Analysis and evaluation of an organisations

budgetary control system and its links with

performance management and decision
making: LG Electronics case study

Words: 15100

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Executive summary

The success of any organisation depends on numerous task and activities. In order to make
decisions in the organisation, the budgetary control system plays a vital role in making an
organisation a success. In the present scenario, budgetary control is an efficient and helpful
tool for all sectors and also in personal life. Budgetary control is a technique to control the
cash flow through accurate monitors the incoming as well as outgoing money from the
company and for tracking the fluctuations from the preplanned budget so one can take correct
actions to match actual expenditure. This research is based on analysis and evaluation of the
budgetary control system for managing the performance of the organisation and its role in the
decision-making process of the organisation by taking the case of LG Electronics, UK. The
first chapter will be an introduction which will provide a brief detail about the background of
the organisation, and the introduction of the topic. This section also explains the aims and
objectives of the research and research questions which will be answered by conducting the
research. The rationale for studying budgetary control is also defined in this part. The second
chapter will be literature review which will provide details about the budget and budgetary
controls. The literature available for the related topic will be covered in this section. The third
part will be researching methodology which will provide the pathway for carrying out the
research. This section deals with the research approach which will be adopted, research
philosophy for the research and data collection methods which will be used. In this study, the
interview will be utilised as a tool of primary data for a collection of data. The next chapter
will be findings and analysis in which the collected replies of executives will be analysed.
The last section will be conclusion and recommendation in which it will be ensured that all
research questions have been answered, and aims and objectives have been accomplished.
Apart from that, some recommendation will also be part of this chapter.

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Table of Contents

Introduction................................................................................................................................5
1.1 Project Background..........................................................................................................5
1.1.1.

Overview of company..........................................................................................6

1.2 Aim and Objectives:.........................................................................................................6

1.2.1 Aim of the research....................................................................................................6
1.2.2 Objectives of the research..........................................................................................7
1.3 Research question:............................................................................................................7
1.4 Rationale for the project...................................................................................................7
1.5 Importance of the project..................................................................................................8
1.6 SWOT analysis.................................................................................................................8
1.7 Structure of the research...................................................................................................9
2.

Literature Review:............................................................................................................10
2.1

BUDGET...................................................................................................................10

2.1.1 Characteristics of a Budget......................................................................................11

2.1.2 Benefits of Budget...................................................................................................12
2.1.3 Limitations of Budget..............................................................................................12
2.2 Budgeting & Budgetary Control:...................................................................................13
2.2.1 Budgeting:................................................................................................................13
2.2.2 Objectives of Budgetary control:.............................................................................13
2.2.3 Prominent Budgets Used for Control:.....................................................................14
2.3 Ratios for budgetary control...........................................................................................20
Activity ratio.....................................................................................................................20
Capacity Ratio...................................................................................................................21
Efficiency Ratio................................................................................................................21
2.4 Requirements for an effective budgetary control system...............................................21
2.5 Budgeting and competitive advantage............................................................................22
2.6 Conclusion:.....................................................................................................................24
Chapter Three: Methodology...................................................................................................26
3.1 Research Approach.........................................................................................................27
3.2 Research Philosophy......................................................................................................28
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3.3 Types and sources of data...............................................................................................29

3.3.1 Qualitative data and quantitative data......................................................................29
3.3.2 Sources of data:........................................................................................................30
3.4 Triangulation of Data......................................................................................................30
3.5 data Collection Methods.................................................................................................30
3.6 Population and Sampling................................................................................................32
3.6.1: Population of Research...........................................................................................32
3.6.2: Sampling Methods/Technique................................................................................32
3.7 Data Analysis and Recoding:..........................................................................................33
3.7.1: Data Recording.......................................................................................................33
3.7.2: Data Analysis..........................................................................................................33
3.8 Ethical Issues in Research..............................................................................................33
3.8.1 Reliability.................................................................................................................33
3.8.2 Validity.....................................................................................................................34
3.8.3 Research Ethics........................................................................................................34
Limitation.............................................................................................................................34
4. Findings and Analysis..........................................................................................................35
4.1 Introduction....................................................................................................................35
4.2 Interview.........................................................................................................................35
Chapter 5: Analysis and Discussion.........................................................................................42
6. Conclusion............................................................................................................................45
6.2 RECOMMENDATION..................................................................................................48
Limitations of the Study.......................................................................................................50
7. Personal Development Plan.................................................................................................50
References................................................................................................................................55
Appendix 1: Questionnaire......................................................................................................58

Introduction

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1.1 Project Background

The strategy of the organisation for the overall management of the organisation also takes
care of the project management and its delivery before the stipulated time. It is the
management of the organisation who is in a position to make an assessment of the strategy
implementation of the organisation for achieving project objectives. The strategy evaluation
is done in two different ways: the budgetary control and the financial control. The budgetary
control sets up a budget for various tasks of the organisation and also fixes responsibilities of
the employees which have to follow budget policy. A comparison of budgeted activities with
the actual activities is made by the budget control team to ensure that the objective of the
budget gets fulfilled (Smith, 2007).
The budgetary control mechanism of the company helps the organisation to monitor the flow
of money and to monitor the income and expenses of the organisation. The budgetary control
is also a tool for ascertaining the requirement of cash in future and the ways to fulfil those
gaps for example government budgets. This can also help in personal financing.
For any company, a budgetary management system is a tool for control the flow of cash
through carefully monitor the cash flow from the organisation and to trace the deviations
from the already set budget so as to take corrective actions for matching the actual
expenditure with the planned one. For example, the budgetary control system can highlight
that some customers are not paying their dues so proper action can be taken. Availability of
cash and its regular flow is imperative for carrying out the operations of business. And the
budgetary control system takes care of that.
The success of any business depends on of various activities; the budgetary control system is
one of those activities which play a crucial role in making an organisation a success.
However, this action calls for continuous administration (Proctor, 2006). This research will
refer and analysed different methods of budgetary control, the linkage of those methods with
companys strategies and will also understand the benefits and limitations of using budgetary
control system. The activities before the budget preparation will also be analysed, and their
role in preparing a budget for a budget is a result of many activities involving various
departments of the organisation, which ultimately helps in effective budgetary control of the
company.
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1.1.1. Overview of company

The company for the research is LG Electronics, which is a large manufacturer of home
electronic appliances. LG Electronics is a South Korean company, having it's headquartered
in Yeouido-Dong, Seoul. It has five product divisions: Home Entertainment, Mobile
Communication, Air Conditioning, Home Appliances and Energy Solutions. The company is
the 2nd largest manufacturer of televisions in the world and the 4th largest mobile manufacturer
in the world. LG Electronics has one hundred and fourteen subsidiaries around the world with
approx. Eighty-two thousand employees and executives worldwide. LG has a global presence
and holds a significant market share in the industry it operates. LG Electronics also owns
Zenith and holds nearly 37.9 % of LG Display (Alana, 2013).
An organisation like LG which is having various product lines such as Home
Entertainment, Mobile Communication, Home Appliances, Air Conditioning & Energy
Solution including BMS (Building Management System), and SAC (System Air
Conditioning) are offered under this. It extends to different operational departments will
defiantly get huge benefit through the budgetary control system and its analysis.

1.2 Aim and Objectives:

1.2.1 Aim of the research
The aim of this research project is an analysis and evaluation of an organisations budgetary
control system and its links with performance management and decision making. Thus , there
are two major angles for the research one is an analysis of and evaluation of an existing
budgetary control system prevailing in LG. Second is, by that analysis and assessment
finding a relation of the budgetary control system with the decision-making process of the
organisation and its performance management. The evaluation of the budgets includes
resources formed for different departments and overall organisation. Every organisation has
its internal controlling measures to ascertain its weaknesses for improving its performance.

1.2.2 Objectives of the research

The objectives of this report are to provide following results on the budgetary control system:

To critically discuss the relevance of the budgets and budgetary control in LG.

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To analyse the significance of a budget controlling system within the organisations

marketing and strategy campaigns

To evaluate various advantages and shortcomings of the budgeting
To define the methodology used in deciding the budgets for various tasks and policies
To determine the impact of budgetary control system on the performance

1.3 Research question:

How many types of budgets are there in LG?

What is the significance of budgeting techniques in the control mechanism of the

organisation?
What are the methods for analysing the budget?
How the results obtained in the analysis of resources helps in the decision making of

the organisation?
What is the role of a budgetary control system in the control mechanism of the
organisation?

1.4 Rationale for the project:

Today a business operates in a highly volatile market. The management has to take decisions
quickly for sustaining in the market; otherwise, they soon find themselves far behind their
competitors. Also, the management is required to assess their organisations performance
from time to time. For evaluating the performance, it is necessary to have some benchmark
for comparing the performance of the planned one. Such comparison becomes accessible
through budgetary control. Budgetary control has become a crucial part of the control
mechanism of any organisation (Proctor, 2006).
Budgetary control is a useful tool in any industry, If anything deviates from the planned
budget that a corrective measure is required to be taken. The project will help to understand
the usage of the budgetary control for measuring the performance and decision making. A
better understanding will be developed through this research regarding what factors to be
considered for making budgets, how this budget is compared to actual performance and how
the deviations controlled by taking quick decisions. By taking the case of LG Electronics, one
of worlds largest Electronic Company, the study will be more practical, broad and profound.
A big organisation like LG will help in understanding the ways to contact different
departments like sales, purchase, Production, pay section, etc. and to coordinate between
them for making the overall budget of the organisation. The successful completion of the
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project will also help in knowing the linkage between budget, performance management and
decision making (Drury, 2008).

