AMBO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

A Research Proposal on Assessment of Budget Preparation Process and Performance

Evaluation (Case Study on Ambo University)

Group Members ID Number

1. Yadashi Soressa --------------------------------------------------------------R/0363/05

2. Tigist Beletew ---------------------------------------------------------------R/0357/05
3. Beyene Anteneh -------------------------------------------------------------R/0329/05
4. Hayleneskel Lulseged ------------------------------------------------------R/0340/05
5. Gadisa Tesfaye --------------------------------------------------------------R/0339/05

Advisor Sori Tefera (MSc)

January 2015

Ambo, Ethiopia
 ACKNOWLEDGEMENT

First of all our deepest thanks goes to almighty of God for let us to stay in life to this day
and enables is to complete our academic life. We also would like to say thanks to our
advisor Sori Tefera for his enthinusitic support from the interpretation until the final
discussion of this paper with frequent follow up with receiving in detail, main body of
the paper forwarding constrictive suggestion.

We are greatly thanks for our family they had been assisted our schooling life and to give
advice how can we goes with our planning activity to finish our academic schooling in
this University.

Finally we would likes to acknowledge all individuals and institutions that have helped
us materially and morally during the preparation of this paper.
 ABSTRACT

This research is conducted to the assessment of budget preparation process and

performance evaluation of Ambo University.

The objective of the study is to assess the problems that affect the budget preparation
process and performance evaluation of the organization.

To collect the data the researcher use both primary and secondary data. The primary data
is collected from questionnaires and interview. And secondary data collected from
reference books, internets, published articles and also budget manual of the organization.

In this research the researchers take total population of the study.

The data analysis would be carried out based on tabulation and percentage method and
interpreted accordingly.

Finally summary, conclusion and recommendation on relative sources usage are forward
to combat the possible solution.
 CHAPTER ONE

INTRODUCTION
1.1. Background of the study
Everyone has heard that planning for success will help you attain it. When you plan you
need how you get it help reach your ultimate goal. An operational budget focuses on the
income statement and helps you plan your expenditures properly in order to not end up
with a significant surplus or deficit at year ended. (Bruns and John 2011)
Budget is quantitative expression of plan for a defined period of time. It is organization
plan stated in monetary terms. A budget is comprehensive, formal plan that estimates the
probable expenditure and income for an organization over specific period. Budgeting
describes the overall process and preparing and using a budget. Budget is an ongoing
process it does not occur in a vacuum or for limited period ongoing monitoring data
gathering analysis revision of alternatives are needed. Budgets are required before
organization can apply for funds from most funding sources. Effective budget depend on
having clearly defined strategies for the budget process (Murry and et al 2007).
During budget preparation the organization must to follow strict rule. It is preference
way to prepare effective budget there must be a rule that lead the most favourable
outcome. (Alesina and Peroti 2007)
Budget helps to aid the planning of actual operations by forcing managers to consider
how the conditions might change and what step should be taken now and by encouraging
managers to consider problems before they arise. (Brownell 1982)

Budgetary performance of the organization against many problems. such as budget

deficit, unequal distribution of budget, etc. Hence, there should be an inviting effort to
minimize budget deficit. (Larry et al 1995)

Most of the time budget deficit should be controlled by finance organizations and by
periodical performance of the organizations. But taking this case into account there is a ga
created within the organizational system which affects the goal of the organization.

The budget at right place support the organization objective customer service, return of
investment, promoting high profit and others objectives. Organization performance is
different from one organization to other organization, but all need adequate budgetary
performance management. (Chandra 1998)

Many organizations prepare budgets that they use as method of comparison when
evaluating their actual results over the next year.

This study will focus on the assessment of budget preparation process and performance
evaluation of Ambo University. And we will assess the problem occur during the budget
preparation stage and performance evaluation.

Most of the time organizations face many problems at the time of budget preparation
Some of these problems are: -If the budget is not prepared at the right time, lack of follow
the steps to prepare budget, if essential only one or two persons are participate at the time
of budget preparation, if the manager of organization is carless in budget preparation.
(Larry and et al 1995).
+Properly managed budgetary performance is good to the organization development. But
absence of this the organization would be not fulfil their goal and objectives.
So the study will assess those problems that occur during the time of budget preparation
process and performance evaluation of Ambo University.
Properly prepared and managed budget support the organizational objectives, customer
service, return on investment, promoting high profit and others objectives.

Generally now a day every organization is preparing budget and at the end of the year
evaluate it with actual result, it should be available management tool, express plan for the
future year and it states how available resources would be employed and what additional
resource would be needed. (Larry and et al 1995)

1.2. Statement of the problem

Budget is the formal expression of the plan and objectives of management to the
organization which covers all phase of operation for specific period of time.(Murry and et
al 2007)

Different research scholars give many suggestions in budget preparation process and
performance evaluation of any organization and we try to discuss some of the suggestions
given by these scholars.
According to research conducted by Josh and et al in USA 2003 they examine budget
planning implementation and performance evaluation practices by utilizing questioners
survey of 54 medium and large size companies located in Bahrain. Use of budget is
planning to manager’s ability for timely recognition of problem and to improve the next
period’s budget. Finding is that the need for research on attitudes held by the budgeters
towards, the use of budget variance in the context of advanced management accounting
techniques.

