sampling helps the Census Bureau provide timely and cost efficient
estimates of population characteristics. Demographic sample surveys estimate characteristics of
people or households such as employment, income, poverty, health, insurance coverage,
educational attainment, or crime victimization one of the main reasons for these changes is the
need of saving, but also improving census data quality (Longva, Thomsen, Severeide, 1998; UN
2010a, 2012; 2013; CSO, 2012). As noted by P. Valente (2010), it is essential to count the
population, but census taking is costly, and a growing number of people are reluctant to
participate.

A population census is not only the oldest investigation, best-known, well formed in terms of
methodology, but also an investigation which is widely regarded as the most reliable source of
data. As the methods of conducting censuses, especially methods of data collecting, have
changed incredibly over the last decades, it is important to address the issue of quality
assessment of the population census under the shift in methodology. The purpose of this paper is
to discuss the quality of information derived from the 2011 population census in Poland. Special
attention is given to a comparison of census data accuracy in view of the conventional versus
register-based approach. Census of Population is the introduction of sampling procedures in the
collection of information, in the tabulation of quick preliminary results, in the preparation of
detailed cross-tabulations, and in the verification of large scale census clerical operations.

To this end, the researcher used a census sampling method to collect the necessary from the right
samples those directly involves in Budget planning, preparation, utilization and Budget control
to this effect 110 participants are selected particularly from finance, planning, audit &
procurement department of the Ethiopian electric utility.

34
3.5.3. Sample Size

The census sampling are used in the finance, planning, audit & procurement department Due to
the nature of the study, the study only considered staff from the following departments: finance,
planning, audit & procurement department 110 respondents are selected by Census sampling
method.

The information obtained from a census might be used to examine the relationship between one
and more of the factors investigated or the cause of a particular case. If you are planning a
budget survey in your community in which all members of the population are interviewed, this is
called census sampling. It requires you to define the boundary that your study will cover (e.g. the
boundary of your kebele) and then interview all the people within it. Census sampling can be
used in organizations, schools and rural communities where boundaries may be easily define.

Table 3. 1 Census sampling method for Quantitative Data

Departments Total no of employee Census sampling method

Finance department 54 54
Procurement department 36 36
Planning department 12 12
Audit department 8 8
Total 110 110
Departments Census selected Senior managers for interview
Total no of Senior Census selected Senior
managers managers
Finance department 1 1
Procurement department 1 1
Planning department 1 1
Audit department 1 1
Total 4 4
Sources survey data/2023

3.6. Data Types and Sources

This study aims to use both primary and secondary sources of data. The primary sources include:
the selected samples for quantitative data and interview selected form four departments of EEU

35
and secondary data were reviewed various source of information written and presented by
different scholars about budget and budgetary control review of related literature.
3.7. Methods of Data Collection
The researcher intended to use questionnaires, and interview for collecting data. The
questionnaires are prepared in a form of Five scale Likert -Scale utilize and rated as: Strongly
Disagree = 1; Disagree= 2; Neutral = 3; Agree = 4; Strongly Agree = 5. Since the participants of
the study are experts qualified minimum of bachelor degree, that the questionnaires is prepared
and distributed in English language the study will conducted based on the collection of both
primary and secondary data Primary data‟s were collected through the use of well-structured
questionnaire that contain relevant questions regarding to budget and budgetary control system
this questioners will use because they are easy to administer and at the same time they can
generate a large layout of needed data, Questionnaires ensure anonymity and permit use of
standardized questions, save time especially the self-administered as the 110 respondents have an
ample time to think and fill the questionnaires at ease, hence minimizing errors and interview
with semi structured questionnaires were also use to elicit information from four senior
managers each departments .
3.7.1. Methods of Primary data collection
The primary sources of data in the study included questionnaires and interviews. These were
gathered through questionnaires completed by a total of 110 respondents.
3.7.2. Data Collection Instrument
3.7.2.1. Questionnaires:
Both closed and open-ended questionnaires will be administered in order to collect quantitative
and qualitative data from selected samples. This is because the questionnaire is convenient to
acquire necessary information from a large number of study subjects with short period of time.
Furthermore, it makes possible to save time and provides a high proportion of usable response
(Gulick, E. E. 2003). The questionnaires will be prepared for respondents in English language
for the assessment framework, the simpler and five points Likert scale for research questions will
be employed for close-ended questions of the study in the quantitative data collection instrument.
Therefore, the respondents will be asked to rate each item on a five-point Likert scale by

36
assigning their reasons a value for 1= strongly disagree; 2= disagree; 3= Neutral; 4= agree; 5=
strongly agree as a proposed scale by Bahia and Nantel (2000).
3.7.2.2. Interviews
Semi-structured and open-ended interviews will be employed to gather detail qualitative data
from the key informants. Employing semi-structured and open-ended interview will have
enormous importance because interviews have the greatest potential to release more in-depth
information, provide an opportunity to observe non-verbal behavior of respondents; gives
opportunities for clearing up misunderstandings, as well as it gives a chance to meet many
diverse situations (Kothari, 2004).
3.7.2.3. Procedures of data collection
Questionnaires prepared to collect the data from the target population will be distributed to the
participant of the study according to the schedule. After the questionnaires are carefully filled,
the researcher would collect and organized the completed questionnaire for analysis.
3.8. Instruments Reliability
According to Deribsa A. (2018) Quality is always one of the most important issues in research.
As we apply technical instruments in research, we need to assess its quality for use. Quality can
be judged through testing the reliability.
Cronbach's Alpha is a statistical measure used to evaluate the internal consistency reliability of a
set of items or questions in a survey or test. It assesses how well the items within a particular set
measure a single underlying construct or objective. The establishment of Cronbach's Alpha for
every objective is important because it allows researcher to determine the reliability and
consistency of the items that are intended to measure a specific objective. By calculating
Cronbach's Alpha, researchers can ensure that the questions within a set are internally consistent
and effectively assess the intended construct or objective.
The reliability of the questionnaire was evaluated through Cronbach‟s Alpha which measures
internal consistency by establishing if certain items measure the same construct. Cronbach‟s
Alpha was established for every objective in order to determine if each scale (objective would
produce consistent results should the research be done later on. The findings shows that all the
five Likert scales instrument were reliable as shown in table 2 Reliability Statistics Cronbach's
Alpha were done for each item per objective as the findings depicts that Objective-1 of the
study to assess how far the budget and budgetary control translate strategic plan in to operational

