BUDGETING: A SYSTEMATIC APPROACH TO PROFIT PLANNING AND CONTROL

(A CASE STUDY OF MOBILE TELECOMMUNICATION NETWORK NIGERIA LIMITED’ (MTN), ENUGU STATE, NIGERIA)

By

ACHONU FIDELIA NOGZI

Presented To

Department of Accountancy

PROPOSAL

Budgeting - A systematic approach to profit planning and control is a work that will be centered on the use of budgeting a tool for planning and control in order to maximize profit using mobile Telecommunication Network Nigeria Limited (MTN) Enugu, as a case study.

This research will be carried out through series of oral interviews and distribution of questionnaires in the collection of data and relevant information to the employees of mobile telecommunication Network Nigeria Limited Enugu. The data that will be collected, will be analyzed as well as interpreted by the research from the testing and proofing of hypothesis. The researcher will also source information from secondary data which includes text books, magazines, journals etc.

The researcher will be faced with the following constraints:

- Insufficient money to distribute as much questionnaires as possible.

- Poor response from the employees because they will be afraid of losing their job

- Insufficient time

In order for the company to achieve their objectives, the researcher will recommend that there should be budgetary control so that workers will be aware of the objective of the organization and subordinates opinion considered in the preparation of the departmental or company's budget estimate. This will help in encouraging goal congruence.

ABSTRACT

Budgeting - A systematic approach to profit planning and control is a work centered on the use of budgeting as a tool for planning and control for profit maximization in a mobile telecommunication network Nigeria Limited Enugu as a case study.

The objective of the study is to show the importance of budgeting as a tool for systematic profit planning and control in the mobile telecommunication network Nigeria limited which has profit maximization as its principal objective.

The research is also aimed at identifying the steps adopted in the formulation of annual budget of MTN Nigeria.

Consequent upon this, the following hypothetical question were used for the study.

1. Managers use budgeting as a systematic approach to profit planning and control in attaining the goals of the business.

2. Decision making is performed in mobile telecommunication using budgeting

3. Utilization of resources is achieved with the use of budget and budgetary control

Following the investigation and analysis of data, the following findings were made

1. The organization uses budgeting in achieving the goals and objectives

2. The main objective of the organization is profit maximization

3. Efficiency and effectiveness of the organization is achieved through the use of budgeting.

From the findings, the conclusions were arrived that budgeting is very essential and indispensable tool for profit planning and control. It helps management to be well structured in sustaining the growth and expansion of the organization.

TABLE OF CONTENT

Title page i

Approval ii

Dedication iii

Acknowledgement iv

Abstract v

Table of content vi

CHAPTER ONE

10 Introduction 1

11 Historical Development of the Firm 4

12 Background of mobile Telecommunication 5

Network Nigeria Limited/Present state of Affairs

13 Statement of problem 8

14 Objective of the study 8

15 Research Question 9

16 Research Hypothesis 10

17 Scope and limitation 10

18 Significance of the study 11

19 Definition of terms 12

CHAPTER TWO

20 Literature review 14

21 Introduction 14

22 Definition of budget 15

23 Types of Budget 17

24 The Budget period 20

25 Administration of the Annual Budget 21

26 Stages in the Budget process 24

27 Appraisal of fixed, flexible and other budget 43

28 Planning function 45

29 Controlling function 46

210 Budgeting control 50

211 Variance analysis 51

212 Additional Tool for Budgeting and Budgetary

control: Zero Base Budgeting (ZBB) 57

CHAPTER THREE

30 Research Design and methodology 58

31 Research design 58

32 sampling technique 58

33 Sampling design and population size 58

34 Sources of data 60

35 Interview questions 60

36 Method of data analysis 60

CHAPTER FOUR

40 Presentation, Analysis and Interpretation of Data 63

41 Analysis of questionnaires returned 63

42 Hypothesis testing and proofing 71

CHAPTER FIVE

50 Summary of findings recommendations and conclusion 77

51 Summary of findings 77

52 Recommendations 79

53 Conclusion 80

Bibliography 81

Appendix 83

'

CHAPTER ONE

10 INTRODUCTION

The growing complexity of the business environment and the ever increasing competition among firms in the modern time, make planning an invaluable tool for business success Successful management is no longer just a matter of flair, skill and determination, a conscious effort is needed to harness available resources towards the achievement of enterprise objectives Budgeting is one of the tools adopted by management for effective cost planning and control

A budget is commonly understood the forecast by a government, organization nor society of its expenditures and revenues for a specific period of time The period covered by a budget is usually a year known as financial year Budgeting is concerned with the utilization of financial resources to serve human needs Although a budget may be characterized by a series of goals with price tags attached It is mainly a mechanism for making choices among alternative expenditure When such are coordinated so as to achieve desired goals, the budget becomes a plan If there are specifications on how the goals are to be achieved, the budget becomes a psychological device to make administrators thin If however, the emphasis is placed on achieving the desired objective at the lowest possible cost, then the budget is an instrument for ensuring efficiency

An enterprise which is effectively and efficiently managed produces good and rewarding result Management is efficient if it is able to accomplish the objectives with minimum efforts and costs

