BUDGET AND BUDGETARY CONTROLS AS A TOOL FOR THE EVALUATION OF MANAGEMENT PERFORMANCE (A CASE STUDY OF ANGLOGOLD ASHANTI (GH) LIMITED)


BUDGET AND BUDGETARY CONTROLS AS A TOOL FOR THE EVALUATION OF MANAGEMENT PERFORMANCE (A CASE STUDY OF ANGLOGOLD ASHANTI (GH) LIMITED)  

ABSTRACT

The research enquired examined budgets and budgetary controls as a tool for the evaluation of management performance in AngloGold Ashanti Obuasi mine. The objective of the paper was to identify if there is a link between budgetary control and management performance.

A descriptive case study approach was used for the study. Thirteen departmental heads of Anglogold Ashanti Limited were sampled using the purposive sampling technique.

The researcher employed a descriptive study outline for information gathering. From the thirteen departmental heads of Anglogold Ashanti Limited sampled, a carefully designed questionnaire was used to elicit their response as per the subject matter of the study. The data was analysed using the Statistical Package for Social Sciences with descriptive statistics such as frequencies and percentages. A regression analysis model was used to analyse the link between budgetary control and management performance.

The study found that there is a positive relationship between budgetary control and management performance with budgetary control process and challenges in the control systems having the highest influence on management performance among the factors examined. Budgetary control features and human elements in budgetary control also had an influence on management performance but were not as pronounced as the factors in the control process and the challenges in the budgetary control systems. The study recommends that, the management of Anglogold Ashanti Limited must continually review their budget and budgetary control systems in order to ascertain its effectiveness. It also suggests for further research in the same sector but with a larger sample.

TABLE OF CONTENTS

DECLARATION I

CERTIFICATION II

DEDICATION III

ACKNOWLEDGEMENT IV

TABLE OF CONTENTS V

LIST OF TABLES VIII

CHAPTER ONE 1

INTRODUCTION 1

BACKGROUND TO THE STUDY1

PROBLEM STATEMENT4

OBJECTIVES OF THE STUDY5

RESEARCH QUESTIONS6

SCOPE OF THE STUDY6

LIMITATIONS OF THE STUDY7

SIGNIFICANCE OF THE STUDY7

ORGANISATION OF THE STUDY8

CHAPTER TWO 9

LITERATURE REVIEW 9

INTRODUCTION9

THE HISTORY OF BUDGET AND BUDGETARY CONTROL9

THE CONCEPT OF BUDGET11

CHARACTERISTICS OF BUDGET13

BUDGET MANUAL AND ITS OBJECTIVES14

TYPES OF BUDGET15

FIXED BUDGET16

FLEXIBLE BUDGET16

CASH BUDGET16

MASTER BUDGET17

SALES BUDGET17

ROLLING BUDGET18

SHORT TERM BUDGET18

LONG TERM BUDGET18

PREPARATION OF BUDGET19

THE BUDGET CYCLE20

THE BUDGET PERIOD20

PURPOSE OF BUDGET PREPARATION21

BENEFITS OF A BUDGET23

CHALLENGES OF A BUDGET24

BUDGETARY CONTROLS26

THE CONCEPT OF CONTROL26

BUDGETARY CONTROL27

OBJECTIVES OF BUDGETARY CONTROL29

CONDITIONS FOR EFFECTIVE BUDGETARY CONTROL SYSTEM30

THE BUDGET AS A TOOL FOR FINANCIAL PERFORMANCE31

REASONS FOR MEASURING FINANCIAL PERFORMANCE32

CRITERIA FOR MEASURING BUDGET PERFORMANCE33

REVIEW OF RELATED STUDIES35

CHAPTER THREE 39

METHODOLOGY AND ORGANISATIONAL PROFILE 39

INTRODUCTION39

RESEARCH DESIGN39

POPULATION OF THE STUDY40

SAMPLING TECHNIQUES40

SAMPLE SIZE41

DATA SOURCES41

INSTRUMENTS FOR DATA COLLECTION42

RELIABILITY AND LEGITIMACY OF THE INSTRUMENT42

DATA ANALYSIS42

ETHICAL CONSIDERATIONS42

PROFILE OF ANGLOGOLD ASHANTI OBUASI MINE43

CHAPTER FOUR 47

ANALYSIS OF FINDINGS AND DISCUSSION OF FINDINGS 47

INTRODUCTION47

ANALYSIS OF DEMOGRAPHIC DATA47

THE LINK BETWEEN BUDGETARY CONTROLS AND MANAGEMENT PERFORMANCE52

ANALYSIS OF BUDGETARY CONTROL FEATURES IN RELATION TO MANAGEMENT PERFORMANCE52

ANALYSIS OF THE HUMAN ELEMENTS IN BUDGETARY CONTROL IN RELATION TO MANAGEMENT PERFORMANCE54

ANALYSIS OF BUDGETARY CONTROL PROCESS AND CHALLENGES OF BUDGETARY CONTROL SYSTEMS IN RELATION TO MANAGEMENT PERFORMANCE57