According to the research conducted by Murry and et al in France in 2007 they state that
the budget is an ongoing process it does not occur in vacuum or for limited period on
going monitoring and data gathering analysis revision of projection and assumption and
consideration of alternatives are need. Examine the non profit organizations that found in
the country practice utilized a questioner survey of 32 non profit organization in France.
Over the time careful attention to the budgeting process will lead to gather financial
stability operational effectiveness and efficiency. Effective budget depend on having
clearly defined strategies for the budget process. The finding is that if the organization do
not prepare budget periodically they didn’t reach the specific goals it has set, difficult to
adjust plans activities and spending as need

According to research conducted by Larry and et al USA in 1995) they state that to be
effective the organization must have a quantitative understanding of both the
requirements of future mission and limitation of current rovers. To understand this issue
there must be performance evaluation. The finding is that if the organizations have not
performance evaluation they can’t understand their organization in what position and
what happen in the future. They examine mars analogue terrains in this arena by
randomly distributing rocks according to an exponential model of mars rock size
frequency created from Viking lender imagery. To date, they have recorded detailed logs
from over 85 navigation trials in this test bed.

From the above literature we can conclude that budget is important for every
organization. And also we understand that if budget is not prepare properly and evaluated
the objective of the organization is misstated.

This study will examine the budget preparation process and performance evaluation and
the problems that arise during budget preparation process and performance evaluations in
Ambo University.
1.3. Research questions
In this study the following questions are discussed
1. What are the main problems that arise at the stage of budget preparation process
and performance evaluation?
2. If there is a problem what is the cause of the problem?
3. What are the factors that affect the budgetary performance of the organization?
4. Is the budget is participatory or not?
1.4. Objective of the study
1.4.1. General objective
The general objective of this study will be assessment of budget preparation process and
performance evaluation case study in Ambo University.
1.4.2. Specific objective
 To assess the problems that arises at stage of budget preparation process and
performance evaluation in Ambo University
 If there is a problem, to identify the cause of the problem.
 To assess the factors that affect budgetary performance
 To identify whether the budget participation process is participatory or not.
1.5. Significance of the study

The aim of this study will be to investigate the assessment of budget preparation process
and performance evaluation in Ambo University. It helps to identify ways and means by
which the organization budget and its performance is improved to the best level
expectation in addition it play a great role to avoid the problem that arise at the time of
budget preparation performance evaluation of the organization.

It also help for future researcher as evidence or as a data when the conduct their research.

1.6. Scope of the study

To come up with effective and better study it was better if the study would be conducted
on over all organization budget preparation process and performance evaluation as
compared with other similar organizations but due to the financial and other constraints
this study conducted only in Ambo University. Therefore the study is limited to this
organization.

1.7. Organization of the paper

This paper includes five chapters. The first chapter present the introduction part which
reflecting the background, statement of problem, objective of the study, significance of
the study, limitation of the study and organization of the paper. The second chapter deals
with literature review. The third chapter deal with research design and methodology of
the study. The fourth chapter deal with data analysis and interpretation. The fifth chapter
consist of summary, conclusion & recommendation.

1.8. Limitation of the study

When we conduct this research there are some limitations that we observes are

Lack of financial resource

Unwilling to response the answer we have to distribute 25 questionnaires to the

employees that work in finance and accounting office of the organization, but only 20 of
the respondents are willing to response the questionnaires 5 of the respondents are not
willing to response the questionnaires.
 CHAPTER TWO

LITERATURE REVE
2.1 Background of the organization

Ambo University is one of the for most higher learning institution with significant
contribution in the country’s overall development by building the capacity of
development agents through short, medium, and long term training in various fields since
its establishment in1939

It was established in1939 as a junior high school offering diploma programs to mid-level
professionals who could help in technology transfer for farmers. The university since its
establishment had passed through several levels of development. In the course of
developmental process it had enrolled students from various backgrounds and students
graduated with up to master’s level professionals.

Ambo University is one of the fastest growing Ethiopian currently expanding to four
campuses. In addition to the main campus, it has two functional campuses, weliso
Business and economics and Awaro Technology campuses and Guder campus which is
under construction After passing through various developmental stages it has recently
became independent with a status of university organized in to five colleges and three
institutions and two schools with 38 academic departments. The primary objectives of the
university are to promote and advance academic and research in all aspects of sciences to
contribute to sustainable development of the country.

2.2 Definition of budget

According to Business dictionary an estimate of cost, revenue, and resource over a

specified period, is reflecting a reading of future financial conditions and goals. One of
the most important administrative tool, a budget serves also as a plan of action for
achieving quantified objectives, standard for measuring performance, and device for
coping with foreseeable adverse situation.
Budget is predetermining statement of management policy during a given period. Which
provide standard for comparison of results actually achieved (Brown and Haward995).

Budget is an estimation of revenue and expense over specific future period of time. A
budget may be made for a person, family, group of people, business, government,
country, multinational organization or just about anything else that makes and spends
money. A budget is macroeconomic concept that shows the trade-off made when one
good is exchanged for another.

In an educational environment budgeting is an available tool for both planning and

evaluation. Budgeting provides a vehicle for translating educational goals and programs
in to financial resource plans-that is developing an instructional plan to meet student
performance goal should be directly linked to determining budgetary allocation. The link
between instructional goals and financial planning is critical to effective budgeting and
enhance the evaluation of budgetary and educational accountability.

2.3 Characteristics of budget

 Budget is primary planning and control device
 Budget is prepared in monetary term and/or quantitative term
 Budget is prepared for defined future period
 Budget shows planed income and expenditure and also capital
 Purpose of budget is to implement the policies formulated by management for
attaining the given objective.
2.4 Budget preparation
2.4.1 Time of budget preparation

At least two or three months before the binging of your fiscal year you will want to start
thinking about the budget for the coming year.

The budget ordinary corresponds to your fiscal year, which should be selected to reflect
your organization operating cycle. For example a theatre company might have a fiscal
year beginning September 1 st to correspond to the beginning of its performance schedule.
A nonprofits’ relying on government funding might choose a fiscal year ending June 30 th
so that the budget corresponds to the major funding cycle. (Brown and Haward 1995)

2.4.2 The process of annual budget preparation

Annual budget for an organization is prepared for the year and is a comprehensive plan, a
coordinated set of detailed financial statement of operating plans and schedule. It is the
organization‘s formal plan of action for the budget prepared.