Profit planning and control or budgeting is an integral part of management The financial manager has a particular interest in profits planning and control because he helps to regulate flows of funds which is his function The decision making process of management starts with planning 'Planning is the design of a desired future and of effective ways of bringing it about In other words, planning involves the determination of the future course of action for accomplishing the objectives of the enterprise The basic purpose of planning is to provide guidelines for making decisions It is a forward process to reducing uncertainty about the future

Planning is a continuous process which would generally involve four fundamental steps

1 Establishing the objectives

2 Determining the goals

3 Developing strategies

4 Formulating profits plans or budget

Objectives are the statements of broad and long term desired state or position of the enterprise in the future They are directional and motivational in nature and are generally the qualitative expressions of the desired future state For instance, the primary objective of an enterprise may be customers satisfaction, employee welfare, long-run- survival which depends upon the maximization of the long-run profit, that is wealth maximization

Goals represent the operational specifications of the broad objective with time and quantity dimensions Goals are the quantified targets to be attained within a specific period eg long run profit maximization in order to increase the market value of the firm to shareholders is the broad objective of the firm But the goal for the next year may be to earn a 20% after tax profit on investment or a 5% profit on sales

Strategies specify the ways of achieving the goal operationally For example, the strategies of a firm may include the use of retained earnings for expansion, keeping debt at a reasonable level, expanding sales through price reduction and aggressive advertisement Financial plans may take many forms, but any good plan must be related to the firm's existing strength and weakness The strengths must understood, if they are to be used for proper advantage and the weakness must be recognized if corrective action is to be taken

Finally, the formalization of objectives, goals and strategies for operational purposes is called the profit planning or budgeting It is called the profit plan or budget because it explicitly state the goals in terms of time expectations and expected financial results for each major segment of the entity

11 HISTORICAL DEVELOPMENT OF THE FIRM

It is important at this point to review briefly the history of the company mobile telecommunication Network Nigeria Limited (MTN) It was incorporated in Nigeria on November 8 2000 as a private company It secured a license to operate digital (Global system for mobile telecommunications GSM) telephony on February 9 2001, from the Nigerian communications commission On May, 2001, MTN emerged as the first to make a call on its GSM network in the new dispensation Thereafter, the company launched full commercial operations beginning with Lagos, Abuja and Port Harcourt in the company now provides coverage to 85 cities and well over 5,000 communities and villages, spanning every geo-political zone and 31 of Nigeria's 36 states

It is the first to erect a country wide microwave radio transmission backbone, offering unrivalled value for money evidenced by a loyal customer base attracted by MTN's convenience, mobility, roaming on 30 international networks and economical Tarrifs MTN's product and services are available at its friendship centres and a nationwide network of dealership, banks and convenience channels including entries, petrol stations and neighourhood stores

12 BACKGROUND OF MOBILE ELECOMMUNICATION NETWORK NIGERIA LIMITED/PRESENT STATE OF AFFAIRS

The company through systematic planning and control represents several millions of Nara in investment The company as at May 31, 2004, had a total of 21 mobile switching centres and over 940 radio base stations across the country Several more are in the process of being installed On January 20, 2003, MTN commissioned the first phase of its digital microwave transmission backbone, Y'ello Balm Constructed at a cost of $120 million Y'elloBalm is Africa's most extensive transmission infrastructure and has significantly helped to enhance call quality on MTN's network Y'ello Balm spans 3,400 kilometers and traverses over 120 cities, villages and communities; while coverage has been extent to more than 90 major towns and a total of over 5,000 villages and communities across Nigeria The second phase of Ye'llo Balm is currently on going and will spand another 4,500 kilometers

MTN subsists on the core brand values of leadership, integrity, innovation, relationships and a 'can do' attitude, a passionate optimistic focus on the future It prides itself on its ability to make the impossible possible - connecting people with friends, family and opportunities The ownership structure is currently as follows: Mobile telephone Networks International Limited 7644%

Nigerian partners 2056%

 International finance corporation and infrastructure investment arm of the world bank 3%

100%

TECHNICAL ASSISTANCE/COMEMRCIAL SERVICE AGREEMENT

The company is technically supported by Nami Tech in south Africa who doe the prepaid voucher and supplier to MTN

COMPAY'S CONTRIBUTION TO NIGERIA ECONOMY

MTN currently employs more than 1,200 Nigerians In addition, more than 160 Nigerian companies are currently MTN distribution partners Of these, more htan 25 are banks, many of which have spun off subsidiary companies, many of the dealerships have branches nationwide and employ dozens of people Another 6,000 companies, including petrol statiosn, supermarkets and many others, serves as sub-dealerships

Yet a great may other Nigerians earn a living as self-employed proprietors, recahrge card or mobile phone accessory vendors, many others operate the hundred of business centres scattred allover our cities

VISION

- To improve telecommunications infrastructures and access throughout the countries in which we operate

- Quality service

- High profile distribution and accessibility of our services and products

- Setting up a good base for future expansion

- Training and transferring skills to local staff

- Becoming a good corporate citizen and becoming a major player in the Nigerian economy

