relationship between budgetary control and performance

JEAN MOULIN LYON 3 UNIVERSITY VIETNAM UNIVERSITY OF COMMERCE



MASTER FINANCE AND CONTROL

THESIS
September 2013

THE RELATIONSHIP BETWEEN BUDGETARY
CONTROL AND PERFORMANCE IN GTEL MOBILE
JOINT STOCK COMPANY



Prepared by: Nguyen Thi Phuong

Supervised by: Professional Ng
uyen Van Thanh

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Acknowledgements

The author would like to warmly thank to everyone who provided their assistants to finish this
dissertation.
First of all, the author would like to send grateful to Mr. Nguyen Van Du, General Director of
Gtel Mobile Joint Stock Company for expressed enthusiasm to this thesis and provide his full
support during study and research. The author also acknowledged and thank for the times
devoted by the interviewees and their feedback toward this study.
Further, the author would like to thank the supervisor PHD, Professional Nguyen Van Thanh
for his advice and feedback.
The dearest appreciation and thankful are sent to my family for giving me great support of time
and encouragement.

Hanoi, August 10, 2013



_________________ _________________
Nguyen Thi Phuong Nguyen Van Thanh









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Abstract
Master Thesis in Finance and Control, Jean Moulin of De Lyon III University and Hanoi
Commercial University
Author: Nguyen Thi Phuong
Supervisor: PHD, Professional Nguyen Van Thanh
Title: The relationship between budgetary controls and performance in Gtel Mobile Joint Stock
Company
Key words: budgetary controls, budgetary procedure, budgetary participation, budgetary
motivation, budgetary evaluation.
Background and discussion of the problem: Budgetary control is a management tool to help
managers to plan and control the use of resources in systematic and logical manner to ensure

that they achieve their financial objective. In Gtel Mobile JSC case, it was acknowledged that
budgetary control influents company performance. However, the problem is the significant
variances between budget and actual. In Gte Mobile, budgetary control established and
presented through budgetary procedure, budgetary participation, budgetary motivation and
budgetary evaluation. Therefore, the study the level of relationship between budgetary control
and performance in Gtel Mobile JSC is the case study in this thesis.
Questions: The thesis will answer the following questions.
- What are the levels of budget controls in Gtel Mobile JSC?
- What are the levels of performance in Gtel Mobile JSC?
- What is the relationship between budget controls and performance in Gtel Mobile JSC?
Purpose: This study will analyze and evaluate the situation of budgetary control in Gtel Mobile
JSC, finding out the limitations of budgetary control in Gtel Mobile JSC. Then the author will
recommend solutions for effective budgetary control and improve performance in Gtel Mobile.
Limitation: This research is study in one company and in a limited period of time only so the
result is not generalization and the result of this period may be different from other periods.
Moreover, the feedback of questionnaires could be bias as the senilities of the questionnaires
and the cultures of Vietnamese companies as well as people. Further, the limitation of
knowledge and information of the respondents may results in unrealistic feedback.
Methodology: Both qualitative and quantitative are used to analyze and evaluate to provide the
results.
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Results: The relationship between budgetary control and performance is strong positively.
However, budgetary procedure, budgetary participation, budgetary motivation and budgetary
evaluation have no relationship each other and there is no effect between each of them alone on
performance. The study also found that there are critical limitations of budgetary control such
as lack of knowledge of budgetary control of participants, complication of budgetary
procedures, lack of application to support budgetary control.

Recommendation: The author suggests Gtel Mobile to review and improve budgetary
motivation scheme, budgetary participation and budgetary procedure to enhance the
performance. Training budgetary control system and procedure is essential and priority to
improve participation and responsibility on implementation of budgetary control. An
investment of budgetary application to support and improve budgetary control then improve
performance should be considered and evaluated to improve performance and enhance benefits
to the company.





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Table of Contents

CHAPTER 1 - INTRODUCTION 7
1. The essential of research 7
2. The purpose of research 8
3. Research objectives 8
4. Scope of research 9
5. Summary of chapter one 9
CHAPTER 2 - LITERAL REVIEW AND HYPOTHESIS 10
1. Review the concept and definition 10
1.1. Budgetary Planning and Control 10
1.2 Budgeting 12
1.3 Types of budgeting 12

2. Budgetary controls 13
3. Objective of budgetary control 15
4. The need of budgetary control 15
5. Limitation of budgetary control 16
6. Measurement of Organizational performance 17
7. Essentials of an effective budgetary control system 19
8. The relationship between budgetary controls and performance 21
9. Research Model and hypothesis 23
10. Summary of chapter two 25
CHAPTER 3 - RESEARCH METHODOLOGY 26
1. Research design 26
2. Study population 26
3. Sampling 26
4. Sources of data 27
5. Data collection instruments 27
6. Measurement of variable 28
7. Limitation of study 28
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8. Summary of chapter 3 29
CHAPTER 4 - ANALYZING, INTERPRETATION, PRESENTATION AND DISCUSSION
OF FINDINGS 30
1. Introduction of Gtel Mobile 30
2. Respondents’ data analysis 30
3. Level of budgetary controls analysis 33
4. Levels of performance in Gtel Mobile 37
5. Performance measurement in budgetary control 41
6. Relationship between budgetary controls and performance 42