Annual budget is the best document for understanding microeconomic of the organization
for the forth coming budgeted period.

In the budgeting process the annual budget provides a single map explaining how the
organization intent to earn profit and positive cash flow for the coming period.

The first step in making of the annual budget is to forecast the revenue target. And the
production target and the revenue target are relating each other. After forecast the revenue
marketing budget is to be made for the year. Based on sale budget production plan are
made. Production plan takes in to consideration starting inventory of the product at the
end of budget year. The last part of annual is the budgeting income statement. It is based
on sales forecast and cost data obtained from production plans. Budgeted income
statement estimate the expected operating income from the budgeted operations.
(Satyendra 2014)

2.5 Cash budget

Cash budget is prepared in order to forecast the firm’s future financial need. It is also a
tool for cash planning and control, because the cash budget detail is the expected cash
receipt and disbursement for a designed time period, it helps to avoid the problem of
either having idle cash on hand or suffering a cash shortage temporary or permanent, i.e.
weather short term or long term borrowing need. Cash budget typically consists of the
following four major sections.
 2.5.1 The receipt section: - which gives the begging cash balance, cash collection
from customers and others.
2.5.2 The disbursement section: - which should all cash payment made or instade
by purpose.
2.5.3 The cash surplus or deficit section: - which simply shows the difference
between cash receipt and cash disbursement action.
2.5.4 The financial section: - which provide a detaild account of the borrowing
and repayment expected during the budgeted period

Estimate of cash at particular point of time may be made with the help of the
following: -

1. Budgeted balance sheets cash budget: the cash budget may be prepared inline of
capital budget with the help of budgeted balance sheet. This cash budget is
essential for static type.
2. Fund follow type of cash budget: it does not show as to how the expected cash
deficits arising.
3. Cash account type or receipts and payment type of cash budget: fund flow type
analysis is better balance sheet type of approach.
2.6 Basic principle of budgeting

The preparation of an organizations budget is important to its success for three reasons,
first preparing budget forces management to look ahead & plan both long range short
range goals and events. Second, the entire management team must work together to move
and carryout the plans. Third, by comparing the budget with actual results and it is
possible to review performance of all levels of management.

1. Long range goals principles

Annual operating plans cannot be made unless those preparing the budget known
the direction that top management expects for the organization long range goals,
projections covering a five to ten years period, must be set by top management.
2. Short range goals and strategies principle
One management has set the short- range goals the controller or budget director
takes charge of preparing budget. These person designs a complete set of budget
development plans & time with deadlines for all levels and parts of the year’s
operating plan.
3. Human responsibilities and interaction principle
1st the section of a budget director and staff it is necessary, a very important to an
effective budgeting system. This person must be able to communicate well with
the people both above and below the organization hierarchy. 2 nd we have
mentioned that all participants should be identified and informed of their
responsibilities; the identification process begins with high level managers. Full
communication throughout the budgetary process is our final interaction
principles. In particular, the budget must be communicated clearly to the
participants each one of these people playing a part in developing the budget and
implementation effective budgeting then require participative budgeting, which
means that all level of personnel task part in budgeting process in meaning full
active way.
4. Budget housekeeping principles
Which means that three guidelines should be followed, first a realistic approach
must be taken by the participants. Second deadline must be meeting. Third the
organization must use the flexible procedure for implementing the budget realisms
a two-way street. Top management must first suggest attainable targets and goals;
there each manager must provide realistic information and not place departmental
goals a head of the goal of the whole organization.
Deadlines are important because budget preparation depend on the timely
cooperation of many people if one or two people ignore a dead line for submitting
information, the budget might not be ready on time, management should
communicate the important of time table to all participant and should review time
submission of budget data as part of each manager performance evaluation.
Our finial principle of budget housekeeping calls for flexibility. Budget should
always be tread as guide and not as absolute truths, budget are important budget
are important guide to the action of management.
5. Budget follow-up principle
Since the budget consist of projections and estimates, it is important that it be
checked and corrected continuously. It more sense to correct and error than to
work with an incorrect guide. Budget follow up and data feedback are part of the
control aspects of budgeting cost organization and departmental expectations can
also be unrealistic. Such problems are detected when performance reports compare
actual results with budgeted results.
 2.7 budget implementation

Budget implementation is the responsibility of the budget directory. Communication and

support determine the success of budget implementation process proper communication
of expectation and targets to all key people in the company is essentials. All employees
involved in the operation of the business must know what is expected of them and they
must receive directions on how to achieve their goals. Equally important top management
must support the budgeting process and encourage implementation of the budget. The
process will succeed only if middle, and lower level managers can see that top
management truly is interested in the outcome and willing to reward people for meeting
the budget goals.

Budgets must be classified and then charged to the different general ledger account the
projected financial statement are the end product of the budgeting process. At this point,
management must decide whether to accept the proposed master budget, as well as the
planned operated results, or ask the budget director to change the plans and do part of the
budget over again.

2.8 Steps to developing and managing a budget

Having a formal and structured budgeting process is the foundation for good business
management, growth and development. So where do we begin? There are 10 steps to
developing and managing a budget that stated by Patricialotich on March 12, 2014

1. Strategic plan
This ensures that organizational resources are used to support the strategy and
development of the organization. It means budgeting toward the vision.
2. Business goals
Goals need to be developed and there needs to be accountability for achieving goals,
which is the responsibility of the management team, board or business owner.
3. Revenue projection
Revenue projections should be based on historical financial performance, as well as
projection growth income.
4. Fixed cost projections
Projecting fixed cost is simply a matter of looking at the monthly predictable cost that do
not change.
5. Variable cost projections
Variable costs are costs that fluctuate from month to month. These are expense should be
budgeted and controlled.
6. Annual goal expense
Goal related projects should also give budgets.
7. Target profit margin
Every organization whether they are for profit or not for profit should have a target profit
margin.

