THE EFFECT OF BUDGET AND BUDGETARY CONTROL ON LAPO REAL
1.1 Background to the Study
The resources of an organization should be managed effectively and efficiently to achieve its purpose. This implies that the organization should be able to achieve its objectives by minimizing cost. Thus, managing implies coordination and control of the efforts of the organization for achieving organizational objectives. The process of managing is facilitated when management charts its future course of certain objectives in advance, and takes decision in a professional manner, utilizing the individual and group efforts in a coordinated rational manner.
In the business world today, organizations have developed a variety of processes and techniques designed to contribute to the planning and control functions. One of the most important and widely used of these processes is budgeting. Budgeting involves the establishment of predetermined goals, the reporting of actual performance results and evaluation of performance in terms of the predetermined goals. Budgetary control systems are universal and have been considered an essential tool for financial planning. The purpose of budgetary control is to provide a forecast of revenues and expenditures which is achieved through constructing a model of how businesses might perform financially if certain strategies, events and plans are carried out (Churchill, 2001).
Budgets are monetized expressions of target to be accomplished in a given year by an individual, organization or nation. It is a deliberate attempt to achieve superior targets over time with available and expected resources. Such targets are influenced by the experiences of the past and expectation of the future.
The motivations for this study also comes from the work of Herath and Indriani (2007) who investigated on the “role of budgetary control system as a component of the management control system in creating and sustaining competitive advantage” and came with a positive conclusion.
They concluded that budgetary control system plays a leading role in establishing an efficient management control system for creating a sustainable competitive advantage.