7. Factors effecting budgetary controls in Gtel Mobile. 51
CHAPTER 5 - SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION 53
1. Summary of findings 53
2. Conclusion 55
3. Recommendations of the study 55
4. Suggestions for further research 56
References………………………………….……………………… …………………………57












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CHAPTER 1 - INTRODUCTION

1. The essential of research
Global economic downturn recent years effect almost countries over the world and directly
impact the business and operation of many companies. The US housing bubble burned in 2006-
2007, the government bad debt in EU after that caused the value of securities tied and damaged
financial market globally. It is major recession of financial market leaded to financial crisis in

2007-2008 and impact seriously economic and European sovereign debt crisis. The
consequences of this recession caused a lot of companies and banks became bankruptcy,
unemployment, obstacles of economic recovery.

Vietnam is not out of the list and recent years from 2011 to now, a lot of companies could not
survive, increase of inventory balance, banking system is on crisis of bad dept, unemployment,
a lot of companies cease operation or bankruptcy.

All of these required all companies to focus on predicting, planning, forecasting, budgeting and
control income and revenue more strictly for survival. In which budgetary control is essential to
maintain and improve performance of the company on daily, weekly, monthly, quarterly and
yearly.
A budgetary planning and control system is essentially a system for ensuring communication,
coordination and control within an organization. Communication, coordination and control are
general objectives for more information is provided by an inspection of the specific objective of
a budget planning and control system.
Planning and control appear at all level of performance hierarchy to different degrees.
Although, the plan implies a “top-down” approach to management, it could describe a cascade
of goals, objectives and plans down through the layers of the organization. The plan made at
the higher levels if the performance hierarchy provides a framework within which the lower
levels must be achieved. The plans at lower levels are the means by which the plans at the
higher levels are achieve. Plan set the targets, while control involves measure actual result
against plan called performance, take corrective action to adjust actual performance to achieve
plan or to change plan altogether.
As per John (1996), stated that during the 1960s, companies began to use budgets to dictate
what people needed to do. In the 1970s, performance improvement was based on meeting
financial targets rather than effectiveness. The companies faced problems in 1980s and 1990s
when they were not willing to spend money on innovations in order to stay with rigid budgets,
they did not concerned about know customers were being treated, only meeting sales targets
became essential.

It is policy of Gtel Mobile JSC that the budget of each departments and company master budget
should be consolidated and prepared and the monthly financial statement and operational key
performance indicators can be compared with the budgets. However, the effective budgetary
control has been a problem, where the monthly budgeted/forecasted targets are not actually
met, and the gap is rather high.
Accounting is the process of identifying, measuring, accumulating, analyzing, preparation,
interpreting, and communicating information that help managers to fulfill organizational
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objectives (Horngren, Sundem and Stratton, 2001). Management accounting system is an
important component of accounting system, which help to provide information to managers for
decision making. An important part of management accounting is budgeting system.
Budgets are known to have an important role to transmit the expectation of top management to
lower levels. As per Lucey (1993), budget is quantitative expectation of plan of action prepared
in advance of the period to which it relates, expressed in money terms approved prior to the
period. Lucey also argued that performance is influenced by many factors including planning
and coordination, classification of authority and responsibility, effective communication both
internal and external, control of resources available both human and non-human and motivation
of lower and middle management.
It is demonstrate that management understands the company’s business and has been
successfully driving it in the direction they had planned if the actual deliveries through the
financial year turn to be close to the budget. In vice versa, if the actual results diverge wide
from the budget, this indicates out of control signal. For this reason, budget based control
means manager’s evaluation according to budget goals. In this context, budget control can
motivate but also can negative effect managers’ attitudes. The behaviors of managers on
performance are still the subjects of strategic management control system that are being
research recently by various researchers stating that all large business reforecast their
forecasted activities, as month pass, the actual income and expenses incurred will be compared

to the budget and forecast.
As such, many organizations recognize the need to have developed and comprehensive budget
control system in order to minimize budget variances, control cost and maximize efficiency.
Budgetary control is crucial as cash itself and any overestimation of revenue, excessive of cost,
stock, waste could result to poor performance.
Gtel Mobile JSC acknowledged that its performance is influenced by budgetary control
systems. However, a deficit in revenue 10% and expenses is lower than budgets by 21%, and
EBITDA favorable by 37%. That is the reason the author is interesting in analyzing the effect
of budgetary controls on business performance in Gtel Mobile JSC.
2. The purpose of research
The purpose of the study will be to establish the effectiveness of budgetary controls on
performance of Gtel Mobile JSC particularly in term of revenue and operating cost through
activity planning, coordination and communication between departments, allocation of
resources, motivation to objectives, assessment and control of results and performance
evaluation of managers.
3. Research objectives
3.1 Research objectives
- Analyzing and evaluating the situation of budgetary control in Gtel Mobile JSC.
- Finding out the limitations of budgetary control in Gtel Mobile JSC.
- Recommendation for Gtel Mobile JSC for effective budgetary control and improve
performance in Gtel Mobile.
3.2 Research questions:
- What are the levels of budget controls in Gtel Mobile JSC?
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- What are the levels of performance in Gtel Mobile JSC?
- What is the relationship between budget controls and performance in Gtel Mobile JSC?
4. Scope of research