ANALYSIS OF THE RATING OF THE BUDGETARY CONTROL FACTORS IN RELATION TO MANAGEMENT PERFORMANCE60

CORRELATION ANALYSIS ON THE RELATIONSHIP BETWEEN BUDGETARY CONTROL AND61

MANAGEMENT PERFORMANCE 61

MANAGEMENT PERFORMANCE TREND IN ANGLOGOLD ASHANTI, OBUASI MINE62

CHAPTER FIVE 65

SUMMARY OF FINDINGS, CONCLUSION & RECOMMENDATIONS 65

INTRODUCTION65

SUMMARY OF FINDINGS65

CONCLUSION67

RECOMMENDATIONS67

DIRECTIONS FOR FUTURE STUDIES68

REFERENCES 69

APPENDICES 75

LIST OF TABLES

Table 1: Gender of Respondents 47

Table 2: Age of Respondents 48

Table 3: Educational Background of Respondents 50

Table 4: Department of Respondents 51

Table 5: Length of service of Respondents 51

Table 6: Respondents‘ Duration in Current Role 61

Table 7: Correlation between Budgetary Control and Management Performance 63

Table 8: Management Performance Indicators of AngloGold Ashanti 68

CHAPTER ONE INTRODUCTION

Background to the Study

The efficiency and effectiveness of the processes of a business relies on the controls accessible to management. There are several activities happening concurrently in all business organisations, for example, production, procurement, distribution, marketing and financing a product. These activities are interrelated in such a manner that they influence the achievement of the business objectives. Thus, management needs to ensure that the scarce resources available to the organisation are equitably distributed in order that none of these activities are put aside.

A budget and budgetary control system serves as one of the means of controlling the scarce resources available to individuals and business entities.

The Chartered Institute of Management Accountants (CIMA, 2004), describes a budget as "a financial and/or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective.‖   Drury (1992) cited in Sunkar (2005) stated that, ―a budget provides a course of action over a particular period of time, which aids the operations of the business entity.‖

―Budget  serves  as  a  tool  for  coordinating  and  assessing  the  performance  of  individuals  or sections of an organisation and also structure the decision making environment (Bruns and Warehouse, 1975 cited in Kpedor, 2012).‖ Thus, they seem to be a suitable control device affecting the performance of organisations.

For a specific period's financial plan to be helpful, the real results at the end of the period must be juxtaposed with the budget. The base of comparison of the budget to the actual results obtained at the end of that particular period is what is referred to as budgetary control. CIMA (2004) defines budgetary control system as, ―the establishment of budgets relating to the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision.‖

―The process of comparing actual results with planned results and reporting on variations is referred to as budgetary control (Lucy, 1989 as cited in Sunkar (2005).‖

According  to  Wagh  and  Gadade  (2013),  ―budget  and  budgetary  control  system  are  the regulatory tools of an organisation‘s operations by instituting benchmarks and objectives regarding income and expenditure, and a constant monitoring and fine-tuning of performance against  them.‖  ―Budget  and  budgetary  controls  provide  information  and  data  of  past performance and thus helps in making reasonable comparisons between planned and actual progress. In budgetary control, adjustments sometimes made to current budget or future budgets to bridge any performance gaps that may be present (Kpedor, 2012).‖

―Budget and budgetary controls assist management to make a cautious and rational scrutiny of all current operations so as to justify the need to expand, eliminate, restrict or diversify the current practice Fisher, et al, (2000) cited in Igbinosun and Ohiokha (2012).‖

According to Steven (2002) as cited in Igbinosun and Ohiokha (2012), ―budget and budgetary control involves a particular outline of choices in an organisation which is fit for determining

its targets, purposes or objectives, and how these objectives are accomplished by establishing key policies and plans‖

According to Bierman (2010); and Bonner (2008) as cited in Raghunandan, Ramgulam and Raghunandan-Mohammed   (2012),   ―the   budgeting   process   includes   strategic   goals   and objective setting, development of revenue, cost, production and cash flow forecasts by setting up the investment and financing strategy. This will aid the finance function in deciding on the choice of investments to be made and the means of financing these investment choices‖.

―Budgeting  pulls  together  choices  with  respect  to  capital  budgeting,  capital  structure  and working capital (Drake and Fabozzi 2010 cited in Raghunandan et al. 2012).‖

The end result of the procedure is the creation of the formal report referred to as a ―budget‖ (Raghunandan et al. 2012).

Every organisation, notwithstanding its size, sophistication or segment, depends strongly on budgets and budgetary controls to accomplish strategic objectives (Raghunandan et al. 2012).

―The achievement and significance of budgeting relates to the identification of organisational goals, sharing of responsibilities regarding achieving these goals, and hence its execution (Shah, 2007); Robinson 2007; Drake and Fabozzi 2010 cited in Raghunandan et al., 2012).‖ According to Raghunandan et al. (2012), one of the most successful and useful management accounting techniques, budget and budgetary control, if properly understood and implemented can yield good results for organisations. Budget and budgetary control is a management role that encourages individuals to plan and formally accomplish their plans quantitatively.

Thus, it is an essential instrument that management uses to co-ordinate an organisation‘s numerous activities.