37
plan the reliability Statistics for seven items shows Cronbach's Alpha ( 0.900) also
Objective -2 to evaluate how much budget and budgetary control promote coordination of
activities among related and different budgetary control units. has seven items and the reliability
statistic Cronbach's Alpha 0.871 were as the reliability statistics for the third and fourth
Objective were to evaluate how budget and budgetary control enhance accountability and
responsibility of business units. and to evaluate the promotion of performance measurement
serving as basses of performance measurement of budgetary control the reliability result were
Cronbach's Alpha 0.902 and 0.798 respectively, with regard to the last two objectives To
examine whether budgetary performance evaluation is linked to motivation of employee and the
reliability statistics result shows that Cronbach's Alpha & 0.551, as their reliability values
exceeded the prescribed threshold of 0.7 (A. Mugenda & Mugenda, 2003). The findings show
that all the five Likert scales instrument were reliable.
3.8.1. Data Analysis and Statistical Methods
Data analysis is a process of inspecting, transforming, and modeling data with the goal of
discovering useful information, informing conclusions, and supporting decision-making the
filled questionnaires will be checked for completeness at two levels when the data collected are
verified that questionnaires were complete before they are taken to the researcher to do the final
verification this will be done to ensure that if any anomalies detected to correct immediately
before the questionnaire are taken from the respondent to data analysis then data analysis
started once all the data had been captured and the quantitative data will be analyzed using
descriptive statistic and to analysis the data by using statistical tool (SPSS)version 26.
3.9. Ethical Considerations of the Study
The researcher first obtains data collection authorization from the organization Ethiopian Electric
Utility these allows the researcher to carry the data collection easily for the study respondents
will also presented with consent forms the consent form described the type of study being done,
its purpose, rights of all participants with special emphasis on participant‟s confidentiality and
the right to withdraw from the study as deemed necessary the researcher will also assure the
participants/respondents confidentiality of their information by asking them not to include their
names or any form of identification on the questionnaires the researcher will also organize for
preliminary visits to the Ethiopian Electric Utility Head office to verbally explain the purpose
and importance of the study to predict if some challenges that would come with data collection.

38
 CHAPTER FOUR
DATE PRESENTATION, AND ANALYSIS OF FINDINGS

4.1. Introduction

The study examined Role of Budget and Budgetary Control System on The Effectiveness of
Public Enterprise: Taking Ethiopian Electric Utility as a case. This chapter highlights the
Presentations, analysis and interpretation of findings of the study the presentations were done
according to the objectives of the study respondents were Finance experts, Audit experts,
Procurement experts, Planning experts and senior managers of finance department of EEU.

The data from the questionnaires were statistically analyzed by the researcher with the help of
using frequency and descriptive statistics the findings were discussed according to the sections of
the questionnaire the two sections of the questionnaire were: Section A: -the demographic
information of the respondents, and Section B: - the findings of the five key specific objectives
areas of the study were presented and interoperated using descriptive statistics.

4.2. Response Rate

The study targeted 110 respondents drawn from the EEU head office, and from the distributed
110 questioners 106 questioners were collected from respondents hence the response rate was 95.
%. According to Mugenda &Mugenda (2003), a response rate of 50% were adequate for analysis
and reporting; a rate of (70) % is good while a response rate of (82) % and over is excellent;
therefore, this response rate was excellent for analysis and reporting.

Table 4. 1 Response Rate

Response rate Summary

N %
Cases Questioner distributed 110 100
Questioner returned 104 95
Source: Survey, data (2023)

39
4.3. Demographic Characteristics

As shown in table 4.2 the Demographic Characteristics of respondents such as Gender of

respondents, Age of respondents, educational qualification of respondents, Field of study of
respondents, and Work experience of respondents are presented as follows.

Table 4.2 Demographic Characteristics

Frequency %
1 Gender of respondents Male 70 63.6
Female 34 30.9
Total 104 94.5
2 Age of respondents .≤ 30 years 17 15.5
31- 40 years 52 47.3
41- 50 years 29 26.4
Above 51 years 6 5.5
Total 104 94.5
3 Educational qualification of respondents Diploma 12 10.9
BSc/ BA 78 70.9
MSc/MA and 14 12.7
above
Total 104 94.5
4 Field of study of respondents Accounting& 36 32.7
finance
Economics 36 32.7
Management 24 21.8
Others 8 7.3
Total 104 94.5
5 Work experience of respondents Less than 2 16 14.5
years
2-5 Years 33 30.0
6-10 Years 44 40.0
Over 10 years 11 10.0
Total 104 94.5
Missing System 6 5.5
Total 110 100.
0
Source: Survey, data (2023)

40
Table 4.2 presents that 36 respondents or (32.7%) were graduated by field of accounting and
36 respondents or (32.7%) were graduated by field of economics and also 24 respondents or
(21.8%) were graduated by management and 8 of the respondent were graduated by other field.
This implies that more respondents were graduated by field of accounting and economics and
also management during the study.

From the findings, majority of the respondents, 47.3% indicated that they were age between (31-
40) years. a sizeable number, 26 % indicated that they were age between 41-50 years also 15 %
were less than or equal to 30 years while 5.5% of respondents were age above 51 years old the
findings therefore reveal that majority of people working in EEU were at productive age and are
mature people who are advantaged with knowledge of budgeting and budgetary control.

Education is one of the most important characteristics that might affect the person‟s attitudes and
the way of looking and understanding in any particular social phenomena. In a way, the response
of an individual is likely to be determined by his educational status and therefore it becomes
more imperative to know the educational background of the respondents to this regard the
majority 78 respondents or 71 % were BA/BSc, holders were as 14 respondents or 13% were and
MA/MSc graduates the remaining 12 respondents or 11% were diploma graduates this implies
that all most all respondents had the knowledge, capacity, skills and management expertise to
respond to this study about budgeting and budgetary control.

The study of the result Shows that Field of study of respondent‟s 33 % of respondents study
Accounting &finance, Economics, were as 22% respondents study Management, the remain 7%
study other fields this implies that majority of respondents were from accounting &finance,
Economics and management which were relevant fields to the objectives of the study‟s
budgeting and budgetary control.

respondent‟s depict 40 % works from 6-10 years were as 33 respondent‟s or 30% works between
2-5 years also 16 respondents or14% works for less than 2 years and 11 respondents or 10%
works for more than 10 years in finance, procurement, plan and budget department‟s this implies
that respondents were with relevant work experience.

41
 4.4. Role of Budget and Budgetary Control System on The Effectiveness of
the organization

The second part of the questionnaire builds upon 40 key questions regarding Role of Budget and
Budgetary Control System on The Effectiveness of Public Enterprise: A Case Study of Ethiopian
Electric Utility in order to addresses the major and specific objectives of this study, The findings
of the five key specific objectives areas of the study were presented and interpreted using,
Descriptive statistics.

4.4.1. Translation of strategic plan into operational plan

Budget and budgetary control play a crucial role in organizations by helping align operational
plans with strategic plans. This analysis aims to explore the importance and Role of budgeting
and budgetary control on various aspects of organizational performance. Table 4.3 presents
seven statements rated on a Likert scale, measuring the perceived influence of budgeting and
budgetary control on different organizational factors the mean and standard deviation for each
statement are provided for analysis.