4.1 Study scope
The study will be limited to the performance as a dependent variable and budgetary controls as
an independent variable. The study will consider the ways used in budgetary controls and the
way they are manipulated to influence performance of the organization.
4.2 Geographical scope
The study will carried out in Gtel Mobile JSC located in 280B, Lac Long Quans st., Tay Ho
District, Hanoi, Vietnam. This is one of 5 mobile operators in Vietnam.
4.3 Time scope
The study will cover the period between January, 2012 to March, 2013.
5. Summary of chapter one
In summary, the study will be analyzing the role of budgetary controls on the performance of
the company business. The study will establish to correlation between budgetary controls with
business performance and provide recommendation to support managers improve their
operational efficiency.
Even though the author have been holding key position in Finance department, she understand
that the budgetary system is good in place however problem is still there when evaluating the
variance, so from this research will help the author having opportunities to find out the root
cause and the weaknesses of the system to improve the system and situation as part of the
author’s responsibilities. Moreover from the research, this also gives opportunities to measure
the attitude options of respondents towards budgetary controls for education and addressing
later on for improvement.
The study will also fulfill the requirement for the award of Master Degree of Finance and
Control of Jean Moulin University De Lyon III.

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CHAPTER 2 - LITERAL REVIEW AND HYPOTHESIS

In this chapter, a number of issues will be discussed in relation to budgetary controls and
organization performance. The discussion will be based on the work done by various
institutions, previous researchers, writers about budgetary and performance management.
1. Review the concept and definition
Budget is a short term financial planning tool of management for operations and resources of
an organization for a given period of time. Budget highlights potential problems and
advantages earlier, allowing management to take steps to avoid these problems or use
advantages wisely, a budget is a tool that helps managers in both their planning and control
(Silva and Ariyarathna Jayamaha, 2012).
Lucey (2003) defined a budget as a “quantitative expression of a plan of action prepared for the
business as a whole for departments, for functions such as sales and production or for financial
resources items such as cash, capital expenditure, manpower purchase, and others”.
A budget is a plan of action expressed in quantitative terms. It is financial and or quantitative
statement prepared and approved prior to a defined period of time for attaining a given
organizational objectives (Kamukara, 1992).
1.1. Budgetary Planning and Control
A budgetary planning and control system is an essential system for ensuring communication,
coordination and control within an organization (BPP Learning media).
Mike Tayles (1998) define Budgets are central of the process of planning and control.
As framework, planning and control cycle including 7 steps.

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The planning and Control Cycle









Planning process

Step 1







Step 2




Step 3






Step 4

Step 5



Control process





Step 6





Step 7
Source: BPP Learning media

Identify Objectives
Identify alternative courses of action (strategies)
which might contribute towards achieving the
objectives
Evaluate each strategy
Choose alternative courses of
action
Implement the long-term plan in
form of annual budget

Measure actual results and
compare with the plan
Respond to divergences from plan
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1.2 Budgeting
The Tennessee Board of Regents (2006) defined budgeting as the process whereby the plans of
an organization are translated into an itemized, authorized and systematic plan of operation,
expressed in dollars for a given period. Budgeting at both management level and operation
level establish what to be achieve in the future.
According to Dr. M.S. Sridha, Budgeting is a planning process in which expenditure and
revenue of the organization over a specific time period are accounted for. ‘Budget’ is a plan
document and a financial statement, which provides details of the proposed revenues and their
utilization for expenditure for a specific period, usually a year. It is a means of check and
control on what money should have been received and how they are to be spent.
Budget control is defined as the establishment of budget relating to responsibilities of
executives to the requirements of a policy, and the continuous comparison of actual with
budgeted results, either to secure by individual action the objective of that policy, or to provide
a basic for its revision (The Institute of Cost and Management CIMA).
As per Collis and Hussey, 2007), budgeting control by which financial control is exercised by
managers preparing budgets for revenues and expenditure for each function of the organization
in advance of an accounting period. It involves the continuous comparison of actual
performance against the budget to ensure the plan is achieved or to provide a basic for its
revision.
Performance measurement is the process whereby an organization establishes the parameters to
evaluate if the implementation is reaching the desired results. This process often required
statistical evidence to determine progress towards specific defined objectives. Performance
measurements include financial performance measurements and non-financial performance