1.5 Importance of the project:

The project is critical for the business organisations as it tries to evaluate the relation of the
budgetary control system with the actual performance and taking decisions accordingly. Any
organisation through this system could know its weak performing areas and best performing
areas. In Budgetary control everything is mentioned regarding cash so, an organisation gets
an exact position through this. Strategies can be formulated for utilising the best performing
areas for gaining competitive advantage or can sustain in the business by dealing with the
weak areas (Slebioda, 2008).
1.6 SWOT analysis
SWOT analysis helps to identify strengths, weaknesses, opportunities and threats for the
organisation. Budgets also contribute to identifying the strength and weaknesses of the
organisation. Based on these findings it becomes easy for the organisation to allocate budget
as per requirements and take timely decisions.

Strength:

Weakness:

LG Electronics has a wide range of

products

to

offer

in

different

categories.
The company strongly focuses on

quality and technology.

Modified its products for efficient
localization in markets of the various

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Company lacks the advantage of early

adapters.
Limited market shares in comparison
to a market share of market leaders.

countries.
Huge distribution network and good

after sales service.

Actively sponsoring various events to

increase visibility (Welch, 2005).

Huge employee base.

Opportunities:

Threats:

High growth rate of home appliances

market and electronic goods markets.

Can increase brand image through the

use of technology.
Enhance the product portfolio.

Similar

offerings

from

Korean

companies like Samsung have started

a price war in the electronic industry.

The industry has become highly

competitive.
The demand from urban areas is
becoming stagnant

1.7 Structure of the research:

The research will be covered under six chapter starting from chapter one that is about the
Introduction to the study which given details of aims, objectives, research questions and
purpose of the research. Chapter two will discuss the review of essential literature relevant
this study. This section will critically examine the key texts, journals and the periodical
relevance for use in the literature review. Chapter three will be evaluating the essential
research methodology includes the method and technique of data collection, and data will be
employed in that study e.g.: research design and sample population as well. The Fourth
chapter will be data analysis; the researcher will carry out the analysis data using table and
graph. Fifth chapter will be the conclusion to conclude whole research and to give suggestion
and recommendation in the last chapter.

2.

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Literature Review:

The term budget can be explained as a plan of activities portrait in financial and physical
terms. More specifically, it is a blueprint of an organisations future performance. Preparing
the budget is a crucial part of the overall planning process of an organisation. Budget is a
mechanism covering planning and controlling of all the sections of a company and directing
the activities of the organisation towards the aims and objectives of the organisation. Budget
is a crucial instrument for ascertaining the future revenues and future costs of an organisation,
which is a necessary activity of the management accounting and which led the foundation for
the financial control of all the activities of the organisation (Steven, 2003).
The budget system of an organisation is required to be such that it synchronises with the
established aims and objectives of the organisation, by the policies and rules of the
organisation, justified with the resources allocated, and suggest suitable corrective actions if
any deviation occurs within and outside the organisation. Clich (2012) state that
management of the organisation is set to be successful if it is accomplishing its aims and
objectives. However, it is also important that such goals and objectives would be achieved
through minimum invested of resources. And, for attaining these objectives and objectives in
a restricted environment, it is critical to have an appropriate budget for achieving these goals.

2.1 BUDGET:
A budget is a quantitative expression of a plan for a defined period. It may include
projected sales volumes and revenues, resource quantities, costs and expenses, assets,
liabilities and cash flows. It expresses strategic plans of business units, organisations,
activities or events in measurable terms.

-Slebioda (2008)

Establishing expected level for expenditures, usually at a relatively detailed level, a

company may plan and maintain a budget on either an accrual or a cash basis.
-

Cliche (2012).

The budget can be defined as a plan, typically expresses in a financial term, for a specified
period, generally for one year. The budget can also be seen as a strategy of utilising the
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material and human resource of the organisation. In business terms, the budget is a statement
of future revenue and future expenditure. A budget helps the organisations to aid the
operation planning by forcing managers to analyse the conditions that might change in near
future. It also directs to adopt different steps in term of avoiding expected problems. It also
brings co-ordination and improved relationship between the activities of various departments
within the organisation (Swiss, 2005).
There are broadly two classes of Budget: Capital Budget and Operating Budget. Capital
budgets are long-term budget covering estimated expenditures on new projects which often
call for special finance. On the other hand, Operating Budgets aimed at achieving short terms
objectives of a company, for example, profit or production goal of an organisation. An
Operating Budget can further be divided into different departmental budgets or functional
budgets (Steven, 2003).

2.1.1 Characteristics of a Budget: Following are the common characteristics found in every
kind of budget

Budgets are prepared well in advance and are a part of long term strategy of the

enterprise.
It is for future of the organisation for which aims and objectives are already set

out.
It is represented in a quantifiable form which may be physical or monetary or a
combination of both.

Slebioda (2008) comments that various types of budgets are prepared for different purposes
like production budget, sales budget, raw material budget, overhead expenses budget, etc. All
such resources together integrated into one budget which is the master budget of the
organisation, which reflects the overall planning for the enterprise.

2.1.2 Benefits of Budget: Following are the advantages of having budget:

A. Budget brings improvement and efficiency in the activities of the company.
B. It motivates managers for achieving the goals set for their unit.
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C. Budget acts as a benchmark for measuring the actual performance and controlling that
performance.
D. A team spirit is developed through active participation in preparing a budget and achieving
its level (Smith, 2007).
E. Protects from losses and reduces the wastage by highlighting them in time prompting for
taking corrective measure.
F. Provides performance measurement of the managers.
G. Act as an important tool for creating awareness and educating managers of the
organisation.

2.1.3 Limitations of Budget

Budget is for future which is always uncertain.

Many a times budget requires revision

Sometimes budget restricts or delays the strategic decisions of the organisation

It is different to coordinate with various department for setting up the budget

Strict adherence to budget sometimes creates conflicts among different departments

Setting up of budget and its successful execution entirely depends on the support of
top management (Slebioda, 2008).

2.2 Budgeting & Budgetary Control:

2.2.1 Budgeting:
Process of

expressing

quantified resource requirements (amount of capital,

amount

of material, the number of people) into time-phased goals and milestones.- Daniels (2004)
Budgeting for a business is a process. It is the process of preparing a detailed statement of
financial results that are expected for a given period in the future.- Smith (2007)
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So, budgeting is a statement showing the future financial activities of the organisation for
attaining some predefined objective. It is a forecast of receipts and payments of both capital
and revenue nature an organisation is expected to undergo.
Finance is regarded as the lifeline of any business. Hence, financial planning is crucial for
every business organisation. Financial planning aim is to make sure availability of finance
and it's efficient and effective utilisation so as to maximise the wealth of the organisation.
Despite having sound financial plans, organisations failed to achieve desired results because
of low control over its implementation. For this, budgeting is become a useful tool that helps
to plan and managing. The budget provides a combination of guidelines and benchmarks for
managing the operations of the organisation. With the use of budget, management measures
the actual performance of the organisation at different levels. The difference between actual
and planned performance is reflected through budget (Slebioda, 2008).

2.2.2 Objectives of Budgetary control:

Providing a plan of action for the organisation for a specified period.
Coordinating between different activities and various units of the organisation for optimally
utilising the resources available (Nightingale, 2008).
. Make a revision of budget in case of changes in circumstances within the organisation and
outside the organisation.
To control the operation of the business by comparing actual performance with the planned
one.

2.2.3 Prominent Budgets Used for Control:

The budgetary control is exercise with the use of resources. Following is the list of most
provincial budgets uses by business organisations:
Master budget:

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Master budget is also known as finalised profit plan or summary budget. It is a total of all the
resources of the organisation including various department or different units for a specified
period. It is the overall budget plan for the organisation. Since planning the profit is one of
the major aims of a budget system, it becomes necessary that all subsidiary budgets should
bring together under the master budget for arriving at the overall profit/loss figure of the
organisation. The master budget includes projected P & L account, the projected Balance
Sheet and all the functional budgets of the company. Monahan (2000) stated that before
implementation of scheduled plans, the master budget is reviewed by financial experts from
top management and maybe updated if the profits do not meet the satisfaction level. And after
revision (if required), the master budgets get the approval of top management and put into
action.
Another angle to look at the master budget is a combination of profit and loss account and
balance sheet. The figures of profit and loss are arrived without any effort by combining
different resources and no estimation is separately required for that (Gardner & Steinberg,
2005). The profit from operation is derived by deducting the estimated expenditure from the
budgeted income for knowing the net profit.
Alana (2013) state that the benefits of projecting the profit or loss are as follows:
1) Overall profit/loss position can be ascertained for the whole enterprise.
2) Better planning and controlling for the profit can be done for the organisation.
3) Helps in analysing the causes of variances.
4) Acts as an automatic check for all the budgets of the organisation.