Table 4.3 budget and budgetary control and translation of strategic plan into operational plan

Descriptive Statistics
N Mean Std. Deviation
1 Budget and budgetary control help in aligning the 104 3.85 .840
operational plan with the strategic plan."
2 Budget and budgetary control aims at to the achievement of 104 3.81 .497
organizational goals and objectives as stated in strategic plan
3 Budget and budgetary control use latest information to 104 3.82 .471
realize strategic plan?
4 Budget and budgetary control facilitate the identification of 104 3.68 .627
potential risks and opportunities in the operational plan?
5 Budget provide tactical plan to minimalize the rates and 104 3.86 .342
exploiting of opportunities use of up-to-date information and
providing technical move to tackle immediate problems
6 Budget and budgetary control provide quantitative and 104 3.86 .738
monitory statement to express short term plan?
7 Budget and budgetary control provide a clear framework for 104 3.75 .730
tracking progress towards strategic goals?
Valid N (list wise) 104
Source survey data-2023

42
The first request presented to achieve the first objective of the study asked whether Budget and
budgetary control help in aligning the operational plan with the strategic plan. The mean score
Mean: 3.85 Std. Deviation: 0.840 indicates that budgeting and budgetary control in the
organization contributes to aligning operational plans with strategic plans. The consistent ratings
suggest that organizations recognize the importance of incorporating financial planning into their
strategic decision-making processes.

A finding indicates for the question which sakes whether Budget and budgetary control aims at
achievements of organizational goals and objectives as stated in the strategic plan. Has score a
Mean: 3.81 Std. Deviation: 0.497 result this implies that Budget and budgetary control aims at
achievements of organizational goals and objectives as stated in the strategic plan The relatively
low standard deviation suggests a consistent belief among respondents that budgeting helps drive
organizational success.

The study respondents gave a mean response Mean: 3.82, Std. Deviation: 0.471 to the question
which demands that Budget and budgetary control use latest information to realize strategic plan.
This indicates that the organization use latest information‟s in Budget and budgetary control
which leads to the realization of strategic plan.

The study revealed that respondents gave a mean response of Mean: 3.68, Std. Deviation: 0.627
to the question which asked whether Budget and budgetary control facilitate the identification of
potential risks and opportunities in the operational plan. From this mean result it can be
concluded that budgeting and budgetary control assist in identifying risks and opportunities in
operational plans.

Respondent gave a mean response of Mean: 3.86, Std. Deviation: 0.342 to the question which
asked whether Budget provide tactical plan to minimalize the rates and exploiting of
opportunities use of up-to-date information and providing technical move to tackle immediate
problems. This Mean: result suggests that the statement reflects a moderate consensus that
Budget provide tactical plan to minimalize the rates and exploiting of opportunities use of up-to-
date information and providing technical move to tackle immediate problems.

Respondent gave a mean response of Mean: 3.86, Std. Deviation: 0.738 to the question which
asked whether Budget and budgetary control provide quantitative and monitory statement to
express short term plan. The mean result indicates that the use of Budget and budgetary control

43
 provides quantitative and monitory statement to express short term plan. The last question
number eight asked whether Budget and budgetary control provide a clear framework for
tracking progress towards strategic goals. Has score mean: 3.75 with Std. Deviation: 0.730 the
mean result from Respondents implies that budgeting and budgetary control offer a clear
framework for tracking progress towards strategic goals. This suggests that organizations
recognize the value of monitoring financial performance in relation to their strategic objectives.

4.4.2. Budget and budgetary control promote coordination of activities among

related and different budgetary control unites

The second objective of the study were To evaluate how much budget and budgetary control
promote coordination of activities among related and different budgetary control To achieve this
objective of the study seven Likert scale question were provide the analysis to each question are
presented according to table 4.4.

Table 4. 4 budget and budgetary control promote coordination of activities among related and
different budgetary control units.

Descriptive Statistics
N Mean Std.
Deviation
1. Budget and budgetary control promote coordination of activities 104 3.46 .681
and integration among related and different budgetary control unites
2 Budget and budgetary control are based on identification of 104 3.74 .881
sequence of operational plans
3 Annual operational plans clearly show time line and resources 104 3.76 .838
required in each existing responsibilities center to accomplishes
over all goals of the firm
4 The operational plan and budget execution promotes 104 3.49 .638
communication among units of the organization for shared goals?
5 Budget and budgetary control facilitate the sharing of resources 104 3.69 .914
and knowledge across different budgetary control systems."
6 Budget and budgetary control systems foster coordination and 104 3.51 .590
alignment between strategic objectives and operational activities
across different functions?
7 Budget and budgetary control systems facilitate the efficient 104 3.46 .681
utilization of resources across different functions and budgetary
control systems.
Valid N (list wise) 104
Source survey data-2023

44
Table 4.4 presents role of budget in promoting coordination among different responsibility
center.
The first request of objective two of the study asked whether Budget and budgetary control
promote coordination and integration among different departments or units within the
organization. Has score Mean = 3.46, Std. Deviation = 0.681 this mean result indicates budgeting
and budgetary control promotes coordination and integration among different departments or
units within the organization.

Respondents give a mean score Mean: 3.74 with Standard Deviation: 0.881 to the question which
asked whether Budget and budgetary control are based on the identification of the sequence of
operational plans This implies that Budget and budgetary control are based on the identification
of the sequence of operational plans.

Respondents revealed for the question number three of objective two of the study which asked
whether Annual operational plans clearly show the timeline and resources required in each
existing responsibility center to accomplish the overall goals of the firm." Has score Mean: 3.76
with Standard Deviation: 0.838 this suggests that the annual operational plans clearly show the
timeline and resources required in each existing responsibility center to accomplish the overall
goals of the firm.

The fourth question of objective two of the study requests that the operational plan and budget
execution promote communication among units of the organization for shared goals. Has score
mean: 3.49 with Standard Deviation: 0.638 this implies that the operational plan and budget
execution promote communication among units of the organization for shared goals in the
organization.

The study depicts that a Mean score mean: 3.69 with Standard Deviation: 0.914: to the question
which demands whether "Budget and budgetary control facilitate the sharing of resources and
knowledge across different budgetary control systems. This suggests that Budget and budgetary
control facilitate the sharing of resources and knowledge across different budgetary control
systems

The next question with regard to objective two of the study asked whether Budget and budgetary
control systems foster coordination and alignment between strategic objectives and operational
activities across different functions. Has score Mean: 3.51 with Standard Deviation: 0.590 this

45
mean result suggests that Budget and budgetary control systems foster coordination and
alignment between strategic objectives and operational activities across different functions.

The last requests of objective two of the studies were question number seven which asked
whether Budget and budgetary control systems facilitate the efficient utilization of resources
across different functions and budgetary control systems. Has score Mean: 3.46 with &Standard
Deviation 0.681 this implies that Budget and budgetary control systems facilitate the efficient
utilization of resources across different functions and budgetary control systems in the
organization. Therefore role of budget and budgetary control promote coordination among units
of organization moderate according to the respondents.

4.4.3 Budget and budgetary control enhance accountability and responsibility of

business units

Table 4.3 of the study provides the results of a survey that focuses on the perceptions of
operational plans and budgetary control systems within business units. The survey gathered
responses from respondents who rated various statements on a scale of 1 to 5. The descriptive
statistics, including the mean and standard deviation, provide insights into the participants'
perceptions regarding the structural aspects, controllability and accountability, transparency, and
individual empowerment related to budget and budgetary control systems.