measurements.
Budgeting is viewed as enabling the different functions of management control further, state
that the budgets represent their numbers and their benchmarks against which their performance
is measured (Herath and Indrani, 2007).
According to Bugdale and Lyne 2010, budgets tend to become more important for control, not
for planning. Conversely, budgets become less important for control but more important for
planning in a more uncertain environment.
Variance is the difference between predetermined revenue and actual revenue or budgeted cost
and actual cost (Collis and Hussey, 2007).
1.3 Types of budgeting
Budget can be categories into operating budgets and cash budgets.
Operating budgets are functional or departmental budgets that may exist in an organization and
among others includes revenue budgets, production budgets, material usage budgets, material
purchase budgets, labor budget, sales and administration expense budgets. Operating budgets
are typically generated for as single fiscal or calendar year with quarterly and monthly
reporting cycles. Managers with direct budget cost center responsible and accountable for
budgetary success or failure. On the other hand, the strategic planning function has a time
horizon of at least 3-5 years. The time horizon different often creates confusion in coordinating
the 2 processes.
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Cash budgets are statement which estimated future cash receipts and payments are tabulated to
show the forecast cash balance at the defined intervals of the organization.
Budgets can also categories into expenditure and operating budgets. Expenditure budgets are
for non-current assets or projects where returns are expected in the future. It is normally regard
as long-term budget and it is usually reflect strategic plans.
In many organizations, they have three budgets together where they are under development or
expansion of their project, their budget will include expenditure budgets, operating budget and

cash budget.
The approach of setting budget in each environment can be different. As traditional budgeting
system, incremental budgeting is used. In this, managers add an additional percentage to the
previous period’s results to take account of expected changes in price level or inflation next
year. The limitation of traditional budgeting is not create a budget that relevant to the particular
conditions expected and non-recurring revenue and expense are included.
In contrast, Zero based budgeting is built by managers from zero, each figure is built in the
budget where it can be justified from the expected conditions and policies. This approach
makes the budget more relevant than incremental budgeting. However, this method of process
is the massive amount of managerial time for the exercise.
Each department or functional managers will draw up functional budgets. Budgets also
prepared for non-functional budgets by various managers and accountants.
The master budget is consolidated of all function and non-functional budgets and is the final
coordinated budget for the period. The master budget is a set of statements including Profit and
Loss, Cash Flow, Balance sheet resulting from plan of operation. This will help management to
know the financial and resources status in order to take action in time.
2. Budgetary controls
Budgetary process is part of management control system in the organization. Budgetary process
encourage managers to plan, consider the stakeholders involved, provides information for
improve decision making, increases and enhances communication and coordination among
departments and for performance evaluation.
According to Gustafsson (2010), the budget has in the past a control function, however today
there are several objective among organizations. Budgeting in this regard is viewed as enabling
the different functions of management control further, state that the budget represents their
number and their benchmark against which their performance is measured (Herath and Indrani,
2007).
A budget is management tools to express the plan for the coming period. Budgets are prepared
at various level, master budget consist of operational budget and financial budget. Operational
budget relating to planning of revenue and expenses of each cost center/department while
financial budget relating to financial plan such as borrowing, raising debt, equity, leasing and

cash management. A lot of research concluded the roles and problem of budget, proper
budgeting process can help enterprise like:
- Coordinate activities among departments: to determine and provide direction, to
communicate objectives, opportunities and plan to managers strategic plan of coming
year.
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- Translate plan into action. Budgets specify the resources, revenues, and activities
required to carry out.
- Budget assign responsibilities, delegate without loss of control, motivate managers to
achieve the goals and motivate staff to work efficiently as it set the target and standards
which motivate staff to achieve. To provide the basic for management to control and
performance appraisal against the budget by comparing budget and actual.
- To control activities by measuring progress against the original plan, making
adjustment/corrective actions when there is deviation from plan through reallocation.
- To control income and expenses

The budget process must be undertaken with the full cooperation of managers who understand
the budgeting process. Budgets should produce figures that represent expected performance
under current operation conditions (The institute of Working Future, 2011, p2-5).
Many research stated that budgeting is one of the most important for indicating all business
activities, and therefore requires detailed attention and as result when organizing and
administering the budgetary system, a number of characteristics should applied, these includes:
Budget cost center, is part of an entity for which budgets are prepared and controlled by the
manager. (Collis and Hussey, 2007)
Budget committee, is a committee that consists of senior members of the organization such as
department heads and executives chaired by Managing Director and it requires every part if the
organization to be represented on the committee.

