INTRODUCTION management framework built on this principle will be

INTRODUCTIONTraditional budgeting hasbeen criticized for a long time now because of its inadequacy as a means ofmanagement control. It was stated that the rapid changes in today’s businessenvironment renders a rigid approach to budgetary control obsolete. Although itwas argued that amongst the requirements of a more appropriate system, would bethe building in of accountability to explain the differences between actual andplanned performance. This demands a more immediate time frame of informationreporting. Thus, there is a need to implement strategic management andbudgeting. Some authors conceptualized that to be effective, budgets must bealigned with the organization’s strategies, appropriate strategic planning, andperformance management processes introduced, and must involve processes thatare value based, consequential and continuous. It was stated that mostorganizations still treat the budgeting and strategic management processesseparately and also, a significant portion of small- and medium-sized enterprisesdo not engage in strategic planning (Tim Blumentritt 2006).  The motivation for this study also comes fromthe work that investigated on the “roles of Budgetary Control System (BCS) as acomponent of the Management Control System (MCS) in creating and sustainingcompetitive advantage” and came up with a positive conclusion.

They concludedthat though BCS could play a leading role in establishing an efficient MCS forcreating a sustainable competitive advantage, budgeting will not function inisolation . “Instead, it can be used more effectively by strategically joiningit with emerging strategic oriented knowledge enterprise” (Herath and Indriani,2007). from imports into the country. Thus, manufacturing companies need todevelop and implement a well-conceived strategic plan in order to becompetitive in the business environment. Manufacturing Industry. We believethat a management framework built on this principle will be a source ofcreating and sustaining competitive advantage which is translated as highperformance.

 HISTORYAND FACTSMANAGEMENT CONTROL There are a large numberof definitions for management control present in the literature. The modernview for management control system originated from the influential work ofGarrison and Noreen (2000) who suggested that for management control “thosesteps taken by management that attempt to increase the possibility that theobjectives set down at the planning stage are attained and to ensure that allparts of the organization function in a manner consistent with organizationalpolicies” .He mentioned in this paper, the term management control will bedefined as those sets of organizational activities which include: planning,coordination, communication, evaluation and decision making as well as casualprocesses aimed at enhancing the efficient and effective use of theorganizational resources towards the achievement of the organizationalobjectives. We are treating budgeting as a tool used by management tofacilitate those activities which corresponds to our area of study. Anthony andGovindarajan (2004) identified several aspects or activities of managementcontrol namely: planning, coordinating, communication, evaluation,decision-making and influencing. 1) Planning what theorganization should do.

Planning could be viewed as budget preparation. Withplanning the organization decides what to do and the responsibilities of itsdifferent members. We might classify business plans as falling under one of thefollowing headings: operating or administrative plans.i) Operating plans. Theseare short-term plans which relates directly to the achievement of the firm’sobjectives.

Thus the annual production and sales plans, as well as the plans tofinance them, would be examples of operating plans. As we will see, short-termoperating plans are taken up with the firm’s budgeting activities.ii) Administrative plans.These are ‘tactical’ plans concerned with the creation of the organizationalstructure, under which budgets and performance levels can be determined forappropriate functions. 2) Coordinating theactivities of several parts of the organization to assure alignments goals. 3) Communicatinginformation such as strategy and specific performance objectives. Communicationcould be done formally (by means of budgets and other official documents) andinformal through conversations.

4) Evaluating actualperformance relative to the standard and making inferences as to how well themanager has performed. 5) Deciding what, if anyaction should be taken. The next concept that we will be explained below is thetool which we are using as a means of management control process i.e. Budget.

 BUDGET Over the past two decadesthe word that has become the common currency in all managers’ vocabulary is”budgets”. Budget is perhaps the most chosen course of action or in action bythe management and staff across all sectors. Management at all levels withinthe public, private and the third sector have used the budget as their shieldor excuse when confronted or challenged about any decision. It’s not uncommonto hear variations of the phrases “the budget doesn’t permit us to”, or it’snot our budget”. Furthermore, management in some sectors may be forgiven forbelieving their sole raison d’être has become budget preparation, budgetcompliance and budget monitoring. So, what do we understand by the term”budget”? David Frederick (2001) defines budget asa plan that is measurable and timely. For the purpose of ourstudy, we define budget as a quantitative statement for a defined period oftime, which may include planned revenues, expenses, assets, liabilities, andcash flows that provides a focus for an organization, as it aids thecoordination of activities, allocation of resources, and direction of activity,and facilitates control. some researchers defined budgeting system as acombination of information flows and administrative processes and proceduresthat is usually an integral part of the short-range planning and control systemof an organization.