8. Board approval
The governing board, president, owner, or head of the organization should approve the
budget and keep current with budget performance.
9. Budget review
A budget review commute should meat on a monthly basis to monitor performance
against goal.
10. Dealing with budget variances
Budget variances should be reviewed with the responsible department manager and
questions should be raised as to what caused the variance.
Good budgeting process can help develop and advance an organization while sloppy
budgeting and monitoring of budgets can blindside an organization and affect its long
term financial health and viability.

a. Budget performance report

Budget performance report is compare budget figure with the actual result. They reveal
problem areas and help management correct them, as well as improve estimation method.
Because of the roll of external factor management is not always blamed for shortfalls.
Sayendra 2014)

Finally the budget is effectiveness in attaining the organization’s stated goal and
objectives. Evaluation typically involves an examination of how funds were expended,
the outcomes that resulted from the expenditure of fund, and the degree to which these
outcomes achieved the stated objective. This phase is fundamental in developing the
subsequent year budgetary allocation. In effect budget preparation not only is an annual
exercise to determine the allocation of fund, but also is part of continues cycle of
planning and evaluation to achieve the stated goals and objectives of the organization
(Sayendra 2014)
 b. The need for budgetary control

Budgetary control is the process of developing plan for company expected operation and
controlling operation to help carry out those plans. The basic objectives of budgetary
control are the following:

- To aid in establishing procedures for preparing a company’s planned

revenue and cost.
- To aid in coordinating and communicating those plans to various
levels of management.
- To formulate a base for revenue and cost control. A business does not
benefit from budgetary control by operating those haphazardly the
company must first set quantitative goals, define the role of
individuals and establish operating targets or detail operating budget

Budgets are required before organization can apply for funds from most funding sources.
Importances of budget preparing are:-Adjust plans activities and spending as need, Spend
money cost effectives Reach the specific goals it has set, Receive clean audit (Murry and
et al 2007)

2.9. Effect of budget control

Budget is the major future of management control system. In general they can:-

- Provide performance criteria

- Compel planning including the implementation of plan
- Promote communication and coordination within the organization
- Effect behavioural and organizational process.
2.10. The basic objective of budgetary control
1. It lies down define targets of production and sales with corresponding allowable
expenses. This can be exceeding only with prior approval.
2. It provides definite and precise guidance regarding sale, production and finance.
Types and quantities to sold and expense allowable for sale are clearly indicted.
As regards production, definite instructions regarding types, quantities materials,
labour and other allowable expense are available with similarly, form the point of
view of finance; guidance is available with respect to working capital and capital
expenditure to be incurred.
 3. It acts as coordinating machinery between different functional heads. Otherwise,
there might be production without chance of sales, or there may be commitment
for supply when chance of production would be meagre, or production might be
held up for want of certain materials, or for certain grades of labour.
4. This is help full in controlling production by limiting chance of wastage. Similarly
it keeps in control cost and expense by limiting the allowable expenses where
decentralized functioning of is essential.
5. An aid to management in policy matters, from working of one budget management
may change future plans and programs by eliminating proper line and by
concentrating on more profitable illness or area. Budgetary control thus
continually helps management in modification and revision of policy and the
revised policy shall be the basis of the next plan and budget.
6. It provides objective basis of judgment executives rather than pure guess these
providing them with an opportunity to strive for some calculated better result.
Budgetary control is the system of management control in which all the operations
sale purchases, production etc. Are for case in advance and the results, when
known, are compared with the planned targets.
2.11. Budget relative to time

Development of an annual budget is only one segment of the ongoing planning process of
businesses for the planning process to be more successful, there must be long range goals,
intermediate objective and short term plan of action.

I. Long range goal: - identify the direction of accompany over 5-10years the goal
are stated in general term but deal with specification in which the company
intended to be successful.
II. Short term plan: - is budget or annual forecast, identify the activity the activity
to be accomplishing during the coming year.
III. Intermediate objective: - identifies the specific stages that will lead to
accomplishing the long term goals, they provide a link between short term plan
and long term objective.
2.12. The structure of budget

Budget is classified broadly in to two categories. These are operational budget and
financial budget.
 I. Operational budget: - which reflect the result of operating decision of the
firm.
II. Financial budget: - which reflect the financial decision of the firm.
III. The operating budget consists, sale budget, production budget, ending
inventory budget, cash receipts budget, direct material budget, factory
overhead budget, selling and administrative expense budget.

2.13. Main types of budget

A. Capital budget
This is something that companies often used to plan their long- term investment
and expenses. It comprises capital receipt and capital expenditure of the
government. Capital receipt includes market loans, borrowing from RBI and
others. Capital receipt of the government are those which create liability or reduce
financial assets while those expenditure which lead to the creation of physical or
financial assets or reduction in recurring financial liabilities are fall under capital
expenditure. Such expenditures pertain to payments on acquisition of assets like
land, building, machineries’, equipment, etc.
B. Recurrent budget
It is the opposite of capital budget and a budget that prepare for current and
recurring expenditures.
2.14. Performance based budgeting

Performance based budgeting is the practice of developing budgets based on program

funding level and expected results from that program. The performance – based
budgeting process is a tool that program administrators can use to manage more cost-
efficient and effective budgeting outlays.

Today when the management of money is more important than ever for public and
private entities, budgeting plays an enormous role in controlling operations efficiently
and effectively.

2.15. Monitoring and evaluating budgeting performance

Organizations monitor and evaluate actual result against approved budgets to guide
current and future decision- making and hold managers accountable for performance.