The committee coordinates the preparation of the budget including the issue of a manual,
issuing of timetables of preparation of the budgets, provision of information to assist budget
preparation, comparing the actual results with the budget and investing the variances.
Budget officer is a person or group of persons that controls the budget administration and
specifically the job involves, coordinating between the budget committee and manager
responsible for budget preparation, dealing with budget control, ensuring that deadlines are
meet and educating people about budgetary control.
Budget manual is a document that describe chart of organization, details of budget procedures,
accounts codes for items of expenditures and revenue, time tables and process of budgeting. It
clearly defines the responsibilities of persons involved in the budgetary control system. As per
Pizzey (1989), a budget manual will contain details of the system for drafting the budget that is
what forecasts are to be prepared, who are responsible for preparing them, and the timetable for
making decision.
In order to evaluate managers and organizational function’s performance, a responsibility cost
center can be defined as functional unit and headed by a manager who is responsible for the
activities of that unit.
A good budget controls should be characterized with the following attributes:
- Participation: It is argued that participation in budgeting process will improve
motivation and so will improve the quality of budget decisions and the efforts of
individuals to achieve their budget targets. Although obviously, this will be depended
on the personal of the individual, the nature of task and the organization culture.
- Comprehensiveness: The budget should embrace for the whole organization.
- Standards: The budget should be based on established standards of performance.
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- Flexibility: The budget should allow for changing circumstance.
- Feedback and evaluation: The budget should be monitored the performance constantly.
Analyzing cost and revenue should be conducted on the basic of products, cost center or

department.
3. Objective of budgetary control
In overall, the purpose of budget control is to help managers to plan and control the use of
resources in systematic and logical manner to ensure that they achieve their financial objective.
The budgeting control system if regarded essential since it works as the mechanism of
planning, coordinating, motivating, and controlling (Chang et al., 2003).
According to Mike Tayles (1998), Budgets as they generally understood from the cornerstone
of management control and the management control system, they are a multi-purpose
management tool supporting planning, coordinating, communication, performance evaluation
and motivation.
Organization once they define the forth coming period, the next step is to set out their financial
strategies in detail by preparing financial and non-financial budgets that cover every aspect of
the firm’s activities.
It is important for any organization to make an overall plan which will ensure the business as a
whole will achieve its agreed objectives. As such the budget will force the management to think
a head to anticipate what is likely to happen in the future. Therefore, it is essential that
organization should develop a formal planning and control system which will state clearly
objectives for both the firm as a whole and for each individual functional manager specifically.
4. The need of budgetary control
As per Dr. M.S. Sridhar, Budgetary control is one of the oldest and traditional control
techniques used by managers. Budgetary control is the process of comparing what was planned
with what has been accomplished during the budget period. It is not a past-oriented or post-
action control but a future-oriented control system. It is not a post-mortem type assessment but
a continuous examination of the progress made and comparing it with the cost standards and
time lapsed so that the manager is able to make adjustments in the operation on a day-to-day,
week-to-week, month-to-month basis for rest of the period of the budget.
According to Ecoman (a competency and training) analyzing the detailed need for budgetary
control as, Budgetary control integrates the organization’s strategic planning with budgets and
processes of cost control, identifies the budgeting and financial skills required for better
decision making, whether for continuing business or project or a new business venture,

identifies sources of financial and business data that provide insight into business and financial
strategies when converted into budgets.
According to Dr. M.S. Sridha, a control system is required to measure progress made towards
attainment of goals stated in plans, to uncover deviations, if any, to indicate corrective actions
and to affect corrections to the organization before the deviations become serious. As budget is
only a futuristic plan how far the actual operations of the information centre have conformed to
the budgeted program will be known only after completion of the budgeted period (i.e.,
financial year). Knowing post-factor how much deviation or under spending or ineffective
utilization of resources has taken place is, like discussing the ways of avoiding an accident after
the accident has occurred. Hence, continuously monitoring the operations to examine how the
operations are carried out, whether there are any deviations, the causes for deviations and ways
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to rectify deviations within a week or a month will be of immense help. Though a budget is
prepared once in a year, the budgetary control process is a day-to-day, week-to-week, fortnight-
to-fortnight, month-to-month and quarterly-to-quarterly activity for a check on all revenues and
expenditures budgeted and stated before hand. Continuous review of the situation is done
taking into account the actual as well as committed expenditure till date so that the goals are
reached by the end of the year rather than leaving it to chance.
In addition to the above, budgetary control is need because of the following advantages:
- Responsibility accounting is the system that provides information that segregate
revenue and costs into areas of responsible managers in order to monitor and evaluate
performance under their personal control.
- Planning: Budgetary control force management to think about what actions should be in
the future, which is probably the most important feature for any business to succeed
through how to increasing revenue, how to control cost or eliminate the wastes.
- Utilization of resources: resources are limited in any organization and are used to
achieve financial objectives. Effective budgetary control will help to utilize the resource