46
Table 4.5 Budget and budgetary control enhance accountability and responsibility of business
units

Descriptive Statistics
No Mean Std.
Deviation
1 Operational plan and budget are structural along the 104 3.78 .633
responsibility‟s line (responsibility‟s centers)?
2 Budget and budgetary control are based on the principle of 104 3.93 .400
controllability and accountability (units and their managers are
Hold accountable for what they can significantly influence
3 The operational plan and budget clearly show the 104 3.78 .618
responsibility of business units and their managers
demarcation of responsibility areas
4 The implementation of budget and budgetary control systems 104 3.72 .756
fosters a culture of responsibility and ownership among
employees in business units?
5 Budget and budgetary control systems promote transparency 104 3.72 .756
and accountability in operational and financial decision-
making within business units?
6 Budget and budgetary control systems encourage employees to 104 3.73 .671
take ownership of their assigned budgets and financial targets.
7 Budget and budgetary control systems contribute to individual 104 3.66 .617
empowerment and autonomy in decision-making within
business units?
8 The implementation of budget and budgetary control systems 104 3.67 .471
improves individual accountability for financial results and
outcomes."
Valid N (list wise) 104
Source survey data-2023
Table 4.5 present budgets and budgetary control enhance accountability and responsibility of
business

The first request of objective three of the study requests that whether Operational plan and
budget are structured along the responsibility line (responsibility centers).Has score a Mean: 3.78
with Standard Deviation: 0.633 this high mean result implies that Operational plan and budget
are structured along the responsibility line (responsibility centers of the organization)

The study respondents gave a mean response of Mean: 3.93 With &Standard Deviation 0.400 to
the question Budget and budgetary control are based on the principle of controllability and
accountability (units and their managers are held accountable for what they can significantly

47
influence)The respondents high rating of 3.93 for this statement suggests a generally positive
perception or indicates a relatively high level of agreement among the respondents regarding the
principle of controllability and accountability in budget and budgetary control.

Respondent gave a mean response of Mean: 3.78 With Standard Deviation 0.618 to the question
which asked whether The operational plan and budget clearly show the responsibility of business
units and their managers' demarcation of responsibility areas. This implies that the operational
plan and budget clearly show the responsibility of business units and their managers'
demarcation of responsibility areas.

The next question of objective three of the study were question number four which asked
whether the implementation of budget and budgetary control systems fosters a culture of
responsibility and ownership among employees in business units. Has score mean response of
3.72 &Standard Deviation 0.756 From this mean result it can be concluded that the
implementation of budget and budgetary control systems fosters a culture of responsibility and
ownership among employees in business units.

The study respondents gave a mean response of Mean: 3.72 &Standard Deviation: 0.756 to the
question Budget and budgetary control systems promote transparency and accountability in
operational and financial decision-making within business units. This implies that Budget and
budgetary control systems promote transparency and accountability in operational and financial
decision-making within business units.

Respondents gave a mean response of Mean: 3.73 &Standard Deviation: 0.671 to the question
"Budget and budgetary control systems encourage employees to take ownership of their assigned
budgets and financial targets." From this mean result it can be concluded that Budget and
budgetary control systems encourage employees to take ownership of their assigned budgets and
financial targets.

The study respondents gave a mean response of Mean: 3.66 with &Standard Deviation 0.617 to
the question Budget and budgetary control systems contribute to individual empowerment and
autonomy in decision-making within business units? From this result it can be conclude that, the
Budget and budgetary control systems contribute to individual empowerment and autonomy in
decision-making within business units. And the last question of objective three of the study was
question number eight which asked whether the implementation of budget and budgetary control

48
systems improves individual accountability for financial results and outcomes. Has score a mean
response of Mean: 3.67 &Standard Deviation: 0.471 this suggests that the implementation of
budget and budgetary control systems improves individual accountability for financial results
and outcomes.

4.4.4 Promotion of Performance Measurement Serving as Basses of Performance

Measurement of Budgetary Controls

The fourth objective of the study was to evaluate how performance measurement serving as a
basis of performance evaluation of budget and budgetary control system .to achieve this
objective of the study Nine Likert scale question were provide the analysis to each question
according to findings in table 4.3 of the study is presented as follows.

Table 4.6 Promotion of performance measurement serving as basses of performance

measurement of budgetary controls.

Descriptive Statistics
N Mean Std. Deviation
1 Budget shows clear performance target 104 3.73 .791
2 Budget and operational plans quantify performance target 104 3.65 .833
in as much as possible
3 Operational plans and budget established performance 104 3.71 .706
indication to evaluate progress of business units
4 Key performance indicators are identified to minimalize 104 3.71 .706
duplication of measure and indicate performance
effectiveness and efficiency
5 Budget and budgetary control procedures aim at 104 3.61 .948
identification of significant performance direction that
require management attention for remedial action
6 Budget and budgetary control provide sufficient feedback 104 3.56 .942
of implementation to improve budgetary planning
7 performance based reward and compensation provide 104 3.85 .874
incentive biased on group and individual performance
8 Performance measurement enables a comprehensive 104 3.76 .905
evaluation of the performance and Role of budgetary
control systems.
9 Performance measurement supports decision-making and 104 3.82 .886
resource allocation within budgetary control systems?
Valid N (list wise) 104
Source survey data-2023

49
The study respondents gave a mean response of Mean: 3.73With Standard Deviation: 0.791 to
the question Budget shows clear performance target: From this result it can be conclude that,
budget shows clear performance targets and the budget effectively communicates with clear
performance targets.

Respondent gave a mean response of Mean: 3.65 With Standard Deviation: 0.833 Budget and
operational plans quantify performance targets as much as possible: This implies that on
average, respondents agree that budget and operational plans quantify performance targets to
higher extent which means performance targets are quantified in the budget and operational
plans.

The study respondents gave a mean response of Mean: 3.71 With Standard Deviation: 0.706 to
the question Operational plans and budget establish performance indicators to evaluate progress
of business units: This result indicates that respondents generally agree that operational plans and
the budget include performance indicators to evaluate the progress of business units. And Key
performance indicators are identified to minimize duplication of measures: This, mean score
indicates that, on average, respondents agree to some extent that key performance indicators
indicate multiple aspects of performance effectiveness and efficiency.

Respondents gave a mean response of Mean: 3.61 &Standard Deviation: 0.948 to the question
Budget and budgetary control procedures aim at identifying significant performance direction
that require management attention for remedial action: From this result it can be conclude that,
the budget and budgetary control procedures aim to identify significant performance deviations
that require management attention.

The study respondents gave a mean response of Mean: 3.56 With Standard Deviation: 0.942 to
the question. Budget and budgetary control provide sufficient feedback on implementation to
improve budgetary planning: this implies that Budget and budgetary control provide sufficient
feedback on implementation to improve budgetary planning.

The study respondents gave a mean response of Mean: 3.85 & Standard Deviation: 0.874 to the
question to the performance-based reward and compensation provide incentive biased on group
and individual performance this suggests that performance-based reward and compensation
provide incentive biased on group and individual performance.