Financial budget:
This is a financial statement that shows summary of future estimated requirement of cash
inflows and cash outflows. As defined by Smith (2007), Financial budget compares the
future cash inflows with the future cash outflows in a particular period like half year or
yearly. Another definition is given by Drury (2008), Financial budget can be seen as an
estimation of receipts cash and cash payments over a specified period.
A financial budget can be prepared through any of the following three methods:
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A. Through Receipts & Payment Method

B. Through Adjusted Profit and Loss Method
C. Through Balance Sheet Method (Welch, 2005)
Receipts & Payment Method: Preparation of financial budget through receipt and payment
methods required estimation of future cash receipts and future cash payments for a budgeted
period. The expected cash receipt gets added to the cash balance at the start of the period, and
the estimated cash payments are reduced from that total. The balance so obtained is the
expected closing balance of cash at the end of the budgeted period. The estimates related to
sales are provided by the sales department which is helpful in knowing the credit trend
allowed by the company to its debtors (Bhimani et. al, 2008). Estimates of cash and credit
purchases are provided by the purchasing department of the organisation. The data provided
by purchase department helps in knowing the credit benefit enjoyed by the organisation
before making payments for the goods purchased on credit.
Adjusted Profit & Loss Method: Slebioda (2008) states this method of preparing a financial
budget is also commonly known as cash flow statement. The method is most suitable about
long-term plans; the movement of capital is anticipated for a longer period.
Balance Sheet Method: Proctor (2006) comments that the balance sheet method of financial
budget advocates preparation of balance sheet. Bank or cash balance is ascertained through
the budgeted balance sheet. It covers all the assets of the organisation excluding bank,
liabilities and cash balance.

Fixed budget: this remains constant, does not get affected by the level of activities. The
budget is prepared for a fixed or standard level of activity or capacity. A major drawback of
this kind of budget is its unrealistic standard when the actual level of activity does not meet
the fixed level of activity set while preparing the budget. Business firms having fluctuating
sales or production avoid this kind of budget. Since it would be difficult for them to accurate
ascertain their sales or production.

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Flexible Budget: Smith (2007) states, the Flexible budget is a budget which is changed as per
the actual level of activity. The flexible budget is prepared by dividing the cost into fixed
cost, and variable cost and the changes are made in the variable value based on different
levels of activities.
Use of Flexible Budget is suitable for the following cases:

When predicting of sales is very much difficult like sales of semi luxury and luxury
goods.

When the company brings an entirely new product or service, and its hard to estimate
demand like for fashion products.

When the business is going to difficult time and it difficult to estimate exact demand
e.g. soft drink business.

Capital Budget: Capital budget is the budget used by the business organisations for managing
significant expenses. That great expense may be done for obtaining any fixed assets like
heavy machinery. The budget can be used for purchasing, replacing or expanding a fixed
asset. The importance of the budget is reflected by the hefty amount invested in buying fixed
assets which have to be utilised for future years.

Operational budget: Operations budgets are used mainly for forecasting the sales figure.
Such budget includes revenue from sales reduced by the expected expenses and resulting in
gross profit or loss. The main aim is to ascertain the sales figure require to meet the
anticipated expenses and earn a projected profit (Savin, 2013).

Cash Flow Budget: The cash flow budget reflects the cash movement of the organisation.
The inflow of cash denotes the stock sales /recovery from debtors etc. while the outflow of
money denotes the cash purchase or payment to creditors or payment of expenses. This
budget reflects the cash position at each month. If there is a negative flow than it shows that

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some additional sources are needed to increase the inflow which may be borrowing from
outside or more capital contribution by the owners.

Production Budget: Smith (2007) studied Production budget gives an estimate of expected
quantity of production which may be product wise along with the schedule of achieving that
level in different time intervals and forecast for finished inventory. The works manager is
responsible for the production budget along with the departmental work manager. A
production budget may be in financial or physical term or both on the production. Following
questions gets answered by the production budget: What to produce? How to produce? When
to produce? And where to produce?
Cliche (2012) state that production budget predicts the program for production which
contributes towards the achievement of sales target. This budget also forms the base for other
related budgets like labour cost budget, material cost budgets, etc. It also helps in preparing
cash budget. The production budget is set up in the light of other factors like sales
requirements, policies of inventory of the organisation, the capacity of the plant, production
stability, and time required in producing goods, availability of raw materials and labour and
like.
Production costs budgets: Normally, three elements involved in the cost of product viz.
direct material, direct labour and Overheads. Budgets for each this item is prepared
separately.
There are two components of different materials budget
Materials Requirement budget and Materials purchase or procurement budget: The Material
Requirement budget is about the total quantity of raw material required for the budgeted
period while the material procurement budget is for ascertain the quality of equipment to be
procured from the suppliers for the budgeted period. Material to be purchased is determining
after taking effect of opening and closing stock of material held with the organisation and the
material which is already in transit.

Zero-based budgeting:
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Slebioda (2008) commented that the system of Zero is Based Budgeting help in arriving at a
solution for the limitations which are present in traditional budgeting system.This is done by
making it possible for top management to concentrate on critical areas, decided priorities and
choose from alternatives for the benefit of their organisation.

The problems faced by senior management are as follows:

1. The traditional budget fails in the identification of those activities and programs which
cause wasteful expenditure; so, resulting in loss and financial burden for the company.
2. Any inefficiency of earlier years is again brought forwarded for ascertaining the coming
years performance.
3. Employees and managers do not have any encouragement for identifying and evaluating
other alternatives for achieving the same target.
4. The decision making becomes irrational because of lack of rigorous analysis of the cost
and benefits anticipated.
5. Managers inflate their department budgets by showing small requirement of fund for
showing their excellent performance. But, in an actual situation when more capital is required
the entire budgeting process is again reviewed (Proctor, 2006).

Processes involved in zero-Based Budgeting:

Below mentioned steps are required in zero-based budgeting.
Determine the objectives of budgeting: objectives are the first step which may be to bring a
reduction in the cost of staff overhead, or the purpose may be to decide whether to retain a
project or drop it off after an in-depth analysis and like.
Deciding on the scope of application: The range of zero-based budgeting is needed to be
determined, means whether the budgeting is for the overall unit or some specific areas or
departments on a trial basis.

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Development of decision units: Decisions units are required to be developed. These

decisions units will be analysed by cost-benefit analysis for taking the decisions of whether to
continue with these units or to drop them off. It is important that these decisions units should
be distinct from each other so that if cost-benefit result in drop off decisions them other units
remain unaffected (Nielsen, 2013).
Development of decision packages: Slobodan (2008) studied for each unit a decision
package is required to be developed. The development of decision package involves
obtaining answers for the following questions:

Whether it is needed to conduct a particular activity? If the answer is No, then there
is no need move ahead with the action.

What is the real cost of that activity and what benefits both tangible and intangible it
going to provide?

What would be the level of activity and the benefits expected at that level of activity?

Whether the activity to be continued to perform in the manner, it was earlier used to
be and what will be the cost involved in it?

If the activity or project is discontinued, whether outside agency can replace them or
not?

Advantages of zero-based budgeting:

1. Zero-based budgeting helps a company in a systematic way for evaluating its programs and
operations. This helps in allocation of resources to different programs by priority.
2. This makes sure that the activity undertaken by the manager is essential for the company
and is to be conducted in a best possible manner (Monahan, 2000).
3. The approval of the departmental budget by the management is based on the cost-benefit
analysis. No increment in the budget or arbitrary cuts in the budget can be made.

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4. This sort of budgeting creates a linkage of the budget with the objectives of the company.
Nothing is permitted since it was already done in past. An activity which not contributes
towards the achievement of goals is dropped here.
5. The budgeting would also help in knowing the areas causing wasteful expenditure and
would also suggest alternatives for minimising such expenditure.
6. It promotes the implementation of the mechanism of management by objective (Mannay,
2010).
In this way it not just fulfil the objectives of budgeting as done in traditional budgeting but it
also useful for various other purposes.

2.3 Ratios for budgetary control

Activity ratio: Smith (2007) states that activity ratio reflects the activity level achieved in a
particular period. The ratio is arrived by bringing the standard hours equivalent to the goods
produced in the percentage of budgeted hours.
Formula: Std. Hours for actual production X 100 Budgeted hours
Capacity Ratio: Loseke & Cahil (2007) comment that the capacity ratio measures up to what
level the budgeted hours of capacity utilised actually. This ratio represents the relation
between the maximum possible working hour and the actual working hour for the budgeted
period.
Formula: Actual hours worked * 100 Budgeted hours
Efficiency Ratio: The efficiency ratio indicates the level of efficiency achieved in
production. It is derived by expressing the standard hours in proportion to the work produced
as a % of actual hours for its production.
Formula: Std. Hours for actual production X 100 Actual hours worked

2.4 Requirements for an effective budgetary control system: Following are the
requirements for an effective budgetary control system.
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Clear objectives: Budgets are tools for achieving the objectives of the business. For
this, it is important to have clear objectives for making the budget accurate otherwise
the budgets might become unrealistic in the absence of clear objectives.

Appropriate delegation of power and responsibility: Preparation of budget and its

control is practised at various levels in the organisation. Although the final approval
of the budget is done by top management for its success, the role of employees at the
lower level of management is also crucial. There, a delegation of authority along with
responsibility is imperative (Nightingale, 2008).

Sound communication system: An audio system of communication is imperative for

the success of budgetary control. Information flow for the budgets is required to be
quick for taking immediate action.

Budget Education: Benefits of budgets should be explained to the employees of the

organisation. The role of employees regarding making the budget successful is
required to be disclosed to them.

Participation of all: Participation of employees at all the levels of the organisation

for the success of the budgetary control is needed.

Flexibility: Budget having a certain degree of flexibility is more efficient as they can
be altered with the changes in the circumstances. However, too much flexibility is
also to be avoided (Gardner & Steinberg, 2005).

Motivation: Preparation and implementation of the budget are done by human

resource and so it is important to motivate them to contribute towards this.