efficiently.
- Coordination and communication: Budgetary control promotes coordination and
communication effectively of all functions and activities among departments within
organization.
- Motivation: Budgetary control motivates managers by define objectives clearly and
monitoring of achievement in fairly and transparency through employees participating
in setting up budgets and implementing it to achieve the objectives and receive rewards.
- Feedback: Budgetary control establishes the procedure for plans to be reviewed
regularly against actual as well as define responsibility of individual managers for
corrective actions and decisions. Help manager learn from past experiences.
- Performance appraisal: Budgetary control provides a basic for performance appraisal by
analyzing variance between actual performance and budget plan.
- Fraud detection: Budgetary control can help on determining the abnormal differences
and investigation, to prevent fraud as well as detection of fraud.
- Management time: Budgetary control also saves management time comparing with
management’s time solving case by case or exceptional principle.
5. Limitation of budgetary control
In various theories and studies stating that budgetary control have various drawbacks.
Budgetary control is subjected to human judgment, interpretation and evaluation. The
budgetary control system requires good and adequate standards and in some case it is hard
to develop it, it requires skills, experiences, cost money and effort to make the system work
successfully.
Budgets are mostly inflexible and rigid and do not respond to internal or external
environmental changes. Budget standards may not be revised as frequently as required.
Krishna (2010) stipulated that the biggest problem of traditional budgetary control is that
focus on expenses and paying little attention on the results obtained as the results of
expense incurred. For example, Marketing and sales manager may fail to cash on an
opportunity to sell more by increasing incentive of salesmen because such incentive is not
programmed in the budget or may exceed of the budget.
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Another problem of budgetary control is relating to the method of budgeting. In many
organizations, the budgets are prepared traditionally based on past performance rather than
future requirements. It is potentially create the feeling of planned false on working when
organization is only following the past trends and ignore opportunities of future.
De-motivating manager if the budget is imposed from top management or the budget is
unachievable.
The budget is rigidity and set in stone which may lead managers to constrained with
original budget and make no attempt to spend less for saving or exceed target revenue and
prevent managers fast response.
Managers may over estimate costs into budget to prevent blame in the future should they
over spending.
Budgetary control can create conflict between departments and managers due to dispute on
allocation of resources and targets are not attainable causing by uncertainty situation.
6. Measurement of Organizational performance
Objectives should be monitored and measured closely to ensure the performances are in
line with what are planned. The process of measuring performance often based on statistical
information to determine the differences between actual performance and defined
objectives.
Performance evaluation is not an easy task. Managers desire a fair performance evaluation
so they want to know in advance what is expected from them. Traditionally, there is use of
budget as benchmark for evaluation of organization as well as manager’s performance to
compare its actual performance with past performance and with budgets.
Budgets are crude tools for improvement performance. Poor performance may not change
after applying budget cutting as a discipline action. Sometime, over spending could be
resulted for improve performance.
According to Behn, 2003, Fundamental purpose of measure is improving performance.
Giving people significant goals and then use performance measure including interim targets

to focus people’s thinking and work, and provide periodic sense of accomplishment.
Performance target may also encourage creativity in developing better ways to achieve the
goal, thus measure to motivate improvement may also motivate learning.
Evaluation process consists of two variables, organizational data and benchmark that create
framework for analyzing the data. Therefore, organization should have strong information
system which should records and provide data promptly and reliable. In other hand,
organization should have built an appropriate budget which can be achievable and agreed
among participations so it could be agreed as benchmark for comparison for performance
measurement.
Organization need to have encourages and celebrates of their accomplishment to tie people
together, give them a sense of their individual and collective relevance. Moreover, by
achieving specific goals, people gain sense of personal accomplishment and self worth
(Locke and Latham, 1984). By this, organization can create motivation managers and
people involve and thus improvement of performance.
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According to National Academic of public administrations centre (NAPA, 1999),
Performance measure can be used to validate success, justifying additional resources, earn
customers, stake holders and staff royalty by showing results and win recognition inside
and outside organization. To convince employees that the organization is doing well,
managers need to understand what aspects of performance that many employees personally
care.
Evaluation of performance and analyzing of information from performance, managers are
able to find the reason behind of poor performance. From such analysis, problems can be
addressed and take corrective action, adjustment to improve performance.
Based on the research result of Aberdeen (2011), the researcher classified top performance
into three classes as follow:

Definition of maturity
class
Mean Class Performance
Best-in-Class
Top 20%
of aggregate
performance scores
 104% overall budget accuracy (bottom line ratio of
actual performance to budget)
 103% forecast accuracy
 15% improvement in profitability year over year
 46% always finalize the budget prior to new fiscal
period
 34% more likely than all respondents to enable the
budgeting process with technology
Industrial Average
Middle 50%
of aggregate
performance scores
 95% overall budget accuracy (bottom line ratio of
actual performance to budget)
 94% forecast accuracy
 13% improvement in profitability year over year
 33% always finalize the budget prior to new fiscal
period
 4% more likely than all respondents to enable the
budgeting process with technology
Laggard
Bottom 30%
of aggregate

performance scores
 82% overall budget accuracy (bottom line ratio of
actual performance to budget)
 74% forecast accuracy
 3% improvement in profitability year over year
 12% always finalize the budget prior to new fiscal
period to prior year
 31% more likely than all respondents to enable the
budgeting process with technology

Based on above research results, the researcher classify into five class where one (the very
poor performance) and five (excellent performance or the best class) to be the benchmark
for scale performance of Gtel Mobile.