50
The study revealed that question number nine of the study which requests that Performance
measurement enables a comprehensive evaluation of the performance and Role of budgetary
control systems. Has score Mean: 3.76 with &Standard Deviation 0.905 this suggests that
Performance measurement enables a comprehensive evaluation of the performance and Role of
budgetary control systems.

The respondents for the last request of objective three of the study were question number Nine
which asked whether Performance measurement supports decision-making and resource
allocation within budgetary control systems has score Mean: 3.82 With &Standard Deviation
0.886 this implies that Performance measurement supports decision-making and resource
allocation within budgetary control systems.

4.4.5 Budgetary performance evaluation and its linkage to motivation of employee

Table 4.6 of the study presents the results of a survey that explores the relationship between
budgetary performance evaluation and employee motivation the survey collected responses from
104 participants who rated various statements on a scale of 1 to 5 the descriptive statistics,
including the mean and standard deviation, provide insights into the participants' perceptions
regarding the influence of budgetary performance evaluation on employee motivation, sense of
achievement and recognition, goal setting, intrinsic motivation, engagement and commitment,
accountability and responsibility, competition, skill development, and fairness and equity.

51
 Table 4.7 Budgetary performance evaluation and its linkage to motivation of employee

Descriptive Statistics
N Mean Std.
Deviation
1 Budgetary performance evaluation positively influences 104 3.91 .848
employee motivation?
2 Employees are more motivated when their performance is 104 3.75 .853
evaluated based on budgetary targets."
3 Budgetary performance evaluation to provide a sense of 104 3.87 .771
achievement and recognition for employees?
4 Budgetary performance evaluation contributes in setting 104 3.74 .775
clear performance expectations and goals, which in turn
enhance employee motivation?
5 Budgetary performance evaluation enhances employee 104 3.79 .792
engagement and commitment to achieving budgetary
targets?
6 Budgetary performance evaluation provides employees 104 3.80 .848
with a sense of accountability and responsibility, thereby
increasing their motivation to meet budgetary goals?
7 Budgetary performance evaluation fosters healthy 104 3.72 .875
competition among employees, leading to increased
motivation."
8 Budgetary performance evaluation supports the 104 3.77 .858
development of employees' skills and capabilities,
consequently boosting their motivation?
9 Budgetary performance evaluation provides employees 104 3.45 .912
with a sense of fairness and equity, which positively Roles
their motivation?
Valid N (list wise) 104
Source survey data-2023

The study depicts that respondent gave a mean response of Mean: 3.91 With Standard Deviation:
0.848 to the question budgetary performance evaluation positively influences employee
motivation. This implies that, the respondents' average rating of 3.91 suggests a generally
positive perception of the statement which means budgetary performance evaluation positively
influences employee motivation.

The study depicts that respondent gave a mean response of Mean: 3.76 With Standard Deviation:
0.853 to the question Employees are more motivated when their performance is evaluated based
on budgetary targets. From this result it can be conclude that Employees are more motivated
when their performance is evaluated based on budgetary targets.

52
Respondent gave a mean response of Mean: 3.87 With Standard Deviation: 0.771 to the
question: Budgetary performance evaluation provides a sense of achievement and recognition for
employees. This indicates that, budgetary performance evaluation provides a sense of
achievement and recognition for employees.

The study respondent gave a mean response of Mean: 3.74 With Standard Deviation: 0.775 to
the question Budgetary performance evaluation contributes to setting clear performance
expectations and goals, which in turn enhance employee motivation. The respondent‟s high
rating of 3.74 suggests that budgetary performance evaluation contributes to setting clear
performance expectations and goals, which in turn enhance employee motivation.

Respondent gave a mean response of Mean: 3.79 With Standard Deviation: 0.792 to the question
Budgetary performance evaluation enhances employee engagement and commitment to
achieving budgetary targets. From this result it can be conclude that budgetary performance
evaluation enhances employee engagement and commitment to achieving budgetary targets.

The study depicts that respondent gave a mean response of Mean: 3.80 With Standard Deviation:
0.848 to the question. Budgetary performance evaluation provides employees with a sense of
accountability and responsibility, thereby increasing their motivation to meet budgetary goals.
This implies that, budgetary performance evaluation provides employees with a sense of
accountability and responsibility, thereby increasing their motivation to meet budgetary goals.

Respondent gave a mean response of Mean: 3.72 with standard Deviation: 0.875 to the question
Budgetary performance evaluation fosters healthy competition among employees, leading to
increased motivation. This indicates that budgetary performance evaluation fosters healthy
competition among employees, leading to increased motivation.

The study respondent gave a mean response of Mean: 3.77 & Standard Deviation: 0.858 to the
question Budgetary performance evaluation supports the development of employees' skills and
capabilities, consequently boosting their motivation? From this result it can be conclude that,
budgetary performance evaluation supports the development of employees' skills and
capabilities, consequently boosting their motivation.

The last request of objective five of the study requests that weather Budgetary performance
evaluation provides employees with a sense of fairness and equity, which positively Roles their

53
motivation? Has score mean: 3.45 &Standard Deviation: 0.912 to the question. This implies that
performance evaluation provides employees with a sense of fairness and equity, which positively
Roles their motivation

Discussion Point and Data Analysis Based on Interviews

The objective of the study is to examine the Role of budget and budgetary control on public
enterprise effectiveness within the Ethiopian Electric Utility. In this study, the Descriptive
statistics result based on response rate reflects the degree of participation and engagement from
the respondents.

A higher response rate indicates a greater level of reliability and validity in the study's findings,
suggesting a strong level of involvement from the participants.

Discussing based on Descriptive statistics regarding the role of budgeting and budgetary control
in translating strategic plans into operational plans within the Ethiopian Electric Utility, the
findings from the analysis (Table 4.3) demonstrate the significant impact of these practices.
Budgeting plays a crucial role in aligning operational activities with the organization's strategic
objectives. It facilitates resource allocation, identifies potential risks, and tracks progress,
ensuring that the operational plans are in line with the overall strategic direction of the
organization.

Furthermore, the study reveals the importance of effective budgeting in promoting coordination
of activities among different units within the Ethiopian Electric Utility (Table 4.4). By enhancing
communication, collaboration, and synergy among departments, budgeting systems contribute to
improved efficiency and effectiveness in achieving organizational goals.

In terms of accountability and responsibility, budgeting and budgetary control systems within the
Ethiopian Electric Utility play a crucial role (Table 4.5). These systems set clear targets, monitor
performance, and allocate resources effectively, thereby increasing accountability and
responsibility among business units. Individuals and departments are held accountable for their
actions and are responsible for accomplishing their assigned tasks.

Budgetary control also serves as a foundation for performance measurement within the Ethiopian
Electric Utility (Table 4.6). By setting performance targets, monitoring variances, and evaluating
budgetary performance, organizations can effectively measure and assess their overall

54
performance. This fosters a culture of continuous improvement and motivates employees to strive
for better performance.

