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BUDGET AS A TOOL FOR
EFFICIENT CORPORATE PERFORMANCE IN AKWA SAVINGS AND LOANS LIMITED
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The going concern concept has it that once an organisation
commences business it wishes to continue operations in perpetuity. That is, to
continue operations for a foreseeable future. Thus, whatever the nature, size
and mode of operation of the business; the going concern concept still has it’s
place. Many reasons abound for the conception of a business as a going concern.
This ranges from the benefits derived, meeting of specific needs of
individuals, and that of the society at large. Ironically, a business, like any
other human entity cannot exist in perpetuity, but could be in existence for a
much longer period of time. Thus, the long existence of a business, hinges on
some factors, such as effective planning, good management, profitability,
conducive operating environment favourable government policies etc. However,
planning constitutes a key factor in the management process of a business, it
is also the bedrock to other success factors.
Planning is a comprehensive management function that includes
setting of goals, selecting missions and objectives and developing active plans
to achieve them. It bridges the gap between ‘where we are’ and ‘where are
going’. According to Cole (2002:122), “planning is basically a decision making
process by which an organisation decides what it wants to achieve, how it
intends to achieve it, and in what manner”. It is concerned with ends, means
and conduct. Planning is the design of a desired future and effective ways of
bringing of about (Ackoff, 1981). A distinction is normally made between short
term planning and long-rang planning (Strategic or Corporate Planning). Sizer
(1989) defines long-range planning as a systematic and formalized process for
purposely directing and controlling future operations towards desired
objectives for periods extending beyond one year. Short-term planning, on the
other hand must accept the environment, and the physical, human and other
financial resources at present available to the firm. Planning is an essential
tool for business survival, it reduces uncertainty and provides direction of
efforts by determining the course of action in advance. Planning remains inevitable
for managers that wishes to succeed. It involves the determination of what
should be done, how the goals may be reached and what individuals or units to
assume responsibility and be held accountable. Planning coordinates the various
activities of an organisation to ensure the congruency of goals in order to
attain the firm’s objectives. However, an aspect of planning which entails the
preparation of plan of action for future period for the success of the firm is
known as budgets.
Budgets are financial plans of the resources needed to carry
out task and financial goals. They are plans expressed for the future to be
accomplished within a specified time period. Charles T. Horngren (1997:176)
defines a budget as “a quantitative expression for a set time period of a
proposed future plan of action by management of an organisation”. Budgets
provides an orderly way to proceed to attain goals and also provides a time
schedule for future actions to produce measurable result. According to Adeniyi:
Adeniji (2004:298) a budget is “a plan quantified in monetary terms, prepared
and approved prior to a defined period of time, usually showing planned income
to be generated and expenditure to be incurred during that period and the
capital to be employed to attain a given objective”. Budgets coordinates the
activities of employees and the various units of a firm to achieve congruency
of goals. It serves as a guide to activities of an organisation. It ensures
that all efforts by individuals and units are geared towards the attainment of
the overall corporate objective. This meshing of objectives brings about a
boost to the overall corporate performance of the organisation.
The corporate performance of a firm determines it’s success
and by extension it’s longetivity (survival). The corporate performance of a
firm could be effective and efficient or otherwise (weak or poor). Thus many
factors are responsible for the nature of a firm’s corporate performance. It
has been the wish of managers to see to the continued existence of a firm for a
foreseeable future. Thus, managers strive to achieve a continued effective and
efficient corporate performance to guaranty the organisation’s existence. This
they do by constantly adopting measures that will enhance the firm’s corporate
performance. Thus, this research is prededicated on the need to assess the
place of budget in the corporate performance of Akwa Savings and Loans Limited,
Uyo.
1.1 STATEMENT OF THE
PROBLEM
Budgets are comprehensive and coordinated plan expressed in
financial terms for the operations and resources of an enterprise for some
specific period in the future. This plan (budgets) helps in the organizations
attainment of it’s objectives. Irrespective of the availability of budgets as a
tool for effective corporate performance, most firms are yet to derive the
accruing benefits. This constitutes problems as identified by the investigator.
However, this problems ranges from non-adoption, ineffective implementation and
control of budgets.
Some organisation designates the responsibility of budget
formulation totally to low level staff of the organisation. The supervisors and
other top level executives only approves the budgets without actual
verification to justify the budgeted levels by the low level staff. Hence,
budgets so prepared does not give a true reflection of the organisation. This
may in turn result in setting too low a target or very high target to be met.
Thus, further results in large variances i.e. wide deviation of the actual from
the budgeted.
Budgets as financial plans entails planning both for the
future income and expenditure of the firm. It serves as a bedrock of an
organizational financial control. It helps to streamline an organisation’s
activating level in consonance with those planned for. Nevertheless, some
organizations do not adhere strictly to the planned level of activity, they
tend to deviate, thereby incurring more expenditures without much effort geared
towards revenue generation. This mostly occurs due to the ineffective
implementation and control of budgets. Thus further resulting in an ineffective
financial control.
Also, as an offshoot of the above problem some firms
profitability has declined significantly over the years following the
ineffective implementation and control of budgets. This, by extension distorts
the corporate performance of the organisation. Hence resulting in difficulty in
attaining it’s objectives.