The relationship between budgetary controls and performance in Gtel Mobile
19


Definition of maturity
class
Mean Class Performance
Best-in-Class
5 mark
Excellent performance
 100%~104% budget accuracy of revenue
 100%~103% of budget accuracy of EBITDA
 Improvement in profitability year over year 15%
Above Average
4 marks

Good performance
 95%~99% budget accuracy of revenue
 94%~99% budget accuracy of EBITDA
 Improvement in profitability year over year 13%
Average
3 marks
average
performance
 90%~94% budget accuracy of revenue
 90%~93% budget accuracy of EBITDA
 Improvement in profitability year over year 3%
Poor performance
2 marks

 85%~89% budget accuracy of revenue
 85%~89% budget accuracy of EBITDA
 No improvement in profitability year over year
Very poor
performance
1 marks
 Below 85% budget accuracy of revenue
 Below 85% budget accuracy of EBITDA
 Decrease in profitability year over year

Analyzing secondary data, the performance scale of Gtel Mobile as follow:
Performance Budget accuracy of
revenue
Budget accuracy of
EBITDA
Profitability

improvement in
EBITDA term
Excellent 5
Good
Average 3
Poor 2
Very poor

Based on above the performance of Gtel Mobile in this approach, performance of Gtel
Mobile is at average. Then we also will compare this approach with what respondents will
rate for Gtel Mobile on the performance.
7. Essentials of an effective budgetary control system
Various studies and framework found that a budgetary control is effective, the following
essentials has to be in place:
- A sound and clear organization structure with managers’ responsibilities and their
agreed job descriptions should be defined.
The relationship between budgetary controls and performance in Gtel Mobile
20


- Transparency and effective accounting records and procedures should be clearly
understood among organizational managers and applied.
- There should be a signal and communication of support and commitment of top
management for the system of budgetary control.
- Managers should be educated, trained in the development, interpretation, and use of
budgets.
- Corrective actions and revisions of budgets should be done when needed and make
them appropriate and useful.
- Budgetary control should be treated as management activity and not accounting
exercise.

- Organization ensures that there is participation of all managers in budgetary control
system.
- Using information system that provides information and data for managers so that they
can make realistic predictions and appropriate decisions.
- Target set in budget should be reasonable and achievable.
- Effective communication to managers on budget control and performance.






















The relationship between budgetary controls and performance in Gtel Mobile
21

A common Budgetary process and budgetary control

Step 1






Step 2






Step 3





Step 4

Set detail budgets

Step 5





Step 6






Step 7






Step 8






8. The relationship between budgetary controls and performance

Result-oriented objectives are the basic for controlling operation. Controlling involves
monitoring the implementation of plans through performance reviews. They are used to
compare actual results with objectives on regularly basic. A rigid budgetary control style
may lead to de-motivate subordinates as it may cause subordinate dysfunctional behaviors
such as budget game. A rigid control system means that subordinates’ performances are
Communicating details of budget
policy and budget guidelines
Determine the factors that restrict
output (key budget factor or limiting
budget factor), Make assumptions and
predictions

Preparation of revenue budget
Preparation of costs, inventories,
purchases
Negotiate with supervisor
Coordination of budgets
Consolidate master budgets and final
acceptance (budgeted IS, BS, Cash
budget)
Measure actual performance
and compare with budgets
Adjust budgets or take
remedial actions to achieve
plan

The relationship between budgetary controls and performance in Gtel Mobile
22

evaluated primarily their abilities to attain budgetary objectives during each reporting
period.
As per Brownell (1982), when budget control is rigid, the managers would want to know
detailed targets and assessment criteria. Therefore when budgetary control increased,
budgetary participant will increase. He advocated that budgetary participation is an
important moderating variable in the relations between type of budgetary control and
subordinates’ performance. Brownell (1982) found that budget application that including
budgetary control have no direct effect on performance, while budgetary participation
effects performance directly and negatively. But in case where budgetary control is
high, there is a meaning positive relation between performance and budgetary
participation.
According to Cheng-Tsung Lu (2011), argued that when budgetary motivation and
budgetary attitude were high, the budgetary performance would also be high. He also
suggested that when budgetary motivation is high the budgetary performance is
increased, and when budgetary evaluation is high, the managers’ motivation tend to be
high.
In order to implement budgetary control system efficiently, it requires the support from top
management and perception of members involve in budgetary control process. The
perceptions are included budgetary attitudes, perception of budgetary procedure and
manuals. Cheng-Tsung Lu (2011) found that when budgetary participation is high, the
participation’s attitudes to be more positive, and when budgetary attitude is more positive,
the budgetary performance increases. He also found that when budgetary motivation is
higher, the performance is increased.
According to Silva and Ariyarathna Jayamaha (2012), he confirmed that the sound
budgetary process which includes budgetary planning, coordination, control,
communication and evaluation contributes higher level of organization performance.
In Gtel Mobile JSC to respondents agreed that the company has a sound budgetary control
system, revenue and EBITDA is improving year by year, however, the big gap between
actual results and budgeted financial statement is a question.
The information and observation in Gtel Mobile showed that budgetary control directly