From the definition ofbudgets we distinguish three key components. Firstly, we recognize the planningaspect of budget. The plan is regarded as the statement of intent or goal ofthe organization. The second aspect is the measurability. This makes itpossible to measure the plan. The third component is time. It gives thepossibility to say if the plan is achieved.

The sub-heading belowexplains problems and limitations faced with traditional budget since in ourstudy we intend to show how well and better budget can be used as a tool formanagement control process. TRADITIONAL BUDGET There are two issuestraditional budget is faced with; the first issue is the accounting. The budgetprocess serves two functions. It serves to build the internal budgets for eachresponsible center in the company and the roles up to form the externalearnings per share capital. Many managers who get involved in the budgetprocess generally only budget these amounts for the areas of theirresponsibility.

Many of these managers have major profitability responsibilitybut never get to budget profitability. He further went to say that the internalaccounting at most companies was based on expense allocations. This antiquatedmethodology is the underlying reason most management reporting systems are underutilizedand one of the impediments to improving the budgeting process (Gregory J Nolan,2005). DEBATE The debates related to the role of budgetparticipation in organizations have attracted the attention of managementaccounting researchers for decades.

However studies examining the relationshipbetween budget participation and performance have found inconsistent resultsranging from positive relationship to negative relationship. Extensive research has investigated the effect ofbudgetary participation mainly on satisfactionand performance of subordinates. While the relationship between budget participation and satisfaction generally are foundto be significant , there exist inconsistency in the findings of empiricalresearch examining the relationship betweenbudget participation and performance. The results range from positiverelationship (Brownell and McInnes, 1986) tonegative relationship (Locke and Schweiger, 1979), while others reported unrelatedassociation. There are three decision making functions that budgetsprovide; the planning, control and motivation function.In this study, apart from planning role, budget is viewed as providing motivational role that may increase employeeperformance. With budgets that are set, it is argued that the holders may be motivated to place more effort inorder to achieve the budget, thus lead to improve theirperformance.In this study, a goal setting theory is usedas a basis for the theoretical framework.

Goal setting theory is based on aprinciple that the goals that are set serve as the objectives that individualsneed to achieve. Individuals become motivated to place more effort and discoverrelated activities to be performed for goal achievement. The benefits of goalsetting have been proven in extensive laboratory and organizational settingsstudies. Budgets have a similar meaning to the conceptsof goals as budgets represent a goal to be achieved or to work within theestablished boundaries (Searfoss and Monczka, 1973). With budgets, the actionsand steps taken by all the holders are directed towards achieving the budgetand consequently realizing organizational goals.Budget variance information, for example, canbe used as a means of learning more about the possible alternatives and their consequences.In this way budgets play a pro-active role in facilitating the effective implementationof strategic change.Indeed, it can be seen, itself, as anintegrative liaison device that breaks down the functional and hierarchical barriersthat inhibit information.

To persist with diagnostic use when firms areundergoing change is likely to have an adverse effect on the relationship betweenstrategic change and performance. It is thus expected that the relationship betweenstrategic change and the performance will be enhanced to certain levels when budgetsare used interactively. However, interactive budget use is not at all costless becauseit requires more extensive involvement of top management employees in thebudget making process as well as increased interaction among otherorganizational members.

Therefore, interactive use of budget in an organizationis only likely to enhance performance when strategic change is relatively highwhich means the benefits of interactive use will outweigh the costs in that situation..In this setting there is little ambiguity concerning organizational priorities,and the nature of the work is relatively stable, with established,well-understood routines for performing tasks. It therefore becomes feasible tofactor strategic priorities into the specific objectives and also to communicatethose objectives downwards in the organization in the form of financial targets(Bruns & Waterhouse, 1975). Budgets are effective for monitoring andcontrolling behaviour in this situation. Hence, the major strength of financialcontrols, such as budgets, lies in its ability to monitor reliablyorganizational processes which are in a steady state. CONCLUSIONIt has been seen in various studies that therelationship between budget participation and performance revealed inconsistentfindings. This study attempts to extend the previous research by developing amore comprehensive model to provide better explanations which are related tobudget participation behavioral consequences.

This study aims to examinewhether budget participation improve managerial performance in the presence ofthe perceptions of organizational fairness and motivation. Even though many studieshave investigated the role of fairness perception in affecting attitudes andbehavior of employees, but in accounting literature only a few studies haveevaluated it systematically. As such, this study may provide more evidence inevaluating fairness perception’s role in the contexts of management controlsystem in organization. Further, while most of the studies in fairnessliterature assume that fairness enhances employees’ motivation, in accountingliterature no study have actually examined the relationship. In short, this study proposed for the evaluationof budget participation in organization. It may contributes to the existingliterature by offering new insight into the best process by which budgetparticipation best operate to increase managerial performance.

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