Lastly, the study highlights the positive impact of budgetary performance evaluation on employee
motivation within the Ethiopian Electric Utility (Table 4.7). Effective budgetary performance
evaluation factors in aspects such as achievement, recognition, clear expectations, intrinsic
motivation, and skill development. These elements contribute to increased employee motivation
and can serve as valuable tools within the organization.

In summary, the findings from the empirical analysis underscore the crucial role of budgeting and
budgetary control systems in enhancing the effectiveness and performance of the Ethiopian
Electric Utility. These practices facilitate the translation of strategic plans into operational plans,
promote coordination among units, enhance accountability and responsibility, and enable
performance measurement and positively influence employee motivation.

These insights can inform and guide financial management practices within the organization,
ultimately leading to better organizational outcomes.

55
 CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION

5.1. Introduction

The study examined Role of Budget and Budgetary Control System on The Effectiveness of
Public Enterprise: A taking of Ethiopian Electric Utility a cases .the study obtains Primary data
from 104 respondents and secondary data were reviewed various sources of information written
and presented by different scholars about Budget and Budgetary Control Review of related
literature were conducted from previous research findings, annual and quarterly reports, manuals,
and other journal and internet sources all these sources provided necessary background to the
study that provided the research gap to the researcher.

Data analysis was done by using descriptive statistics, whereby tables and narratives were drawn
from findings through questionnaire this chapter summarizes major findings of the study,
conclusion and recommendations.

5.2. Summary of Major Findings

 Alignment of operational plans and resource allocation with the strategic plan: The
respondents recognized the importance of incorporating financial planning into strategic
decision-making processes. Budgeting helps align operational plans with the strategic
plan, ensuring that resources are allocated effectively to achieve strategic goals.

 Achievement of organizational goals stated in the strategic plan: The findings suggest a
consistent belief among respondents that budgeting contributes to driving organizational
success. By aligning goals and objectives with the strategic plan, budgeting helps
organizations work towards achieving their desired outcomes.

 Utilization of the latest information in realizing the strategic plan: The study indicates
that organizations use the latest information in budgeting and budgetary control
processes. This utilization of up-to-date information aids in the realization of the strategic
plan, enabling organizations to adapt to changing circumstances and make informed
decisions.

56
 Identification of risks and opportunities in operational plans: Budgeting plays a role in
assisting organizations in identifying potential risks and opportunities within their
operational plans. By incorporating risk assessment and analysis, budgeting enables
organizations to proactively address risks and capitalize on opportunities.

 Provision of a tactical plan to minimize risks and exploit opportunities: The findings
indicate that budgeting provides a tactical plan to minimize risks and exploit
opportunities using up-to-date information. This aspect emphasizes the proactive nature
of budgeting in managing risks and leveraging favorable circumstances.

 Expression of short-term plans through quantitative and monetary statements: Budgeting

and budgetary control use quantitative and monetary statements to express short-term
plans. This approach enables organizations to have a clear understanding of their
financial targets and facilitates effective decision-making.

 Tracking progress towards strategic goals: Budgeting and budgetary control offer a clear
framework for monitoring financial performance in relation to strategic objectives. By
tracking progress, organizations can assess their performance and make necessary
adjustments to ensure goal attainment.

 Coordination among different departments; the respondents recognized budgeting and

budgetary control promotes coordination among different department or units with the
organization.
 Identification of sequence of operational plans; the respondents recognized budget and
budgetary control are based on the identification of the sequence of operated plan.
 Annual operational plans clearly show the time line and resource required; the responders
recognized budget and budgetary control are based on the identification of sequence of
operational plans.
 Operational plan and budget execution; the responder recognized budget and budgetary
control promote communication among units of the organization to shared goals in the
organization.
 Budget and budgetary control facilitate the sharing of resources and knowledge; the
responders recognized budget and budgetary control facilitate the sharing of resources
and knowledge across different budgetary control system.

57
 Budget and budgetary control foster coordination and alignments. The respondents
recognized budget and budgetary control systems facilities the efficient utilization of
resources across different function and budgetary control system foster coordination and
alignment between strategic objectives and operational activities across different
functions.
 Efficient utilization of resource across different functions; the respondents recognized
budget and budgetary control systems facilitate the efficient utilization of resources
across different functions and budgetary control system in the organization.

 Operational plan and budget structured along responsibility line: The findings indicate
that the operational plan and budget are organized along the responsibility line or
responsibility centers of the organization. This implies that the budgeting process
considers the specific areas of responsibility within the organization and aligns the
operational plan and budget accordingly.

 Principle of controllability and accountability in budget and budgetary control:

Respondents have a positive perception and agreement regarding the principle of
controllability and accountability in budget and budgetary control systems. This suggests
that there is recognition of the importance of holding individuals accountable for their
assigned budgets and ensuring that they have control over the resources necessary to
meet their targets.

 Operational plan and budget demonstrate responsibility areas: The operational plan and
budget clearly outline the responsibility of business units and demarcate responsibility
areas for their managers. This indicates that the budgeting process provides clarity on the
areas of responsibility for different business units and their managers, facilitating
effective decision-making and resource allocation

 Implementation of budget and budgetary control systems fosters responsibility and

ownership culture: The implementation of budget and budgetary control systems fosters a
culture of responsibility and ownership among employees in business units. This suggests
that the budgeting process encourages employees to take ownership of their assigned
budgets and financial targets, enhancing their commitment and accountability.

58
 Budget and budgetary control systems promote transparency and accountability: The
budget and budgetary control systems promote transparency and accountability in
operational and financial decision-making within business units. This indicates that the
budgeting process ensures that decision-making processes are transparent, and
individuals are accountable for their financial responsibilities and outcomes.

 Budget and budgetary control systems encourage ownership of assigned budgets: The
budget and budgetary control systems encourage employees to take ownership of their
assigned budgets and financial targets. This implies that the budgeting process empowers
individuals to actively participate in the budgeting and control processes, enhancing their
commitment to achieving the budgeted goals.

 Budget and budgetary control systems contribute to individual empowerment and

autonomy: The budget and budgetary control systems contribute to individual
empowerment and autonomy in decision-making within business units. This implies that
the budgeting process delegates decision-making authority to individuals, allowing them
to make informed choices and take responsibility for their financial outcomes.

 Implementation of budget and budgetary control systems improves individual

accountability: The implementation of budget and budgetary control systems improves
individual accountability for financial results and outcomes. This indicates that the
budgeting process enhances the sense of accountability among individuals, as they are
held responsible for achieving their assigned financial targets and delivering desired
outcomes.

 Budget shows clear performance targets: The budget effectively communicates clear
performance targets. This indicates that the budgeting process establishes specific and
measurable targets that guide the performance expectations of the organization.

 Budget and operational plans quantify performance targets: Performance targets are
quantified in both the budget and operational plans. This suggests that the budgeting
process incorporates numerical goals and metrics to measure and evaluate performance.