effect on performance. In the point of view of the author, budgetary controls in Gtel Mobile
consist of four major factors including budgetary procedures, budgetary participation,
budgetary motivation, budgetary evaluation. In which the effective budgetary procedures
include appropriation of budgetary manual/guideline, how budgetary process and budgetary
monitoring.
This study will examine the level of relationship between budgetary control and
performance as well as the effect of each factors on others.
To examine how the budget manual (BC1) is practical and appropriate in Gtel Mobile, the
responds of the question 12 in Questionnaires will be used to evaluate level of budgetary
control.
To examine to what extend proper budgeting process (BC2) contribute to performance of
Gtel Mobile, the responds of the question 13 in questionnaires will be used to evaluate the
level of budgetary control in Gtel Mobile.
The relationship between budgetary controls and performance in Gtel Mobile
23


To examine budgetary monitoring (BC3) contribute to performance of Gtel Mobile, the
responds of the question 18 in questionnaires will be used to evaluate the level of budgetary
control.
To evaluate the level of participation (BP) as part of budgetary control as independent
variable effecting to performance, the responds of the question 10 in questionnaires will be
used.
To examine to what extend the motivation (BM) as part of budgetary control system
effecting performance, the responds of the question 15 in questionnaires will be used.
To examine the budgetary evaluation (BE) in Gtel Mobile, the responds of the question 16
in Questionnaires will be used.
9. Research Model and hypothesis
BC – Budgetary procedure
BC1 – Budgetary manual (question 12)

BC2 – Budgetary process (question 13)
BC3 – Budgetary monitor (question 18)
BP – Budgetary participation (question 10)
BM – Budgetary motivation (question 15)
BE – Budgetary evaluation (question 16)
BCt – Budgetary control (combine all factors above in average)
PF – Performance

The questions 14 (revenue grow and EBITDA improvement – Q14), 17 (current
performance compare with previous year – Q17), 25 (performance of Gtel Mobile
compared with competitors – Q25) will be used to evaluate the levels of performance of
Gtel Mobile. The author will assumes that the responds of all three questions above
contribute the same levels of performance, the PF = (Q14 + Q17 + Q25)/3










The relationship between budgetary controls and performance in Gtel Mobile
24



Budgetary Controls

H5 H1

H2


H6 H3

H7

H4





In this study, the researcher will examine the following hypothesis:
H1 (BP and PF): As budgetary participation provides responsibility and opportunities for
participants to budgeting control process, therefore when the participation is high, the
performance is high and vice versa. It is positive relation.
H2 (BP and BM): Because budgetary participation encourage participants initial and
agreed on the budget objectives and give them opportunities to show their ability
performance and promote their self worth. Therefore, when budgetary participation is high,
the participants’ motivation tends to be high.
H3 (BM and PF): Budgetary motivation has major purpose to help participants to achieve
the targets and performance measures. Therefore, budgetary motivation will positively
effect to performance.
H4 (BE and BM): Budgetary evaluation help to force of controlling budget, it help to
motivate participants on achieving the targets and get awards from evaluation results. As
such, budgetary evaluation effects positively motivation and therefore budgetary evaluation

is indirect effects performance through budgetary motivation.
H5 (BC and BP): Because control system should be established by top management and
participation members and participants are under controlled by the system, it call budgetary
procedure which combine of manual to guide employees, process of budgeting and
monitoring the process to ensure managers and employees are following procedure to
BP
BE
BM


PF
BC
(BC1,
BC2,
BC3)
H8
The relationship between budgetary controls and performance in Gtel Mobile
25


ensure whole organization follow the same directions to meet the set targets, therefore,
budget procedure effect performance indirectly through budget participation. When
budgetary procedure is proper and strict, the budgetary participation will be high.
H6 (BC and BM): Budgetary procedures are implemented by participation, as such
budgetary procedures motivate managers to perform better and result-orientation to meet
the objectives, as so when budgetary procedure is clear, budgetary motivation tends to be
high.
H7 (BC and PF): Budgetary procedure effects directly on performance perception
positively.
H8 (BCt and BF): Budgetary controls effects directly performance strongly and positively.

10. Summary of chapter two
Budgetary control is a managerial tool which requires all operation objectives are planned
in advance in the form of budgets and they are monitored during implementation and
evaluated by comparing actual results with budgeted targets. An effective system of
budgetary control manages to plan and control the use of resource appropriately and
efficiently. Financial objectives and key performance indicators should be communicated to
managers of organizational functions, regularly monitoring the progress, feedback and keep
management informed of the budgeted targets fulfillment.