Key process to effectively manage approved budget include

 - Monitoring and reporting against internal budgets on consistent and regular
basis to assess whether targets are being met, to guide decision- making and
enforce accountabilities.
- Revising the internal budget through a controlled and coordinating process that
maintains clear lines of accountability between budget estimates and actual results.
- Forecasting to manage gaps between budget estimate and actual results to
quickly identify and respond to change in the external activities; and
- Reviewing and improving internal budget process by monitoring the accuracy
and timeliness of budget setting processes to identify areas for improvement.
2.16. Monitoring and report against internal budget

To measure budget performance organizations monitor the extent to which budget

estimates match actual results. This helps ensure financial control and identify where
change is required. Monitoring budget accuracy is the responsibility of all managers.

Effective monitoring of budget performance required that mangers are provide with
relevant timely and accurate information appropriate to the level of responsibility it also
require the managers to provide clear and consistent feedback in tamely manner about
underlining causes and effects of budget variation as well as planed action to manage
variation for which they are accountable.

2.17. Report budget performance

Internal reporting process follow the monthly financial close and typically involve the
finance area preparing for releasing detail of actual result against budgeted to the line
management for evaluation and explanation. Result of this process are summarised
and provide to senior management to assist decision making at the organization level,
and the department of the finance and deregulation to enable whole of government
reporting. It is important that result of senior management’s review and analysis of
budget performance are communicated to relevant operational managers.

Reviewing actual result with budget estimate on regular basis monthly for most
organizations using a process that is understood across the organization is critical to
effective monitoring and reporting of budget performance. Careful design of financial
report is the fundamental to effective review and analysis of budget versus actual
result.
The effectiveness of internal financial report is likely to be enhancing when report are
prepared for each level of budget accountability and summarised appropriately for
each level management. When output and organizational accountability is differ
budget to actual financial report should be designed to enable the assessment of
budget accuracy against both accountabilities.

Both practice organization provide managers with detale of actual result against
budgeted within three days of the close of each period. Standardising reporting across
the organization is deal and made easier when managers source actual and budget data
directly from same financial system.

In organization with responsibility for capital expenditure project or capital grant

programs, monitoring budget estimate against actual result helps identify projects
variation such as (cost overruns and delay in key milestones) early enough to take
corrective actions. Routine reporting of detailed information on individual projects,
such as milestone percentage of completion and phasing of total projected cost
provide decision makers with useful information should be presented in summarised
basis with more detailed information provide by expectation that is where project are
not progress to plan.

2.18. Assist managers assess budget performance

As previously mentioned managers with operational responsibility are generally in the

best position to assess current and expected budget performance of functions under
their control or stewardship. In addition to year to date and monthly budget to actual
results it is important that managers have direct access to report which show

 Out- year forward estimate to examine future risk and prospects

 Comparative result for some period in previous years to assist with the
identification of trends that may affect current and forecast budget
performance.
 Key financial ratios and percentage comparison both (budgeted and actual) to
highlight key issues and
 Budget- to actual data on underlining driver for example budget- to actual
staffing numbers.
It is useful to identify external factors likely to impact budget performance and monitor
them regularly. Result of such analysis could then be providing to relevant managers to
factor in to their analysis of program and budget performance.

2.19. Features of a success full budget

A successful budget

 Categorize that fit your personal situation and your spending habits not some
bodies else.
 Accurate income projection
 Enough categories to give you a meaningful picture of where your money goes
and where your might be able to cut costs, but not so much detailed that
tracking is a chore that you’ll soon tire of.
 Inclusion of expenses that don’t occur on a monthly basis, such as auto
maintenance, homeowner’s insurance personal property taxes, service
contracts, etc.
 Regular review of categories to determine if you need more or fewer review of
expense, and brainstorming about ways to trim costs in each category.
 Cash expenditure tracing and recording. Biggest leak in most budgets cash
disappears quickly and if you spend it on, you’ll have a distorted look at your
spending.
 A line item for saving so you treat a contribution to your saving account just as
you would a bill you owe.
 Realistic written goals. Budget isn’t about tracking your costs; it’s about
setting financial goals (saving for a down payment on a house, buying a new
car getting out of debt, saving for retirement, putting your kids through
college, travelling, etc.) and finding ways to meet them. Without goals, your
budget is just a pair of handcuffs.
 Identification of spending patterns you may not have been aware of when you
weren’t tracking your spending.
 Most importantly, international motivation and appositive attitude!
 CHAPTER THREE

RESEARCH DESIGN AND METHDOLOGY

3.1. Research design
This research is case study type of research. To assess the budget preparation process and
budgetary performance of the organization, the researchers try to present in quantitative
form.
3.2. Source of data
To collect the necessary data the study will use both primary and secondary source of
data.
3.3. Data collection technique
Data are collected through different ways.
Primary data are collected from employees of the organization those work in finance and
accounting office by distributing questioner and interview with the budget administrator.
Questioner: - both open-end and close-end questions
Interview: - by directly communicate with the managers and budget administer.
Secondary data: - which are obtained from review of selected materials which are
related to the budget preparation process and performance evaluation, like reference

book, magazines and internet, and by referring the budget manual of the organization.
3.4. Data type
To assess the budget preparation process and performance evaluation of the organization,
the study use some measurement variables, like;
Time of budget preparation and performance evaluation.
Cost of budget preparation and performance evaluation.
Number of people who participate in budget preparation and performance
evaluation.
3.5. Population and sample size
The researcher is focus on the employees of organization those work in finance and
accounting arias. The total population of the study are including 25 employees. To make
the data more reliable the researcher takes all the total population.
3.6. Method Data analysis
To present the data clearly the researcher use different method to present the data like;
table, percentage and descriptive method.

CHAPTER FOUR
Data analysis and interpretation

This part deals with the major finding of the study. For data analysis and interpretation
purpose the relevant information was gathered from questionnaires distributed to the
employees that work in finance and accounting office of the organization and face to face
interview with the budget administrator.