 Operational plans and budget establish performance indicators: Operational plans and the
budget include performance indicators to evaluate the progress of business units. This

59
 indicates that the budgeting process defines specific indicators that enable monitoring and
assessment of performance against set targets.

 Key performance indicators minimize duplication of measures: Key performance

indicators (KPIs) are identified to minimize duplication of measures. This implies that the
budgeting process aims to establish a focused set of indicators that provide relevant and
non-redundant information about performance and also Key performance indicators are
seen to indicate multiple aspects of performance effectiveness and efficiency. This
suggests that the KPIs selected cover a broad range of performance dimensions, allowing
for a comprehensive evaluation of organizational performance

 Budget and budgetary control identify significant performance deviations: The budget
and budgetary control procedures aim to identify significant performance deviations that
require management attention for remedial action. This implies that the budgeting process
includes mechanisms to monitor performance and flag deviations that may Role the
achievement of desired outcomes.

 Budget and budgetary control provide feedback on implementation: Budget and

budgetary control provide sufficient feedback on implementation to improve budgetary
planning. This indicates that the budgeting process includes mechanisms to provide
information and insights on the actual execution of the budget, facilitating learning and
adjustment for future planning cycles.

 Performance-based reward and compensation incentivize group and individual

performance: Performance-based reward and compensation systems provide incentives
based on both group and individual performance. This suggests that the budgeting
process incorporates performance-related incentives to motivate employees and align
their efforts with organizational goals.

 Performance measurement enables comprehensive evaluation of budgetary control

systems: Performance measurement enables a comprehensive evaluation of the
performance and Role of budgetary control systems. This implies that the budgeting
process allows for the assessment of the effectiveness and efficiency of the overall
control mechanisms in place.

60
 Budgetary performance evaluation positively influences employee motivation: The
respondents' average rating of 3.9 suggests a generally positive perception that budgetary
performance evaluation has a positive Role on employee motivation. This indicates that
employees recognize the value and motivational Role of being evaluated based on their
budgetary performance.

 Employees are more motivated when their performance is evaluated based on budgetary
targets: The findings suggest that employees are more motivated when their performance
is evaluated based on budgetary targets. This implies that aligning performance
evaluation with budgetary goals enhances employee motivation.

 Budgetary performance evaluation provides a sense of achievement and recognition for

employees: The respondents' average rating of 3.87 indicates that budgetary performance
evaluation provides a sense of achievement and recognition for employees. This suggests
that employees perceive their efforts and accomplishments in meeting budgetary targets
as recognized and rewarded.

 Budgetary performance evaluation contributes to setting clear performance expectations

and goals, enhancing employee motivation: The findings indicate that budgetary
performance evaluation contributes to setting clear performance expectations and goals,
which in turn enhances employee motivation. This suggests that employees find clarity
and direction in their work when their performance is tied to budgetary targets.

 Budgetary performance evaluation enhances employee engagement and commitment to

achieving budgetary targets: The respondents' average rating of 3.79 indicates that
budgetary performance evaluation enhances employee engagement and commitment to
achieving budgetary targets. This suggests that employees feel more invested in meeting
budgetary goals when their performance is evaluated in relation to those targets.

 Budgetary performance evaluation provides employees with a sense of accountability and

responsibility, increasing their motivation: The findings suggest that budgetary
performance evaluation provides employees with a sense of accountability and
responsibility, thereby increasing their motivation to meet budgetary goals. This implies
that employees feel a heightened sense of ownership and motivation when they are held
accountable for their budgetary performance.

61
  Budgetary performance evaluation fosters healthy competition among employees,
leading to increased motivation: The findings indicate that budgetary performance
evaluation fosters healthy competition among employees, leading to increased
motivation. This suggests that employees are motivated to excel in their performance
when they are compared to their peers based on budgetary achievements.

 Budgetary performance evaluation supports the development of employees' skills and

capabilities, boosting their motivation: The respondents' average rating of 3.77 indicates
that budgetary performance evaluation supports the development of employees' skills and
capabilities, consequently boosting their motivation. This implies that employees feel
motivated to enhance their skills and capabilities when their performance is evaluated in
relation to budgetary targets.

 Budgetary performance evaluation provides employees with a sense of fairness and

equity, positively Rolling their motivation: The findings suggest that budgetary
performance evaluation provides employees with a sense of fairness and equity, which
positively Roles their motivation. This implies that employees perceive budgetary
performance evaluation as a fair and equitable means of assessing their contributions,
leading to increased motivation.

5.3. Conclusion
Based on research findings of this study, the researcher can therefore conclude that

Budgeting and budgetary control has a vital role in aligning operational plans, resource
allocation, risk identification, and progress tracking with the strategic plan. Organizations
recognize the significance of financial planning in driving strategic decision-making and
achieving their goals beside this budgeting and budgetary control systems has a positive effect of
on various aspects, including responsibility alignment, accountability, transparency, individual
empowerment, and performance management within the organization.

The study also concludes that the importance of performance measurement, target setting, and
decision-making within budget and budgetary control systems in public enterprises. These
processes ensure clarity, accountability, and informed decision-making, leading to improved
performance and resource allocation inundation the study conclude that the positive influence of

62
budgetary performance evaluation on employee motivation, including aspects such as
achievement, recognition, clear expectations, intrinsic motivation, engagement, accountability,
healthy competition, skill development, and fairness

The study also concludes that that budget and budgetary control systems effectively incorporate
performance targets, indicators, and measurement to support decision-making, resource
allocation, and performance evaluation within the public enterprises. These elements contribute
to improved performance, accountability, and strategic alignment within the organizations

5.4. Recommendations

Based on the research findings, the following are the recommendations

 Enhance integration of budgeting with strategic decision-making: Organizations may

strengthen the integration of financial planning and budgeting processes with strategic
decision-making. This can be achieved by involving finance professionals in strategic
discussions and ensuring that budgeting activities are aligned with the strategic goals and
objectives of the organization.
 Improve access to up-to-date information: Organizations has to focus on improving the
availability and accessibility of timely and accurate information for budgeting and
budgetary control processes. Implementing robust information systems and data analytics
tools can help capture and analyze the latest information, enabling more informed
decision-making and accurate budget allocations.
 Foster a risk-aware culture: Organizations may promote a risk-aware culture by
incorporating risk assessment and analysis into the budgeting process. This includes
regularly identifying and evaluating potential risks and opportunities within operational
plans and incorporating appropriate risk mitigation strategies into the budgeting
framework.
 Strengthen performance measurement and evaluation: Organizations may enhance
performance measurement and evaluation mechanisms within budgeting and budgetary
control systems. This involves setting clear and quantifiable performance targets,
establishing key performance indicators (KPIs), and regularly monitoring and evaluating
performance against these targets. Performance feedback should be provided to