2.5 Budgeting and competitive advantage

As mentioned earlier, Budget is a tool in the hands of management for controlling and
guiding the organisations performance. And because of this, Budget is also viewed as a
switch for affecting the other control mechanism of management. As per a study was done by
Drury (2008), Budgetary control system of a company can be used for creating and sustain
competitive advantage. The study was done on a Sri Lankan manufacturing company. The
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findings were by porters point that creating competitive advantage calls for expansion and
improvement of sources.
The budget provides the numbers which are used for measuring the actual performance of the
organisation. It is the qualitative lookout for the company to gain competitive advantage. As
defined by Nielsen (2013), Competitive advantage included the factors which differentiate an
organisation from the others, helps in raising market share or even leave competitors behind.
As per a study was done by Clich (2012), some essential functions of budgetary control
which facilitates creation and sustention of competitive advantage: Means of forecasting and
planning, co-ordinations and communications requirement, the basis for evaluation and
controlling and providing information for taking decisions.

Means for Forecasting and Planning: The researchers who have explained the
importance of forecasting in budget is Nielsen (2013), as per the observation of
Denzin & Lincoln (2005), an organisation might take up to four months for
forecasting is activities and the forecast for sales are on an average revised for 5
times. The study of Swiss (2005), further supported the statement that forecasting is a
crucial function of the budget process, but very small has been investigated on the
role of forecasting in budget planning Alana (2013) explained that preparation of
budget brings refinement in the long term planning of management. It makes sure that
managers plan their course of action in advance after predicting the future conditions
for coming years and the appropriate measures they required to undertake to handle
those situations. In this way, this functions also helps in anticipating the problems in
advance and preventing managers to take hasty decisions which might be due to
expediency rather than based on rationalised judgements.

Co-ordination and channel of communications: The framework provided by

Nielsen (2013), explains the ways management control system is used for
communicating the mission of the organisation. The model highlights two main
components of budgeting, one at a strategic level and other at the operational level.
Another framework Levers of control. As per the framework, there are four types of
management controls: Belief System, Diagnostic System, and Boundary Systems and
last is an interactive system.
The Belief system covers those statements and programs which teach core values to
human resource of the organisation. The Diagnostic System highlights lagging

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indicators related to performance. The Boundary System lays down the limitations
and prohibitions for the working of the employees within the organisation. The
Interactive system of control proactively detects the critical activities related to
business situations for guiding toward the corporate strategy. Budgeting is useful in
enabling these levers of power.
The Simon model explains that top management imparts boundaries and beliefs to the
front line managers and for better alignment of employees actions in line with the
organisational goals Budget is used by the management for emphasising on critical
interactions and core beliefs. These reflect that importance of budgeting system
beyond the financial limits to non-financial actions. The researchers view the budget
system and related activities coherent with the organisations mission, it limits the
employees and forms a basis for a healthy dialogue between the executives and
managers on the strategic direction of the organisation. The front line manager uses
the diagnostic for giving feedback for operational activities going on.
As stated by Denzin & Lincoln (2005), Budget acts as a vehicle for carrying the
different activities of various departments of the organisation together and reconciling
these activities with the overall plan by prompting managers to make an examination
of the activities within their department and relations of those activities with activities
of other departments, at the same time tracing and resolving the conflict while doing
so. The researcher also explained that with the use of Budget management
communicates its targets to the lower management, in a way that, they synchronised
their activities for meeting these objectives.

Provides a basis for evaluation and controlling: As stated by Nielsen (2013),

manufacturing activities can be evaluated through the activity-based budgeting. He
further added that it is a management method for implementing at the operational
level for improving the performance and reducing the cost continuously. And in this
manner, a foundation for effective control is led by it.

Providing information for taking effective decisions: Alana (2013) states that the
main motto of Zero-based budgeting is decision making. Zero-based budgeting is
primarily concerned with obtaining of desired results through applying resources. It is
an up gradation for resolving the deficiencies of the traditional budgeting mechanism.

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2.6 Conclusion:
A literature review is a critical part of any research work. This section gives details of earlier
analyses done in the related field. The views and opinions of scholars and academicians
provide a broader way to decide the manner to carry out the research further. This section also
provides the useful secondary data for the research which give more meaning to the findings
of the primary data.
The literature states that budget is a quantitative representation of the future activities of the
organisation. Different activities of the organisation like sales, advertisements, supervisory
exp., purchase expenses, etc. are expressed regarding money through budgets. There are
various kinds of budgets available like capital budget, master budget, operational budget,
flexible budget, fixed budget, etc., the selection of the kind of budget depends on the
objective for which budget is required. These budgets can broadly be classified under two
heads-long terms Budget and Short term budget. Budgets provide a lot of advantages like
control on expenditure, execution of expansion plans, better management of activities, etc.
However, there are certain limitations attached with the use of Budgets like future
uncertainty, the problem is coordination, etc. An efficient use of budget depends on taking
care of these constraints while exercising the budget. Setting up of the budget in itself is a
complex process requiring coordination from different department of the organisation. For
example, preparation of cash flow budgets needs the cash figures from the recovery
department of the organisation and the sales department of the organisation. At the same time
outflow cash figures are required to be collected from cost centre of the organisation like
purchase department, pay department, etc.
Studies reflect that budget have been used many times by the business organisations for
managing their performance and taking important decisions. The use of budgets for
controlling the activities of the organisations is termed as budgetary control. This is done
through analysis of the budget by comparing it to the actual performance of the organisation.
Apart from budget another tool commonly used for analysis of the budget and actual
performance is ratios. Calculation of ratio provides the quantum of deviation from the
planned performance. An effective budgetary control has certain basic requirements like clear
objectives, coordination of all departments, motivated employees, effective communication
within the organisation, proper delegation of power, etc.

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Budgetary control is an important exercise performed by the organisations for meeting the
aims and objectives of the organisation. For some organisations, the budgetary control can be
a competitive advantage. Forecasting the future activities and quantifying the same requires
lots of expertise and coordination. Moreover, a proper balance between flexibility and
stringency is needed while following the budget, since the lack of flexibility can lead an
organisation to a disastrous position in adverse and unpredicted situations of the future and
excess of flexibility will deny the very purpose of the budget.

Methodology

The research methodology has been divided into two parts. First part deals with the research
philosophy relate to this research and the research approach used in the research with suitable
justification thereof. The remaining part will cover the methods utilised for the data collection
in this research; in addition to that, it also includes the sampling method and the size of the
sample that will be employed for this research. The last Para will provide the details of ethical
issues surrounding the study and the ways of dealing with these matters.

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3.1 Research Approach

Ahead of commencement of ground research work is it vital to decide the research approach
to be undertaken. The two types of research plan are Deductive approach and Inductive
approach (Creswell, 2008). The following explanation will provide basis for selection
between the two methodsIn deductive research approach, theories are used for establishing a hypothesis. After the
hypothesis is decided, for arriving at a result, the said hypothesis is tested through gathered
data by confirming or rejecting it. And so, three steps are there in deductive research
approach1st step -Use the proven theories for deciding hypothesis.
2nd step data collection for hypothesis testing
3rd step- by 2ndstep, the result is obtained by either rejecting or confirming the hypothesis.

Theory

Hypothesis

Observation

Confirmation

Fig 3.1 the process of deductive approach

On the other hand, in inductive research approach, the theory is formulated through the
collected data. Under this method, the researcher collects data for getting information by
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which he forms his own opinion. This method is also commonly known as Bottom-up
approach. The bottom-up approach phenomenon makes the results uncertain as compared to
the deductive research approach. The significant difference between the two theories is that in
deductive research approach method is already available and in inductive approach theory is
formulated (Savin& Major, 2013).

Theory

Tentative Hypothesis
Pattern

Observation

Fig 3.2 the process of inductive approach

In this research work, the appropriate research method will be inductive research approach as
a result will be based on the primary and secondary data made available in this research. The
so arrived results will be more relevant to the topic under study.

3.2 Research Philosophy

Research Philosophy includes the various methods by which knowledge about the subject of
the research is built or enhanced. Apart from that, the research philosophy provides deep
insight into that experience. In research philosophy there are following four approaches:
1) The Interpretivism approach
2) The Pragmatism approach
3) The realism approach
4) The Positivism approach (Denzin& Lincoln, 2005).
These different approaches have varied effects on the research Philosophy. Based on the
adopted philosophy for this research project, the research methodology is draughted &
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interpret. For this reason, it is important first to understand the difference between these
approaches.

Interpretivism Approach-The Interpretivism approach believes

in gaining

knowledge by the different roles played by a person while living in society. Due to
this reason, the research following the approach is more in search of qualitative data
in place of quantitative data. Although, many times the qualitative data have been
criticised on the ground that it is unclear and imprecise. The data is also criticised as
prone to manipulate by the individual views of the researcher. And because of these
criticisms, the creditability of qualitative data is always questionable by its critics
(Daniels, 2004).

The Realism Approach This approach is a scientific approach in the way

knowledge is earned through this. The approach believes that the behaviour of a
person is directed by the understanding of the individual for the society, and this point
is important to be considered while building knowledge for any topic.

Positivism approach: This approach advocates that a researcher should observe the
social reality and convert his observations to general observations similar to
generalise laws formed by any physical or natural sciences.

Pragmatism approach: The Pragmatism approach regards research questions as a

crucial factor in research philosophy. In this method, a researcher might hold the
position of an interpretive or positivist in the study period (Savin& Major, 2013).