Finally the collected data organizes and arranged in appropriate manner that will be
readable and understandable to the reader by using different analysis and interpretation
techniques like table and percentages.
4.1. The budget preparation process of the organization
In the university there are two major kinds of expenditure. These are capital and current
expenditures. And there are four major programs
- Administrative
- Learning and teaching
- Infrastructure
- And community participation
Under these four programs there are many departments.
Under these programs every sectors send their own expenditures to the manager of the
sectors for example if we take the learning and teaching program, under these program
there are five main collages. Under those collages there are several departments. Let us
take the college of business and economics there are around six departments. Each
department prepare their own budget that means the expenditure they will incur in the
future and submit to the collage dean. And the total collages budgets are collect and
submitted to learning and teaching program manager. And also in the four programs
budgets are collected and the budget are prepare in the university. Finally the total
university budget is send to the federal learning minister and the budget is assigned
accordingly. The total budget of the organization is prepared by 6 people, and they are
elected or assigned by the president. Those people are selected from employees those
work in a finance and accounting area. (Source; from budget manual of the organization)

Table4.1.Demographic characteristics of the respondents and their educational

qualification

Sex Educational level

Masters Degree Diploma 12th complete Total
No % No % No % No % No %
Male 0 0 9 45 3 15 0 0 12 60
Female 0 0 6 30 2 10 0 0 8 40
Total 0 0 15 75 5 25 0 0 20 100

(Source data collected through questionnaires)

From the above table the respondents response indicate that 15(75%) of the respondents
are degree holders, 5(25%) of the respondents are diploma holders, and there are no
respondents that hold masters and 12 th complete. In addition to this the respondents
response indicate that most of the employees are males that is 12(60%) of the total
population and the rest 8(40%) of the respondents are female.
Table 4.2 respondents’ response regarding the organization has budget or not

Type of response No of respondent Percentage (%)

Yes 20 100
(Source; data collected through questionnaires)
From the above table all the respondents’ 20(100%) of the respondents’ response indicate
that the organization does prepare budget. So we can observe that the organization has its
own budget.
Table 4.3 respondents’ response regarding the organization has budget manual or not

Type of response No of respondent Percentage (%)

Yes 20 100

(Source; data collected through questionnaires)

From the above table all respondents’ 20(100%) of the respondents’ response indicate
that the organization has the budget manual. So we can observe that the organization has
the budget manual.

Table 4.4 Employees’ participation during budget preparation

Type of response No of respondent Percentage (%)

Yes 6 30
No 14 70
Total 20 100

(Source; data collected through questionnaires)

From the above table the respondent response indicate that 14(70%) of the respondents
are not participate during budget preparation. The rest 6(30%) of the respondent are
participate during budget preparation. This indicates more than half of the employees that
work in finance and accounting office are not participate during budget preparation.

From interview the response of the budget administrator indicates that participatory
budget is important instrument for overall organization activity. In many constraints it is
difficult to participates all employees during budget preparation, like overload of work
and miss communication between the persons.

Table 4.5 respondents’ response on problems encountered during budget preparation

Problems during budget preparation No of respondent Percentage (%)

 Lack of skilled man power 3 15
Take long time 9 45
Lack of testing 1 5
Lack of information 4 20
No problems are occurs 3 15
Total 20 100

(Source; data collected through questionnaires)

From the above table out of the total (20) respondents’ 3(15%) of the respondents
response indicate that the major problem that occur during budget preparation is lack of
skilled man power. 9(45%) of the respondents response indicate that the major problem
encounter at the time of budget preparation is take long time. 1(5%) of the respondents
response indicate that the major problem occur during budget preparation is lack of
testing. 4(20%) of the respondents’ response indicate that the major problem that occur
during budget preparation is lack of information. The rest 3(15%) of the respondents
response indicate that there is no problems observed at the time of budget preparation
process.
From the interview the budget administrator response indicate that the major problem that
observed during budget preparation process is take long time. And also he put the main
reason for this problem is delay of sectors to respond to budget needs submission with
appropriate documents.
In general the respondents response indicate that the 1 st major problem encountered at the
time of budget preparation process is take long time mean that the budget takes more than
the dead line. The 2 nd problem is lack of information means that to prepare budget there
must be reliable information for example about revenue and expenditure. So there is lack
of reliable information also another problem that occurs during budget preparation
process in the organization. The 3 rd problem is that lack of skilled man power means that
the people those prepare budget are lack of knowledge about the budget and related ideas.

Table 4.6 respondents’ response on the type of budget prepared in the organization

Types of budget No of response Percentage (%)

Current only 0 0
Capital only 0 0
Operational 0 0
Both current and capital 20 100
 Total 20 100

(Source; data collected through questionnaires)

From the above table all of the respondents response 20(100%) indicate that the
organization prepare both current and capital budget.
From interview the budget administrator response indicate that the organization prepare
both capital and recurrent budgets, because the organization incur both current and capital
expenditure. Under recurrent expenditure there are expenditures like salaries for
employees, expenditure incur for students meal, expenditures incur for water and
electricity etc. Under capital expenditure there are expenditure like building of different
rooms like class room and dorms.
Table 4.7 respondents’ response on time of budget preparation
Time of budget preparation No of respondent Percentage (%)
Annually 13 65
Semi annually 0 0
Quarterly 3 15
Monthly 4 20
Total 20 100
(Source; data collected through questionnaires)

From the above table 13(65%) of the respondents’ response indicate that the budget is
prepared in the organization on annual bases. 3(15%) of the respondents response indicate
that the organization prepare its budget on quarterly bases that means four times in a year.
The rest 4(20%) of the respondents response indicate that the organization prepare its
budget on monthly bases. No respondents’ response that indicates the budget is prepared
on semi annual bases.
From interview the administrator response indicates that the budget is mainly prepared
annually. But the implementation reports are prepared on monthly and quarterly bases.
And according to the implementation report the budget may be adjusted or prepared.
Table 4.8 respondents’ response on effective implementation of the budget in the
organization

Type of response No of respondent Percentage (%)

Yes 14 70
No 6 30
Total 20 100
 (Source; data collected through questionnaires
From the above table the 14(70%) of the respondents response indicate that the
organization implement its budget efficiently and the rest 6(30%) of the respondents
response indicate that the organization does not effectively implement its budget.