63
 employees to recognize achievements, identify areas for improvement, and enhance
motivation.
 Foster transparency and communication: Organizations has to promote transparency and
effective communication regarding the budgeting and budgetary control processes. This
includes clearly communicating financial targets, objectives, and expectations to
employees, and providing regular updates on progress towards strategic goals. Open
communication channels and opportunities for feedback can help align employees'
understanding of the budgeting process with organizational objectives and foster
engagement.
 Provide training and support: its better for organizations to invest in training programs to
enhance employees' financial literacy and budgeting skills. This includes providing
employees with the necessary knowledge and tools to effectively participate in the
budgeting process, understand financial statements, and contribute to decision-making.
Ongoing support and guidance should be provided to ensure employees feel confident
and empowered in their budgeting responsibilities.
 Foster a culture of accountability and recognition: it may be better for Organizations to
promote a culture of accountability by linking budgetary performance evaluation with
recognition and rewards. Recognizing and rewarding employees who meet or exceed
budgetary targets can help motivate and incentivize high performance. At the same time,
providing constructive feedback and support to employees who face challenges in
meeting budgetary goals can contribute to their growth and development.
 Continuously evaluate and improve the budgeting process: Organizations may be better
to regularly evaluate the effectiveness of their budgeting and budgetary control systems.
This involves seeking feedback from employees, monitoring the Role of budgeting
practices on organizational performance, and making necessary adjustments to enhance
efficiency, effectiveness, and alignment with strategic objectives.

64
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71
 Appendixes
Addis Ababa University Faculty of Business and Economics Department of Accounting and
Finance

Graduate Program (MA) in Accounting and Finance

Questionnaire to be filled by
Dear Participant
This questionnaire is designed to meet the objective for the research “Role of budget and
budgetary control system on the effectiveness of public enterprise: a case study of Ethiopian
electric utility’’ therefore; the data from this questionnaire will help the researcher to obtain
reliable and valid information. Your open and genuine response is highly appreciated. Any
information provided would only be used for academic purpose. as a result, it would be kept
confidential & utmost secrecy would be maintained. i thank you in advance for your cooperation

Part –I: Background information

Please provide your responses by marking a tick (√) in the relevant boxes
1. Gender: 1. Male □ 2. Female □
2. Age: 1. ≤ 30 year □ 2. 31- 40 years □ 3. 41- 50 years □ 4. Above 51 years □
3. Education: 1. Certificate □ 2. Diploma □ 3. BSc/ BA □ 4. MSc/MA and above □
4. Field of study: 1. Accounting& finance □ 2. Economics □ 3. Management □
5. Others, please specify ___________
6. How long have you been in your current title (position)?
Less than 2 years □ 2-5 Years □ 6-10 Years □ Over 10 year‟s □

72
 Part - II Question regarding Role of budget and budgetary control system on the effectiveness
of public enterprise: a case study of Ethiopian electric utility: Put a “√” mark in one of the
columns provided for each possible indicator. Use the scales: Strongly agree (5), Agree (4),
Neutral (3), Disagree (2), strongly disagree (1)

. Strongly agree (5) Agree (4) Neutral (3) Disagree (2) strongly disagree (1)

No Question regarding to what extent does budget and budgetary control 5 4 3 2 1

translate strategic plans into operational plans?
1 Budget and budgetary control help in aligning the operational plan with
the strategic plan."

2 Budget and budgetary control aims at to the achievement of

organizational goals and objectives as stated in strategic plan

3 Budget and budgetary control use latest information to realize strategic

plan?

4 Budget and budgetary control facilitate the identification of potential

risks and opportunities in the operational plan?

5 Budget provide tactical plan to minimalize the rates and exploiting of

opportunities use of up-to-date information and providing technical move
to tackle immediate problems
6 Budget and budgetary control provide quantitative and monitory
statement to express short term plan?
7 Budget and budgetary control provide a clear framework for tracking
progress towards strategic goals?

73
No Question regarding to how effective is budget and budgetary 5 4 3 2 1
control in promoting coordination of activities among different
budgetary control units?
1 Budget and budgetary control promote coordination of activists and
integration among related and different budget and budgetary control
units

2 Budget and budgetary control are based on identification of sequence

of operational plans

3 Annual operational plans clearly show time line and resources

required in each existing responsibilities center to accomplishes over
all goals of the firm
4 The operational plan and budget execution promotes communication
among units of the organization for shared goals?
5 Budget and budgetary control facilitate the sharing of resources and
knowledge across different budgetary control systems."
6 Budget and budgetary control systems foster coordination and
alignment between strategic objectives and operational activities
across different functions?

7 Budget and budgetary control systems facilitate the efficient

utilization of resources across different functions and budgetary
control systems.

74
No Question regarding to how does budget and budgetary control 5 4 3 2 1
enhance accountability and responsibility of business units?
1 Operational plan and budget are structural along the responsibility‟s
line (responsibility‟s centers)?

2 Budget and budgetary control are based on the principle of

controllability and accountability (units and their managers are Hold
accountable for what they can significantly influence
3 The operational plan and budget clearly show the responsibility of
business units and their managers demarcation of responsibility
areas

4 The implementation of budget and budgetary control systems fosters

a culture of responsibility and ownership among employees in
business units?
5 Budget and budgetary control systems promote transparency and
accountability in operational and financial decision-making within
business units?

6 Budget and budgetary control systems encourage employees to take

ownership of their assigned budgets and financial targets.

7 Budget and budgetary control systems contribute to individual

empowerment and autonomy in decision-making within business
units?
8 The implementation of budget and budgetary control systems
improves individual accountability for financial results and
outcomes."

75
No Question regarding in what ways does budget and budgetary 5 4 3 2 1
control promote performance measurement?
1 Budget shows clear performance target
2 Budget and operational plans quantify performance target in as
much as possible
3 Operational plans and budget established performance indication to
evaluate progress of business units
4 Key performance indicators are identified to minimalize duplication
of measure and indicate performance effectiveness and efficiency
5 Budget and budgetary control procedures aim at identification of
significant performance direction that require management attention
for remedial action

6 Budget and budgetary control provide sufficient feedback of

implementation to improve budgetary planning

7 performance based reward and compensation provide incentive

biased on group and individual performance

8 Performance measurement enables a comprehensive evaluation of

the performance and Role of budgetary control systems.

9 Performance measurement supports decision-making and resource

allocation within budgetary control systems?

76
No Question regarding is there a link between budgetary 5 4 3 2 1
performance evaluation and employee motivation?
1 Budgetary performance evaluation positively influences
employee motivation?

2 Employees are more motivated when their performance is

evaluated based on budgetary targets."

3 Budgetary performance evaluation to provide a sense of

achievement and recognition for employees?

4 Budgetary performance evaluation contributes in setting

clear performance expectations and goals, which in turn
enhance employee motivation?
5 Budgetary performance evaluation enhances employee
engagement and commitment to achieving budgetary
targets?

6 Budgetary performance evaluation provides employees

with a sense of accountability and responsibility, thereby
increasing their motivation to meet budgetary goals?
7 Budgetary performance evaluation fosters healthy
competition among employees, leading to increased
motivation."

8 Budgetary performance evaluation supports the

development of employees' skills and capabilities,
consequently boosting their motivation?
9 Budgetary performance evaluation provides employees
with a sense of fairness and equity, which positively Roles
their motivation?

77