For this particular research, the most appropriate approach for research philosophy will be
Positivism. This method will provide clear and precise results. So; obtained results are
sufficient to generalise the outcomes and are more reliable. This method calls for structured
methods for the collection of data like questionnaires. Use of questionnaires will also
facilitate data collection through other persons apart from researcher himself getting involved
in the collection of data. Other methods for e.g. aggregation, random sampling, and
measurements will be used for the study.
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3.3 Types and sources of data

3.3.1 Qualitative data and quantitative data:
The two data collection approaches are Qualitative data collection approach and quantitative
data collection approach. In qualitative research, the data may be words, pictures, audio,
video file or interview replies, etc. On the other hand, in quantitative research data is in the
format of numerical value. For this research, survey through the use of Semi-structured
interview will help in qualitative analysis. The qualitative approach will be utilised in this
research work.

3.3.2 Sources of data:

The data collection methods of a research study give answers to the questions viz. how, when
and from where data will be collected. There are various data collection methods which are
broadly classified into 2 different categories namely, the primary data collection methods and
secondary data collection methods (Loseke&Cahil, 2007).
Primary data: it denotes the data which is collected solely and used for the current research
project. The primary data is collected by researcher so it is very authentic in nature and useful
for finding answers that meet to achieve the research objectives and questions unique to the
research. It can be collected via different methods such as observations, interviews, survey,
etc. interviews and survey was done by a questionnaire that can be answered or filled by the
respondent over the telephone, face to face and internet. Here, the selection of a right method
for primary data collection is very crucial for attending objective in the more accurate way
(Creswell, 2008).
Secondary data: it is usually the data which is collected by other researchers for their
research. This kind of data may be gathered for a related issue. Secondary data can be
gathered from the various sources like market reports, views of economists and well-known
publications. The advantage of the secondary data is time saving. However, secondary data is
always not able to address research questions for the research exactly.

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3.4 Triangulation of Data:

3.5 data Collection Methods:
Observation: In observation method, the data is gathered by taking note of targeted
audience. There is no necessity of any communication between the participants of the
research and the collector of data for the research. Time and money saving is its greatest
advantage.
Interviews: this is one of the tools which can be used to gather primary data. It is a sort of
conversation between two or more people. The nature of interview and data collected through
an interview is qualitative. With the use of technology advancement, interview operations can
be done through video conferencing, over telephone and face to face (Creswell, 2008).
An Interview can be structured and semi-structured as well. The structured interview never
allows any modification of question during an interview, and one cannot divert questions as
per the situation. The main objective to conduct a structured interview is ensuring the same
order of questions as decided and presenting questions in exact order. And so, structured
interview ensures that comparison can be reliably made with confidence between different
subgroups or survey periods. On the other hand, semi-structure interview has structured
questions with allowing open questions. It ensures that new ideas and issues can be raised
during the interview as per the situation. In the semi-structured interview, generally, the
interviewer has a framework in which it is mentioned that what is to be explored.
Questionnaire: it is a technique to gather primary data in which there are some fixed
questions for which answers has to be collected from respondents. Questions in survey used
to arrange in a sequence which is specific. The questionnaire has either open-ended questions
or close-ended questions or both. Whenever questionnaire used to fill by interviewer through
face to face questioning or over the telephone, then it called interviewer administered. On the
other hand, when questionnaire fills by respondents after distributing questionnaire physically
or through E-mail then it is called self-administered (Mannay, 2010).

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As, the researcher thinks that interview will be more effective than any other tool of primary
data collection because there are particular set departments in which researcher wants to
conduct an interview; in this dissertation, there will be the use of Interview technique to
collect primary data from targeted population. The interview will be semi-structured and also
will have open-ended questions to get opinions of the sample population.
To conduct this research, primary data as well as secondary data will be used. Through
secondary data, researcher can get easily available data, and primary data will provide direct
answers to questions, and then aims and objectives of the research can be achieved.

3.6 Population and Sampling:

3.6.1: Population of Research
Interviews will cover the executives of three set areas i.e. Manufacturing, Research and
Development and commercial operations. These areas are broadly independent of each other
and are of particular interest for the top management of the organisation. Preparation of
Budget by these departments and its communication to corporate office involves various
activities which will be explored through interviews.
3.6.2: Sampling Methods/Technique

Sampling Design:

Sampling Unit: The sampling unit denotes the unit which will be used in the research. For
this study, the sampling unit consists of Executives of the three different departments namely
R& D department, manufacturing department and commercial operations department of LG
Electronics.
The size of the Sample: The size of the sample for this research will be interviews with three
executives of the three above mentioned departments. The interviews happen on telephonic
communication and will not be in a strict manner but in fact, more focuses on the details.
Most of the questions will be open-ended, so that more information regarding the subject can
be gained from the sample.

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Sampling Technique:
In this study, the researcher has chosen the non-probability, purposive sampling technique to
ask the question to three executives from a different department who are having the
knowledge of the budgeting. The purposive sampling is also known as judgmental sampling
as a selection of the population was based on its experience and also the purpose of the study.
The main difference between probability and non-probability sampling is that non-probability
is not associated with any random selection, while probability sampling does. In probability
sampling, the researcher is not representing the population. The one of the benefits of the
purposive sampling is that researcher can quickly gain the better understanding of the various
patterns of the study. The purposive sampling is very much useful in a situation where we
need to target the population much more quickly (Lohr, 2010).

3.7 Data Analysis and Recoding:

3.7.1: Data Recording:

As mentioned above interview of executives of three departments will be conducted for the
collection of primary data. The researcher himself will do the interview over the telephonic.
In the first part of the interview, the replies will be asked for some fixed set of questions.
These responses will be recorded on a notepad in the form of short notes.

3.7.2: Data Analysis:

Once the data is gathered through the interview, the same will be analysed in the light of
research aims and objectives. The replies of the interview will provide answers to the
research questions. The analysis of the secondary data will also be done to provide more
meaning to the findings of primary data.

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3.8 Ethical Issues in Research

3.8.1 Reliability:
Reliability is a key element at the time of collecting and analysing the data. The researcher
has to make sure that the collected data is reliable. The relationship between two different
variables is to be shown by a coefficient. During testing phase, if the outcomes are consistent
then it can be assumed that data is reliable (Mannay, 2010).
3.8.2 Validity:
Validity ensures that the tests of measuring and the devices used for measurement in the
research measure correctly. The validity of Inferences drawn is also validated under this.

3.8.3 Research Ethics

Research Ethics deals with the ethical issues surrounding the research. Research ethics can be
defined as practices adopted by the researcher of the study to protect the rights of the
respondents of this study (Creswell, 2008). Besides, research ethics also guides the researcher
in selecting the topic, using justified ways of collecting data, storing and retrieving data,
using suitable methods for the analysis of the data. Research Ethics also ensures that the
research will be written in a more responsible manner (Kumar, 2010).
A letter has been used by the researcher for informing the company and its executives about
the aims and objectives of the study. The benefits of the survey have also been mentioned in
the letter. The researcher also promises that the research will not harm or have any adverse
effect on the respondents. All these points have been mentioned and undersigned by the
researcher himself. All the questions of the research have been shared well before the
interview to get a proper response from the respondents. The researcher also assured to the
respondents that all the information would only be used for research purpose; nothing will be
utilised for any other use.

Limitation:
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Each kind of research suffers from some sort of barrier. However, a researcher always tries to
neutralise those limitations to arrive at most accurate results and findings. The present study
has the limitation of time and money. That raise some issue such as:

Because of this, selected executives of only departments have been covered. But, the
researcher has selected the most relevant departments as per the objectives of the
study.

Apart from that, due to privacy concern of respondent, their identity and recording of
their answers will not be available.

Sampling size is too small so that the result may be different for a different sample or
in different geographical locations.

4. Findings and Analysis

4.1 Introduction
In this chapter researcher explains the empirical results. The researcher explains the results of
the interview with three executives of the company at different departments of the LG
Electronics. The interview has been performed on three key set areas managers, namely,
Research and development, Manufacturing and the commercial operations. The result
explains the characteristics of the budgeting, various methods and techniques of budgeting
applied by the company and benefits of different budget methods.

4.2 Interview
4.2.1 Interview Based On Significance of Budget Controlling
Question 1: Do you know there is a budget for your project?
The researcher has asked the first question to the executive of Research & Development
department regarding the knowledge of budgeting system in your project. The executive
mention that company is using the budgeting to attain short term objectives of the project.
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This is important for the enterprise to make the linkage between their two different
departments. The company can establish the linkage between future revenue and
expenditure of the enterprise.

When the researcher asked the similar question to the

executive of commercial operations, he stated that the main benefit of the budgeting is to
assist the employees to work towards planned direction and enabling the employees to deal
with the changing conditions of the market. Pre-decision information and participative
management control systems. This is helpful for the managers to construct the plan before the
occurrence of any unforeseen events. Thus, it prevents the company from any major
problems. He executive asserted that managers are preparing the steps to deal with any
unpredictable events and protect the company from any damage.
The manager of the manufacturing department also mentioned that coordination of activities
between various departments can be easily done with practical budgetary plan of the
company (Baiman and Evans, 1983). The primary purpose of the company is to introduce
the budget and budgetary control in the company to achieve the production objectives.

Question 2: Explain the characteristics of the budget in the enterprise?