Spending plan preparation is seen as a serious component of management (Otley&Pollanen, 2000 and Otley, 2003 as cited in Kpedor, 2012). As budget and budgetary control give the requisite benchmarks against which performance could be measured, the budget can therefore be used to assess the performance of the organisation.

It is therefore against this background that this study seeks to study budget and budgetary control as a tool for the evaluation of management performance.

Problem Statement

Budgets are very essential to judiciously manage limited financial resources and equally serve as a medium of approval, regulation and assessment of expenditure. Income generating establishments; consider budgets and budgetary controls as significant components in their strategy development. Budget can therefore shape the direction of firms and thus make firms successful or fail. The failure or success of an organization hinges generally on budget preparation and powerful budgetary controls.

The absence of or weak budgets and budgetary controls in most organisations characterized by managerial, financial, administrative and production constraints has led to failure of these organisations recently (Bradstreet, 2004).

It is of no doubt that one of the key performance indicators of every entity is budget and budgetary control system.

Budgeting provides a suitable benchmark for measuring performance that motivates managers and employees. According to Horngren, (2003) cited in Onduso, (2013), ―budgets provide valuable data for managers to assess firm performance and inform financial allocation strategies across various components of a firm.‖

Budgets, therefore, encourage employees to contribute their best in the business which is also geared towards the achievement of the goals of the organisation.

Thus, the budget of every business organisation is the instrument of making decision, the pivot around which all decision on any venture is derived.

Realising how sensitive and the significant a budget is to every business entity, it is therefore incumbent on management of organisations to get accurate budget information that presents the real state of affairs; as the performance of management could be measured on the basis of the budget and budget control systems.

There are however lots of empirical literature that assess the performance of firms using budget and budgetary control systems as tools for the evaluation of performance. However, though the mining industry across the world also plays significant roles in the economy of countries that engage in mining, there has been scanty literature assessing how budget and budgetary control can be used as tools to evaluate the performance of management.

It is therefore on the basis of the problem above that this study seeks to assess how budget and budgetary control system can be used as a tool for the evaluation of management performance in Anglogold Ashanti.

Objectives of the Study

The general aim of the research is to ascertain how budgets and budgetary controls can be utilised as a tool for the evaluation of management performance.

The specific objectives are:

i. To   ascertain   the   linkage   between   budgetary control   and   management

performance in Anglogold Ashanti‘s Obuasi Mine.

ii. To ascertain the challenges related with budgets and budgetary control in Anglogold Ashanti‘s Obuasi Mine.

iii. To identify ways to improve the performance of management of Anglogold Ashanti‘s Obuasi Mine through budgetary control measures.

Research Questions

The following questions conducted the study:

i. What relationship exists between budgetary control and the Obuasi Mine‘s management performance?

ii. What are the challenges related with budgets and budgetary controls in the Obuasi Mine?

iii. How can the Mine‘s management performance be enhanced by the use of budgetary control measures?

Scope of the study

The study shall concentrate on the Obuasi Mine of AngloGold Ashanti in Obuasi; in the Ashanti Region of Ghana. The research covers the budgeting processes and budgetary controls of the Obuasi Mine and how it can effectively be used to evaluate managerial performance. Within the extent of this study, the findings could not be generalised to other mining companies be it in Ghana or other parts of the world.

Limitations of the Study

The constraints of the researcher in carrying out this research were as follows:

The time used to carry out the study was limited. As a full time worker, the time was loaded with tight work schedules to be met and other academic activities. The interview responses from the management staff were also a bit slow due to the sensitive nature if the topic. Thus, the respondents feared breaching their confidentiality oath.

Only department heads relevant to the objectives of the study have been covered.

The identity and responses of the respondents will not be available due to privacy concerns.

Sampling size is too small, thus a study with different sample size or on different geographic location may present different results.

Significance of the study

This research will add immensely to research and policy.

For research, this study will serve as the foundational stone upon which further studies on the subject matter of this study in the mining industry would be built.

The study will serve as a guide for budgeting and budgetary control to the management of Anglogold Ashanti, Obuasi Mine in imminent monetary decision. It will also assist as a stimulus in the development of institutional policy framework on prudent financial management, which is relevant for survival in the turbulence (tumbling gold prices) being experienced in the Gold Mining Industry.

Organisation of the Study

The study has been grouped under five chapters. Chapter one introduced the context to the study and defined the exact problems addressed in the study, as well as importance of the study.

Chapter two presents a review of literature and applicable research related to the problem addressed in this study.

Chapter three presents the methodology and procedures used for data collection and analysis as well as the design components.

It also presents the profile of the organisation under study, Anglogold Ashanti (Ghana) limited, Obuasi Mine.

Chapter four comprises an analysis of the findings and discussion of the findings.

Chapter five presents a summary and discussion of the research findings, propositions for practice and recommendations for further studies on the topic.

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BUDGET AND BUDGETARY CONTROLS AS A TOOL FOR THE EVALUATION OF MANAGEMENT PERFORMANCE (A CASE STUDY OF ANGLOGOLD ASHANTI (GH) LIMITED)



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