Respondents’ response on the question of how implements its budget

The organization implements its budget according to the program budget plan which is
being prepared according to the program budget manual and there is also budget
implementation rule and regulation. And also according to the break down that MOFED
allocated for the university.
Source; data collected from questionnaires and interview.

Table 4.9 respondents’ response on the factor that hides the effective implementation of
the organization budget

Factors that hides implementation of budget No of respondent Percentage (%)

Lack of coordination between managers and employees 7 35
Lack of control 6 30
Poor budget 3 15
No problem 4 20
Total 20 100
(Source; data collected from questionnaires)

From the above table out of all respondents’ 7(35%) of the respondents response indicate
that the major factor that hide the effective implementation of budget in the organization
is lack of coordination between managers and employees. 6(30%) of the respondents
response indicate that the major factor that hide the effective implementation of budget in
the organization is lack of control. 3(15%) of the respondents response indicate that the
major factor that affect the effective implementation of budget in the organization is poor
budget. The rest 4(20%) of the respondents response indicate that there is no factor that
affect the effective implementation of budget in the organization.
From interview the budget administrator response indicate that there are no major factors
that hide the effective implementation of the budget in the organization.
In general according to the data gathered from questionnaires the 1 st factor that hides the
effective implementation of the budget is lack of coordination between managers and
employees. This means the employees and the managers of the organization are not work
closely or there is no good relationship between them. The 2 nd factor is lack of control.
This means the responsible bodies are not control the activities done in the organization.
And also the 3 rd factor is poor budget that means the budget is not consistence with the
organization perspective.
Table 4.10 respondents’ response on the budget performance report preparation

Type of response No of respondent Percentage (%)

Yes 20 100
(Source data collected through questionnaires)

From the above table all (20) respondents response indicate that the organization prepare
budgetary performance report. So we can observe that the organization compare its
budgeted result with actual result.

Table 4.11 respondents’ response on time of budget performance evaluation

Time of performance evaluation No of respondent Percentage (%)

At the begging of the budget year 0 0
At the meddle of the budget year 7 35
At the end of the budget year 13 65
Total 20 100
(Source; data collected from questionnaires)

From the above table 7(35%) of the respondents response indicate that the budgetary
performance evaluation is done at the meddle of the budgeted year. 13(65%) of the
respondents response indicate that the budgeted performance evaluation is done at the end
of the budget year.
From interview the administrator response indicate that the budget is normally evaluated
at the end of the year but if there is un expected result is occur in the organization it may
evaluate at the meddle of the budgeted year.
Table 4.11 respondents’ response on the variance is observed in the organization or not

Type of response No of response Percentage (%)

Yes 20 100

(Source; data collected through questionnaires)

From the above table all respondents’ (20) of them are response yes. Which means when
the organization evaluates its budget, or when it compares the actual result with budgeted
proposal, the variance is observed.

Table 4.12 respondents’ response on kind of variance that observe in the organization

Kind of variance No of respondent Percentage (%)

Shortage 17 85
Overage 3 15
Total 20 100
(Source; data collected through questionnaires)

From the above table 17(85%) of respondents response indicate that there is shortage
which means the actual cost is greater than the budgeted cost or the actual revenue is less
than the budgeted revenue. And the rest 3(15%) of the respondents response indicate that
there is overage variance, which means the opposite of the shortage.
The major cause for variance is
- In appropriate budget allocation
- Lack of resource which satisfy the need of the organization
- Price fluctuation due to inflation
- Due to unexpected expenditures are happen
- In appropriate use of funds
- Federal governments send revenue less than the organization needs
Table 4.13 respondents’ response on the action that the organization takes when
the variance is observed

Measures taken when variance is occur No of respondent Percentage (%)

Identify the problem and take corrective action 12 60
Change the budget 8 40
 Modify the objective 0 0
Total 20 100

(Source; data collected from questionnaires)

From the above table 12(60%) of the respondents response indicate that when the
organization observe variance first it identify the problem and take corrective action.
8(40%) of the respondents response indicate that when a variance is observed in the
organization the organization change the budget and try to minimize the gap.

Table 4.14 respondents’ response on the body evaluates the budget of the organization.

Responsible body for evaluating budget No of respondent Percentage (%)

The president 5 25
The budget administrator 15 75
The financial manager 0 0
Total 20 100

(Source; data collected through questionnaires)

From the above table 15(75%) of the respondent response indicate that the responsible
body to evaluate the budget is the budget administrator. The rest 5(25%) of the
respondent response indicate that the budget is evaluate by the president.

Table 4.15 respondents’ response budget allocation mostly allocated by

Responsible body to allocate budget No of respondent Percentage (%)

The president 4 20

The budget administrator 16 80

The financial manager 0 0

Total 20 100
(Source; data collected from questionnaires)
From the above table 16(80%) of the respondent response indicate that the responsible
body to allocate budget is the budget administrator and the rest 4(20%) of the respondent
response indicate that the budget is allocated by the president of the organization.
From interview with the budget administrator response indicate that the budget is
controlled and evaluated by the budget admistrator. If necessary the president of the
university is involve in these activities. The allocation of budget is done by the university
president and the budget administrator. But most the time the responsible body for
allocation of the budget is the budget administrator.