The researcher has discussed the features of the budgeting with executives of the LG
Electronics. The Manufacturing department executive of the company stated that budget is
the qualitative statement which is helpful for explaining the expenses, revenue and cash flows
of the company. This is providing the effective coordination of all the activities and control
for making the comparison between actual and budgeted. Another executive of Operation
department mentioned that budget is the quantitative expression which is making the plan of
various activities of different departments such as finance, sales and operations. This is also
making the smooth flow of manpower, cash and expenditure activities of the company.
Most of the executives expressed that budgeting is the process which is translating the
companys objectives into a feasible action plan. This is also the useful tool for constructing
the long-term strategy of the company. The executive of the Research & Development
department stated that key features of the budget are to implement the control measures to
check whether the full activities have been performed as per the planning, checking the
corrective actions and analysing if there are any shortfall or deviation arises. The executive
stated that when the budgetary control system of the company applies; budget of the
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business is being established with some financial terms and responsibility of all the managers
have been assigned as per the requirement of the task (Cloete, 1998).

Question 3: Do you think budgeting is important for the company? If Yes, why?
The researcher has asked the importance of the budgeting to all the executives. The manager
of the operations department stated that budgeting prepares the vision for the company,
where the company wants to go in the near term, and they are making the strategic plan by
that. The executives mentioned that budgeting is helpful for making the forecast of both
payment and revenue nature which is expected to undergo in the company.
The manager of the Manufacturing department stated that budgeting is the method of scaling
all the control measures of the enterprise. The planned against actual performance of the
company can be easily accessed through budgets. The executive of the Operations department
stated that budgeting is essential for making the effective coordination between all the
different units of the company. These are making the continuous revision of all the planned
activities of the enterprise. The executive affirmed that budgeting is the projected activity
for the survival of business in todays competitive business environment, in most of the
companies the failure of the firm is mainly on the account of limited profit planning of the
managers. This has been recognised by all the executives as one of the most productive and
profitable allocations of all the available resources with careful controlling and planning. The
particular expectation from the companys results can be measured with the pre-decided task.

4.2.2 Interview Based On Methods of Budgeting

Question 4: What are the major budgeting techniques frequently applied by your
company?
The companies are using the various budgeting techniques to prepare the practical framework
of companys budget. The budgeting techniques of the company can categorised into different
segments such as master budget, financial budget flexible budget and zero-based budget. The
executive of the Operations department stated that his department is mostly working on the
master budgeting as it is also recognised as the profit plan which includes all the phases of
the organisation over a period. This is having the heavy usage in both operations and
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financial budgeting of the company. The companies are implementing the operational
budget to perform all their organisation activities related to the production of goods and
services. This is essential for meeting the demand of the organisation by meeting the property
and services requirement. The manufacturing department executive stated that the primary
usage of the financial budgeting is to prepare the summary of estimated cash outflows and
inflows of the company. The company is usually following the receipts and payment method
for making the estimates of future revenue and payments of the enterprise. The cash flows of
the company are mainly prepared for the longer period of perspective.
Though most of the executives expressed that fixed budgeting is the least favourable
approach of the company as it doesnt get impacted by changes in the level of activities. The
concerned for all the managers and executives regarding this method is that fixed budgeting
is creating the unrealistic standards for the company, it is difficult for the company to meet
the actual standard with the fixed level of activity at the time of preparing the budget.
Therefore, executives of all departments emphasis more on the implementation of flexible
and zero-based budgeting. They mentioned that flexible budgeting changes the estimates of
the budget over a period. The variable cost of the activities changes over a period. Though,
flexible budget is very much accommodative for the managers, but still, are having some
drawbacks such as the company is finding difficulty in making the assumptions of sales and
estimated of the product demand cannot be analysed. Thus, companies are relying on zerobased budgeting. The executive of Research & Development department stated that main
emphasis of the enterprise is essential or core areas of the project, the budgeting has been
done only in these areas.

Question 5: Do you think zero based budget technique is having substantial popularity
over other technologies?
When the researcher asked about the differentiation of the budgeting over others than most of
the executives, have explained the benefits of the zero-based budgeting over other budgeting
techniques. The executive of Research & Development department stated that zero-based
budgeting is emphasised more in the critical areas of the organisation. This is helpful for
eliminating the additional overhead of the staff. The executive of the operation department
stated that decision-related to retaining and dropping the project could be made on the instant
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basis. This is influential for taking a decision regarding implementation of the budgeting at
particular level of overall units of the organisation.
The executive of the Manufacturing department stated that company can install the decision
units for taking the decision regarding setting up or dismantling the units. This is one of the
useful tools for performing the cost-benefit analysis of the company. The executives reveal
that zero-based budgeting ensures the proper linkage between all the objectives of
company.
Question 6: What is the significance of ratios in budgetary control?
The researcher has also discussed the importance of the ratios in budgeting. There are some
of the ratios which are used by managers while implementing the budgeting system in the
company. These are mainly Activity ratio, capacity ratio and efficiency ratio. The executive
of Operation department of the business stated that the main purpose of the ratio is to analyse
the activities of the operations in a particular period. They prefer the usage of activity ratio in
budgeting. The higher the ratio, the higher the activity level of the company (Bourguignon,
2004).
The Manufacturing department executive stated that capacity ratio is having the significant
role in measuring the budgeted house of companys capacity utilisation. The manufacturing
department is mainly using this activity for establishing the difference between actual against
estimated working hours during the budgeted period. He stated that manufacturing unit is
also relying heavily on the efficiency ratio as they are revealing the level of proficiency
attained by the company. Thus, the main purpose of the efficiency ratio is to analyse the
percentage of actual hours for its production.

4.2.3 Interview Based On Significance of Budgeting Techniques

Question 7: What kind of budget technique is much suited to your company?
The selection of the budget technique is essential for the raising the success rate of the
project. Therefore, the researcher has discussed the selection of most appropriate technique
with all the respondents. The respondents stated that budgeting technique is essential at all the
levels of the organisation. The executive of the Research & Development stated that
companies are using the operational budget to predict the sales of the company. The main
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purpose of the operating budget is to achieve the level where sales revenue of the company
is attaining all expenses and making the companys business much more profitable.
Similarly, the manager from the Operations department mentioned that capital budgeting is
one of the important tools in the company to estimate the cost of fixed assets of the company.
He stated that this is important because this involves the huge cost of the company. The
company is taking the decision in capital budgeting in areas like expansion in machinery,
building and replacing existing asset with new asset.
Similarly, all the executives mentioned that the main emphasis of all the companies is more
towards cash budgeting to maintain the smoothness in the day to day operations of the
company. The cash flow budgeting is revealing the possible cash inflows and cash outflows
of the business. The companies are making their financial budgets by cash flow budgeting as
reveals the short term and long term financial plans of the enterprise. But still the only
concern on the part of executives is that financial budgeting has the primary significance in
showing the income. Thus they are choosing the cash flow budgeting over the financial
budgeting.

Question 8: Do you think budget technique has added competitive advantage to your
company?
The budgeting is having the substantial significance in controlling and organising the
performance of the company. When the researcher asked a question on the competitive
advantage of budgeting in the organisation, then all the executives have mentioned the same
answer that budgeting is important for analysing the actual performance of the company.
The main purpose of the budgeting is to raise the profitability of the company by gaining
their strong market presence due to effective competitive advantage in a variety of products
and services. The executive of the Operations department stated that all the managers could
easily plan their resources requirement for the next three to five years with the help of
budgeting. The managers are using the budgeting as a tool to predict the future sales of their
products and services.
The executive of Research & Development department stated that coordination and
communication could be improved through budgeting as all the departments are interlinked
39 | P a g e

with each others. Thus, sales department can make better communication with
manufacturing to make the changes in products by marketing requirement.

Questions 9: Why you are more relying on cash budgeting for your decision making?
The researcher asked the question in relation to the significance of cash budgeting. The
primary usage of the cash flow budgeting is to make the proper records of monthly income
and expenses of the company. The executive of Operations department stated, cash flow is
essential for revealing the present and plans of the company. With the help of cash flow
budgeting, the company can make the short and long term financial plans which can make an
active control over all the activities. The company can prepare the long term goals when their
short term goals have been achieved.
The manufacturing department executive stated that corporations are using the cash flow
budgeting over the financial budgeting as financial budgeting is only revealing the income
statement, while cash flow budgeting is keeping the track of day to day activities of the
company.

Question 10: Do you feel comfortable while using the budgeting as working tool?
The researcher discussed the comfort level of executives towards implementation of
budgeting tool in the company. The Research & Development department executive stated
that budgeting provides the direction to the production units. This is necessary for making
the coordination with all the units of the organisation. The operation department executive
stated that benchmarking could be done effectively, and controlling activity can also be
performed easily by the company. The Research & Development department stated that
company can quickly improve the economy of scale and minimises their costs. All the
executives said that budgeting ensures the flexibility and also motivated the employees to
work towards common goals.