Consequently, it is with regards to the above problems
needing urgent attention, that the researcher decides to find solutions to the
problems so identified.
OBJECTIVES OF THE STUDY
The broad objective of this study was to find out how budgets
can be a handing tool for effective corporate performance of Akwa Savings and
Loans Limited, Uyo. However, specific objectives of the study were as follows:
To identify the types of budgets prepared by Akwa Savings and
Loans Limited, Uyo (ASL).
To assess the impact of budgets on ASL’s profitability.
To ascertain the impact of budgets on it’s financial control.
To find out how budgets serve as an effective tool for
decision making.
To assess the budget control measures adopted by ASL and it’s
effectiveness.
1.3 RESEARCH
HYPOTHESES
To guide the field operation of this study and especially to
ensure that all data collections and analytical efforts were directed at
searching out answers to the various aspects of the research problems, the
following research hypotheses were formulated.
H1: There is a
significant relationship between ASL budgets and that
of other financial institution.
H1: Profitability of
ASL has been significantly enhanced by budgeting
controls adopted.
H1: Financial
control measures of ASL is strengthened by budgeting.
H1: Budget does
guaranty the effective and efficient corporate performance of ASL.
1.4 SIGNIFICANCE OF
THE STUDY
This study has it’s significance in all aspects of human
endeavour. Thus, it’s significance cuts across the individual, corporate, Government
and societal perspectives.
For the individual, this study will be of immense help,
because it gives a good orientation on planning, going by the fact that all
individuals are faced with some kind of situation which requires some sort of
planning. Thus, it (the study) buttresses the need for setting clear and
realistic goals and also working towards it’s achievement.
Also, for corporate bodies, this study will be an eye-opener
to certain clues that ensures a firm’s growth, maturity and sustenance. Hence,
it emphasizes the need to set clear and realistic goals, to coordinating all
efforts towards it’s achievement and a comparison of results and goals set for
effective control.
As concerning the government and the society at large this
study, gives important fact concerning budget formulation implementation
control and it’s importance. It is an agreed fact that budgets prepared by the
government serves as a basis for policies which effect the overall economic
activity in the economy. Hence, with this study highlighting important facts
concerning budgets, better budgets will be formulated and better policies for
the advancement of economic activities. Thereby, fostering economic growth and
development.
SCOPE AND LIMITATION OF THE STUDY
The scope of this study covers the preparation,
implementation and control of budget that forms a basic tool for an
organisation’s goal attainment and effective decision making.
Also, this study only examines the effectiveness of budgets
toward goal attainment with regards to only one mortgage institution amongst
the many in the industry.
The following constraints were encountered by the researcher
in the course of making this study:
Financial Constraints: Some of the research procedures,
techniques, methods and processes were not applied in this work because of the
cost involved. Thus, there was not enough funds to meet these needs.
Non Response: Although, detailed explanations more made as to
the purpose of this study, some people were reluctant to answer and return their
questionnaire passed to them in time.
Time Factor: The period of time allowed for the conduct of
this study was very short, given the nature of indepth analysis required. Also,
the short period was loaded with academic activities and other academic
commitments.
ORGANISATION OF STUDY
This study was organized into five chapters: Chapter 1,
contains the introduction, statement, statement of the problem, objectives of
the study, Research hypothesis, significance of the study, scope and
limitations, organisation of study and a brief historical background of Akwa
Savings and Loans, Limited, Uyo. Akwa Ibom State (subject of study). Chapter 2
presents a review of related literature. Chapter 3, presents the research
methodology and design of study. In chapter 4, the data collected is presented
analysed and interpreted through the use of tables and figures to fully explain
the findings. Finally, chapter 5, being the last chapter, contains the summary,
conclusions and recommendations.
BRIEF HISTORICAL BACKGROUND OF AKWA SAVINGS AND LOANS
LIMITED, UYO, AKWA IBOM STATE
Akwa Savings and Loans Limited (ASL) was incorporated in 25th
January, 1993 under the name Akwa Mortgage Finance Limited (RC213814) with an
authorized and fully paid share capital of N200 million.
The name of the Bank was changed the Akwa Savings and Loans
Limited by a special resolution on 23rd June, 1995. The Bank was subsequently
reincorporated on 7th July, 1995 in accordance with Mortgage Institution Decree
53 of 1989. On 24th August, 1995 it was licensed to carry on Mortgage banking
business and in August 1995 it commenced operations at it’s corporate Head
Office, 42, Oron Road, Uyo. The Bank is
wholly owned by the Government of Akwa Ibom State.
Akwa Savings and Loans Limited is a provider of Mortgage and
Bankings Services to corporate, Commercial and individual customers. The Bank
provides such banking services as Savings and deposit accounts; and Mortgage
services such as commercial and individual mortgage loans, Mortgage
administration scheme, National Housing Fund (NHF) loan and estate services.
The Bank has identified the vital role that the housing
sector plays in the economic development of the country. In that regard, the
Bank is repositioned to play a pivotal role in the housing sector by
harnessing. Core ideals of efficiency, humility and harmony, while utilizing
up-to-date information and communication technology.
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