CHAPTER FIVE
SUMMERY OF FINDING, CONCULUTION AND RECOMMENDATION
5.1. Summary of findings and conclusion
 Budget is essential for all organization and it is difficult to operate for any entities
without budget. They can’t meet their objective without budget. If the budget is
wrong the organizations objective is became false. Hence it is necessary to carry
out study in the area of budget to promote good assessment method which could
be vital in improving the performance of budget in an organization (Ambo
University)
 The organization is governmental organization so the budget preparation process
is the same like the process of federal governments.
 Only 6 peoples are participate in the budget preparation process, but every sector
prepare their own budget so indirectly all employees are participate in the
organization budget preparation process.
 The organization uses both capital and recurrent budget
 The budget of the organization prepared on annual basis.
 The organization takes long time when it prepares its budget. When the budget
are not prepare at right time it delays the implementation period. The programs are
not done at the right time.
 The organization evaluates its budget most the time at the end of the year. This
causes the variance are not detect immediately and the variance became large.
 Since budget is the financial plan of the organization for the period of year and it
enable to predicting financial result and contents of the financial statement over
the year. There for effective implementation of budget should enable to achieve
the desire objectives and goals of the organization.
 Most of the respondents which is 14(70%) of the response indicate that the
organization effectively implement its budget. Where the rest of respondents’
responses indicating that the organization does not implement its budget. From
this it can conclude that the organization implement its budget effectively.
 Even if the organization effectively implements its budget variance is observed
when compared the actual result with budgeted estimates and the reason for
occurrence was in appropriate budget allocation, price fluctuation and
inappropriate uses of funds.

 Regarding the impacts of variance weather it was favourable or unfavourable on

the performance of the organization seemed as;-
- Most of the variance observed was unfavourable.
- Its impact is serious it affect the budget implementation of the organization
delaying in implementation of the activities.
 Most of the time when variance is observed the organization is identify problem
and take corrective action.
  The organization implimiment its budget according to the guide line set by the
organization
 There is lack of coordination between the organization employees and managers
and lack of control. This is became the major problems that observe at the time of
budget implementation.
 The body who evaluate allocate and control the budget is the same person the
budget administrator. This shows that there is no job segregation.

5.2. Recommendation
Based on the data findings and conclusions made following recommendations are
forwarded.
 The organization take long period to prepare the budget. This is because of
sectors delaying in submission their documents, so take strict measurement to
the sectors to submit their documents. And set fixed time interval and control
those sectors don’t submit their document within the dead line.
  Even if the organization implements its budget effectively there are some
problems that hide the implementation process. The main problems are lack of
coordination between the managers and the employees and lack of control. So
the organization has to work hard in increasing the coordination. By
identifying the problems between the employees and managers, and it can
solve this problem. And also take control the managers of the organization.
 Use active coordination system; which helps the organization from the top
manager to lower employees should be coordinate and communicate properly.
 Most of the time the budget is evaluate at the end of the year because of this
the budget variance is very high. So if the organization evaluate its budget at
the-meddle of the budgeted year, the variance are detected emidiatly and
corrective action is taken at the right time.
 The variances are observed because of inappropriate allocation of budget and
inappropriate use of funds.
 The budget allocation, evaluation and controlling activities are done by the
budget administrator of the organization. This implies that there is no
segregation of duties. If related jobs are done by the same person and body
there may be miss appropriation of funds may be occur. There for the
organization segregate the duties to different bodies may minimize the problem
of inappropriate budget allocation and lack of control under budget
implementation.

AMBO UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

Dear respondent; We are under graduate students of the ambo university and currently
take research on the budget preparation process and performance evaluation taking Ambo
University as a case study. Please recall that you are selected as possible participant
because you are the employee of the organization work in the finance and accounting
office. Your participation in this study is completely voluntary.

Here you will find some question regarding the budget of the organization. We would
generally appreciate it if you would please spend approximately 5-10 minutes of your
time necessarily to respond to these questions and return to us.

The quality of this research is based on the accuracy of the information you provide. We
will assure you, the information you will provide us is going to be reported and
communicated in aggregate data only with no personal identifiable data. Any information
obtained in connection with this study will remain strictly confidential, and for academic
purpose.

Thank you in advance for your assistance with this research project.

NB: - There is no need of writing your name

Make a thick mark in box which you think an appropriate response.

I. Personal profile
I.1. Sex male Female
I.2. Education level
Degree Masters
Diploma 12 th complete
Others
II. General question
1. Does the organization prepare budget?
a. Yes b. No
2. Does the organization have budget manual?
a. yes
b. Doing research
c. Estimate expenditure and revenue
d. Writing the budget
e. other
3. At what time the budget is prepared in the organization?
a. Annually
b. Semi annually
c. Quarterly
d. monthly
e. other
4. Does the organization effectively implement its budget?
a. Yes b. No
5. Who is responsible for allocation of budget?
a. The organization manager
b. The finance department
c. Other
6. Is budget deficit occurring in the organization?
a. Always
b. Usually
c. Sometimes
d. Reilly
e. Never
7. If there is budget deficit occur in the organization do you know why? If you know
answer
a. Lack of proper using funds
b. Lack of adequate budget preparation
c. Corruption
d. Others

8. Do you think the organization used its capacity to reduce budget deficit?
a. Yes b. No
9. If yes in what way
a. By rising its revenue
b. By reducing its expenditure
c. By preparing supporting budget
d. other
10. Who control the budget of the organization?
a. The manager
b. The budget administrator
c. The employees
d. other

11. When the budget performance is prepared?

a. Annually
b. Semi annually
c. Quarterly
d. Monthly

12. Does the organization meet its annual objective?

a. Always
b. Usually
c. Some times
d. Rarely
e. Never