40 | P a g e

Chapter 5: Analysis and Discussion

The analysis part of the study has covered all four research questions during the interview
process, regardingg the significance of the budget controlling, most of the executives that this
is one of the essential tools for attaining the short term objectives. This enables the employees
to work towards planned direction. The executives also mentioned that resources could be
quickly allocated to the companies with effective budgeting.
The researcher has also asked the interview based on the research methods, the most of the
executives have discussed importance of budgeting techniques in companys operations. The
executives emphasis more on the cash flow budgeting as it is essential for managing the day
to day expenses of the business, while some of the executives are considering fixed budget
for making the long term investment planning of the company. The questions based on the
important budget techniques mentioned by executives that operating and cash budgeting is
essential for analysing the revenue targets of the company. The executives stated that these
techniques are essential for attaining the competitive advantage of the company.
In the anterior segment, we delineated how authoritative parts accomplished the benefits from
the budget in practice. We have concentrated on catching the standards of activity that are
produced when a settled administration control framework, for example, the financial
backing as a control structure. The control framework comprises of three different courses of
action: target setting, arranging and asset portion and exercises are measured utilising
scorecards focused on an adjusted scorecard approach, with various markers and not merely
financial ones. The new control framework obliges changes in how authoritative parts
consider control and how they practice control. It likewise prompts new manifestations of
connection among people, gatherings and levels in the association (Wilson and Wai, 1998).
Capital budgeting is the procedure most organisations utilisation to approve capital using on
longterm ventures and different activities obliging massive speculations of capital. Since
capital is generally constrained in its accessibility, capital activities are separately assessed
41 | P a g e

utilising both quantitative investigation and qualitative data. The most capital budgeting
research uses money inflows and money surges as opposed to net salary figured utilising the
accumulation premise. A few organisations improve the stream money count to net pay in
addition to deterioration and amortisation. Others look all the more especially at the assessed
money inflows from clients, diminished expenses, continues from the offer of benefits and
rescue esteem, and money outpourings for the capital speculation, working expenses,
premium, and future repairs or redesigns of supplies.
The methods utilised for this research have been aggregation, random sampling, and
measurements. In Data Aggregation, worth is inferred from the aggregation of two or
additionally helping information attributes.
Aggregation might be produced using distinctive information events inside the same
information subject, business transactions and a de-standardized database and between this
present reality and itemised information asset budget inside the conventional information
building design.
The best aspect concerning basic random sampling is the simplicity of gathering the sample.
It is additionally considered as a reasonable method of selecting a sample from a given
populace since each part is given equal chances of being chosen.
An alternate key gimmick of straightforward random sampling is its representativeness of the
populace. Hypothetically, the main thing that can trade off its representativeness is good
fortune. On the off chance that the sample is not illustrative of the populace, the random
variety is called sampling lapse.
A fair-minded random determination and a delegate example are paramount in reaching
decisions from the consequences of a study. Keep in mind that one of the objectives of
examination is to have the capacity to make conclusions relating to the populace from the
results acquired from a sample. Because of the representativeness of a sample got by primary
random sampling, it is sensible to make generalisations from the consequences of the sample
once more to the populace (Jensen, 2001).

42 | P a g e

A standout amongst the clearest limits of straightforward random sampling technique is its
need of a complete rundown of every last one of parts of the populace. It must be
remembered that the rundown of the populace must be finished and forward. This review is
typically not accessible for substantial masses. In cases like this, it is savvier to utilise other
sampling systems. At the same time information aggregation, when not actualized well
utilising high calculation and apparatuses can lead information reporting the mistake. An
incapable method for data collection is one of the significant parts that can confine execution
of database questions.
The measurement techniques quality is in revealing all the more about individuals'
experience (why things may be the way they are). As qualitative examination concentrates on
little gatherings, it might be less costly than quantitative exploration which may oblige
expansive meetings of members or extravagant estimation apparatuses.
Qualitative analysis techniques gather information about what we select group of members
feels or think, or how they carry on. We can't necessarily utilise this information to make
suppositions past this particular group of deputies. It is not an examination technique that
advantageously takes into consideration the collection of factual information. However, this
is just a detriment if the exploration address likewise requires accurate information.
Embracing a blended routines methodology is restricted of beating this issue.

43 | P a g e

6. Conclusion

Introduction
In this chapter of the study, the researcher discusses the results obtained from the empirical
study in combination with the theoretical part to generate the meaningful conclusion. The
research study was based on the three sub-questions along with one main question which
researcher discussed in the first chapter.
6.1Conclusion
The primary purpose of the study is to analysis and evaluation of a budgetary control system
of LG Electronics and discusses that how it links with performance decision making. Thus, to
explain the budgetary control of the company, the researcher has demonstrated the present
study on the budgeting and its usage in different departments of the organisation. The main
aim of the researcher was to present the current knowledge on the budget and budgetary
control.
The main objective of the study was to answer the research question analysis and evaluation
of a budgetary control system and its links with organisations performance and decisionmaking process. To attain the research aim, the researcher has presented some of the
objectives of the study. discuss the relevance of the budgets and budgetary control in LG.
Firstly, analyse the significance of a budget controlling system within the organisations
marketing and strategy campaigns, secondly evaluate various advantages and shortcomings
of the budgeting, thirdly, defining the methodology used in deciding the budgets for various
tasks and policies. The last is explaining the impact of the budgetary control system on the
performance.
The researcher has analysed these objectives by focusing on the secondary research and
collecting the data through the interview process. The primary purpose of the choosing the
interview approach was to gather the much more useful information on the research topic.
Moreover, the behaviour of the respondents can also be judged during the open discussion.
During the research, study emphasised more on the importance of budgeting in companys
significant projects. The empirical results stated that budgeting is important as managers are
44 | P a g e

preparing the steps to deal with any unpredictable events and protect the company from any
damage. The managers have introduced the budget and budgetary control in the business to
achieve the production objectives. Moreover, findings revealed that this is one of the essential
tools for managers as it is helpful for the managers to construct the plan before the occurrence
of any unforeseen events. The results of the study were in line with the theoretical part of the
study as literature section stated that budgeting is essential for the company as aims and
objectives would be achieved through minimum invested of resources (Clich,2012). The
some of the other authors also advocated that this is helpful for the company to make the
effective coordination of all the activities and also determines relationships among the
different departments.
About advantages and disadvantages of the budgetary control, the empirical results
mentioned that budgeting is the planned activity for the survival of business in todays
competitive business environment. However, the only issue is related with some of the future
operations of the budgeting as future is still unknown for all of us. The findings stated that
budgeting is having the advantage that the particular expectation of the companys results can
be measured with the pre-decided task. This cannot be possible if we havent constructed any
budget. The allocation of the resources can be easily done with the budget due to careful
budget planning. The planned against actual performance of the company can be easily
accessed through budgets. The literature part of the study also mentioned the advantages of
budgeting regarding maximisation of the profit, making the effective coordination of all the
activities of the company and this delivers the proper direction to all the departments (Smith,
2007). The some of the authors have also explained the limitations of the budgeting such as
future is unclear; sometimes they are having some problems in co-ordination. Though any
respondent has not discussed coordination issue during the empirical findings, some of the
authors also considering that they are having the conflict issues while dealing with different
departments (Bhimani et. al, 2008). However, this has not been revealed by any of the
executives during the interview.
The third objective of the study was based on the methodology used in deciding the budgets
for various tasks and policies. The empirical results have explained the benefits and
significance of almost all the budgeting techniques. The one of the executives stated that
implementing the operational budget to perform all their organisation activities related to the
production of goods and services. While another executive explains the benefits of financial
45 | P a g e

budgeting as this is preparing the statement of receipts and payment method for making the
estimates of future revenues and payments of the company. The findings of the interview
were almost similar to theoretical part of the study as financial budgeting is useful for
analysing the estimates related to sales are provided by the sales department which is helpful
in knowing the credit trend allowed by the company to its debtors (Bhimani et. al, 2008).
The primary usage of the master budget is to finalised profit plan or summary budget.
Monahan (2000) stated that this includes the sum of all the departments during the specified
period.
The executives also emphasised more on the zero-based budgeting as it is useful for
establishing the linkage between all the objectives of the company. The empirical findings
stated that this is helpful for eliminating the additional overhead of the staff. They are
installing the budgeting control measures only at the important destinations. In the theoretical
perspective, Slebioda (2008) stated that the system of Zero is Based Budgeting help in
arriving at a solution for the limitations which are present in traditional budgeting system.
The authors stated that Zero-based budgeting delivers a company systematic way for
evaluating its programs and operations. This is helpful for the company to companies to
identify the areas where wasteful expenditure can be reduced. Thus, zero budgeting is
suggesting alternatives for minimising the extra or unwanted expense of the enterprise.
The final objective of the study is to analyse the impact of budgetary control on the
organisational performance. The empirical finding based on this objective stated that most of
the executives perceive as an influential tool for determining the direction to all the
departments. The budgetary control ensures the variance between the actual and budgeted
figure of the project and implements the control measures, wherever it arises. All the
executives stated that budgetary control provides the flexibility in the operations as
production can be muted by market requirement of the product. Similarly, this is also the
useful tool for motivating all the employees and making the effective coordination between
all the departments of the company. The theoretical study also stated that Budget is offering
the healthy level of flexibility is more efficient as they can be altered with the changes in the
circumstances (Clich, 2012). The motivation of the human resource can be improved. Smith
(2007) mentioned that it essential on the part of the company that they must be having the
clear objectives for making the budget accurate otherwise the budgets might become

46 | P a g e

unrealistic in the absence of clear goals. The budgetary control has the strong relevance in
explaining the sales target of the company and making the comparison with actual.
Ultimately, the empirical results of the study witnessed that budgetary control has the
significant role in the performance of the LG Company. The budgeting techniques are helpful
for improving the productivity of the company. Without budgeting, the resources allocation
and deployment of the organisational task will be directionless, and it will not deliver any
productive results to the company.
Thus, at the end researcher argue that they have met all the objectives of the study by
exploring the importance of budgeting and budgetary control in the company with the
perspective of LG Electronics.

6.2 RECOMMENDATION
The research replicates that the budgetary control is the administration methodology of
utilising budgets to screen and control the execution of the association. This is carried out by
looking at the arranged qualities (in the budget) with the real values as they happen amid the
year. A budget has been characterised as a monetary and quantitative articulation arranged
and affirmed proceeding described time of time, of the arrangement to be sought after amid
that period with the end goal of accomplishing a given destination. The accompanying steps
are included in Budgetary Control:
1. Stronghold of Budgets: Targets are settled for each one capacity identifying with the
obligations of individual.
2. Estimation of real execution.
3. Correlation of real performance with budgeted execution to distinguish deviation.
4. Dissection of the reason for varieties and reporting.
Since needs are bounty while assets are constrained, each association has a tendency to
discover by which it can get what it needs with the restricted assets' available to it. Along
these lines, firms try to receive the idea of budgeting and budgetary control to fulfil their
needs at any rate conceivable expense and in the meantime satisfy their stewardship
commitments to the various stakeholders. We embraced a distinct exploration outline with
47 | P a g e

information accumulated through survey directed to respondents. The Non-parametric

instrument of chi-square was utilised to break down the information. Theories were tried and
dissected on a 5% level of essentialness, and it was discussed that budgeting and its control is
a suitable mechanism that aids companies to assess whether their objectives and goals are
actualized (Koontz, Donnel and Cyril, 1979). Considering the volatile business environment
where different firms work, could be presumed that budget, which is a constant
administration movement, ought to adjust to changes in the element nature's turf.
From the above discoveries and in place for the assembling organisations to work gainfully,
they must make the accompanying essential strides:
a) Implement a budgetary arrangement of satisfactory arranging with strict adherence to
execution that cuts down the expenditures of the organisation, advertising and so on.
B) The financial department ought to survey all current measures and existing measures that
will constrict the interior control framework to avoid spillages of monetary assets;
c) Only prudent and productive ventures ought to be attempted;
d) Top administrators of the firm, who in no time have firm hold on the refreshments and
candy store showcase in the nation, ought to evaluate the current showcasing and conveyance
approaches and also financial, political, innovative and other financial elements that influence
the organisation;
e) Budgeting and budgetary control framework ought not to be excessively unpredictable for
the individuals to comprehend;
f) To improve the feasibility of budgets, assets ought to be given to supplement the budgets;
g) As nature's turf is dynamic, budget ought to be surveyed, and conformity produced using
time to time, where relevant;
h) The administration ought to guarantee that labourers seek after the set budget;
i) There ought to be a brilliant correspondence interface in the middle of creation and deals
divisions, to meet target consequently disposing of extreme differences.

48 | P a g e

Limitations of the Study

There are some of the limitations of the research study;

The study of the budgeting and budgetary control was only limited to specific areas
like a limited number of techniques due to lack of resources and time. The study was
only centred on the budgeted techniques of LG Electronics.

The research has only collected the data from a limited number of respondents. Thus,
findings from limited people cannot be useful to provide accurate information.

The impact of the budgeting on external stakeholders such as suppliers and customers
has not been covered in the current study.

Due to privacy of respondent, the recording of interview was not allowed

7. Personal Development Plan

The present study is acted as high guiding material for my future endeavours. In this study, I
have come to know why companies are implementing the budgetary techniques and how it
improves the performance of the enterprise. The study of qualitative research material helped
me understand the nature of employees towards budgeting. I came to know about the
budgeting strategies implemented by the LG Company to minimise the cost and gaining
success in all their projects. After analysing the budgeting tools, I will be able to apply
budgeting techniques in any project. This allows me to understand my strengths and
weakness to perform any particular task.

49 | P a g e

Skills

Problem-Solving Skills

Decision-making skills

Implementation Skills
Interpersonal skills

X
X

Achievement of skills
Viable critical thinking typically includes working through various steps or stages, for
example, those sketched out beneath. For more detail keep on phasing of Problem Solving
Issue Identification:
This step includes: identifying and perceiving that there is a matter; recognising the way of
the issue; characterising the problem. The important period of critical thinking may sound
clear yet frequently requires more thought and examination. Distinguishing an issue could be
a troublesome assignment in itself, is there an issue whatsoever? What is the way of the issue,
are there truth be told various issues? By what method can the issue be best characterised? By investing eventually characterising the problem you won't just comprehend it all the more
unmistakably yourself yet have the capacity to convey its inclination to others, this prompts
the second stage.
Organising the Problem:
This step includes: a time of perception, careful assessment, and truth discovering and
creating a consistent picture of the issue. Emulating on from issue ID, organising the issue is
about picking up more data about the issue and expanding comprehension. This stage is about
reality discovering and examination, constructing a complete picture of both the goal(s) and
the barrier(s). This stage may not be fundamental for exceptionally core issues, yet it is
critical issues of a more intricate nature.
Searching for Possible Solutions:
Amid this juncture you will produce a scope of conceivable strategies, yet with a little
endeavour to assess them at this stage. From the data assembled in the initial two periods of
the critical thinking skeleton, it is presently time to begin contemplating conceivable answers
for the separate issue. In a gathering circumstance, this stage is frequently completed as a
50 | P a g e

meeting to generate new ideas, letting every individual in the gathering expresses their
perspectives on likely results (or part results). In associations, diverse individuals will have
unique skill in unique zones, and it is valuable, consequently, to hear the perspectives of each
one concerned gathering.

Settling on a Decision:
This stage includes careful dissection of the various conceivable game plans and afterwards
selecting the best answer for usage. This is maybe the most random piece of the critical
thinking procedure. Taking after on from the past step it is currently time to take a gander at
every possible result and deliberately investigate it. A few results may not be conceivable,
because of different issues, in the same way as time demands or budgets. It is critical at this
stage likewise to consider what may happen if nothing was carried out to solve the issue now and then attempting to address a problem that prompts a lot of people more issues
obliges some incredibly artistic intuition and creative thoughts.
At long last, settle on a choice on which blueprint to take - choice making is an important
ability in itself, and we propose that you see our pages on choice making.
Execution:
This stage includes tolerating and completing the picked strategy. Performance means
following up on the excellent result. Amid execution, more issues may emerge particularly if
different proof or organising of the first problem was not completed thoroughly.
Checking/Seeking Feedback:
The last stage is about exploring the results of critical thinking over a time of time, including
looking for input as to the achievement of the conclusions of the excellent result. The last
phase of critical thinking is concerned with watching that the methodology was fruitful. This
could be attained by observing and picking up criticism from individuals influenced by any
changes that happened. It is great practice to keep a record of conclusions and any further
issues that happened.
Future Goals:
Goals
51 | P a g e

Time Frame

Method

Expand my knowledge of June 2014

Register with CIPD and

Human

learn

Resources

Management
Higher

Qualification

HRM

further

to

improve
in December 2015

Qualify as a member of

HRM

CIPD

Attaining specialisation in December 2015

Choosing

my respective field

area and qualifying in the

as

specialised

same
Attaining the expertise

With time

I have come to know that MBA is a game changer for me to provide a

career path. I have improved my presentation skills, improvement in my
thought process and also deciding the way to approach my life. My
personal communication competence and confidence level have also
been boosted while pursuing my MBA course. This enables me to gather
more information about the corporate world.

SWOT analysis
I have read various topics before making the selection of particular
subject. This topic has changed my perception towards the significance
of budgetary control in the business. The allocation of right resources at
right direction is one of the essential things that I learnt from this study. I
have come to know about some of the budgetary tools which state that
very project will get success if they implemented in the right direction.
The decision to perform interviews and secondary data analysis was
very much beneficiary for me as comes to know the attitude of
executives towards the impact the budgetary tools.

52 | P a g e

Strength
The

Weakness
personality,

interpersonal, Fewer data available

communication, intellectual skills

Opportunity

Threat

Long term career aspirations

Choice of right field and subjects

During the study, I encountered some of the barriers to developing the

proper structure of the report. The collection of relevant data and
compilation of the data in appropriate format was the healthy challenge
for me. The other challenge for me was meeting the research objectives.
My job was to meet all the given research goals within the parameter
along with available literature. Thus, completion of the study within the
pre-determined time frame was the healthy challenge for me. The main
aim for me was to maintain the equal balance among the objectives of
the study and outcome of the study. The some of the other issues were
associated with the collection of the data. As my study was based on an
interview of limited executives of different departments, thus, taking the
permission from the top management of the LG company along with
fixing the appointment with executives were arduous task for me. I
found after the research that the sample size of the study was not very
much large as views of the limited respondents cannot serve the research
purpose altogether. I also found some difficulties in writing the report
due to limited academic writing experiences. Thus, I have taken the
assistance of my university supervisors while preparing the report.
The findings from the study can be acted as important part of my future
research on the same topic. I have developed the SWOT analysis for the
company in focus. This is helpful for my future study to develop the
research plan on LG Company. To conclude, I found that budgeting and
budgetary tools are important for every company to plan their resources
in the right direction and raising the performance of the enterprise.

53 | P a g e

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Appendix 1: Questionnaire
Interview Questions
Question 1: Do you know there is a budget for your project?
57 | P a g e

Question 2: Explain the characteristics of the budget in the company?

Question 3: Do you think budgeting is important for the enterprise? If
Yes, why?
Question 4: What are the major budgeting techniques frequently applied
by your company?
Question 5: Do you think zero based budget method is having
substantial popularity over other technologies?
Question 6: What is the significance of ratios in budgetary control?
Question 7: What kind of budget method is much suited to your
company?
Question 8: Do you think budget method has added competitive
advantage for your business?
Questions 9: Why you are more relying on cash budgeting for your
decision making?
Question 10: Do you feel comfortable while using the budgeting as
working tool?

58 | P a g e