MISSION

- TO BE A CATALYST FOR Nigeira's economic growth and development, helping to unleash Nigeira's strong developmental potential not only through the provisionof world class communiations but also through innovative and impactful corporate social responsibility initiaties

- We want the cals you make on our network to be of the best quanlity in Nigeira

- We want our network to cover the broadest areas of Nigeira and athe continuous enhancing of convenience and value derived from using our network

- Every call made shoukd re-inforce your conviction that MTN is needed

13 STATEMENT OF PROBLEM

It is the primary duty of management of the organization to ensure the achievement of the company The company was faced with high operational cost due to inadequate infrastructure, security of lives and property, low disposal income, high import tariffs

This research work is therefore intended to help in determining and highlight the problems that militate against the application and utilization of budgeting as a tool for profit planning and control The research work will help in providing solution to the following problems;

1 Inability of the company's objective

2 Insufficient appraisal of the company's performance based on budget

3 Inability of functional officer in the cost centers to standard pre-planned by the company

4 Insufficient mortuary of compliance as well as derivations from the departmental and over-all budget

OBJECTIVES OF THE STUDY

Budgeting, planning and control are the major components for a successful management in mobile Telecommunication Network Nigeria limited These are the areas of responsibility of management, and to an extent, present a yardstick for performance evaluation of management function Hence, this study includes in it's purpose the following;

1 To highlight the importance of budgeting as a tool for planning and control in the operations of a Telecommunication company with profits maximization as it's main objective

2 To identify the procedures adopted in the reformulation and implementation of annual budgets in mobile Telecommunication Network Nigeria Limited Eungu

3 To determine whether or not budgetary control as a management tool contributes to the improvement of managerial efficiency and highlight productivity

4 To determine whether there is a correlation between the types of budget implemented and their actual performance

15 RESEARCH QUESTIONS

1 Are workers communicated of the company's objective (s) when preparing the budget?

2 Is there deviation of the actual from the standard set?

3 Does the budget imposes a threat to the managers rather than a challenge?

4 Does management ensure adherence to the budget

16 RESEARCH HYPOTHESIS

The following are the basis for the research study

1 NULL HYPOTHESIS: HO:1: Managers use budgeting as a systematic approach in planning and control in attaining the goals of the business

ALTERNATIVE HYPOTHESIS: H1:1: managers do not use budgeting as a systematic approach in planning and control in ataining the goals of the business

2 NULL HYPOTHESIS: HO:2: Decision making is perofrmed in a Mobile telecommunication company using budgeting as a tool for planing and control

ALTERNATIVE HYPOTHESIS: HI:2: Decision making is not performed in a mobile telecommunication company using budgeting as a tool for planning and control

3 NULL HYPOTHESIS: HO3: Utilization of resources is not achieved with the use of budgeting and budgeting control

17 SCOPE AND LIMITATIONS

Budgeting - a systematic approach to profit planning and control will be limited to Mobile Telecommunication Network Nigeria Limited Enugu both in accessibility to certain information and the distribution and collection of questionnaires

The major problems faced were insufficient fund to cover the cost of printing questionnaires, distribution and collection of same to and from the respondents

Fear on the part of the respondents for loss of their job should they disclose information without due authorization from their superior or the top management

Finally, demands were also enormous both in terms of time and finances, as well as final semester works These problems were reasonably taken care of and allowing a limit of error, the project was competed

18 SIGNIFICANCE OF THE STUDY

In all business endeavours, the primary objective is profit maximization This is achieved through provision of goods and services at fair, competitive and affordable prices No management and ignore profit maximization, otherwise, at will find itself out of business Hence the study is significant with the following reasons:

(1) The study will determine whether budgeting as a tool for planning and control plays any significant role towards ensuring profitability and efficient rendering of goods and cervices

(2) Ascertain the role played by the management in budgeting and whether they ensure adherence to the budget

(3) Ascertain the roles of budget as a tool for effective and efficient utilization of scarce resources

(4) The study will help future researchers on budgeting and budgetary control with emphasis on mobile telecommunication Network Nigeria limited

19 DEFINITION OF TERMS

BUDGET: The chartered institute of management Accountants (CIMA) defines budget as "a plan quantified in monetary terms, prepared and approved prior to a defined period usually one year, showing planned income to be generated and expenditure to be incurred during that period, and he capital to be employed to attain that objective

BUDGETARY CONTROL: This is the establishment of a budget relating the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted results either to secure the individual actions with the objective of that policy or to provide a basis for its revision

PLANNING: This is the establishment of objectives, and the formulation, evaluation and selection of the policies, strategies, tactics, and action required to achieve these objectives

CONTROL: This s the process of ensuring that a firm's activities conform to its plans and that its objectives are achieved

VARIANCE: this is the difference between planned (budgeted) and actual results

FAVOURABLE VARIANCE: This is excess of the budgeted result over the actual result, in the case of cost But in the case of revenue it is the excess of that result over the budgeted

UNFAVOURABL VARIANCE: this is the excess of actual result are the budgeted in terms of cost and vice-versa in terms of revenue

BUSINESS: Any establishment which has profit motive or maximization as its major objectives

ORGANIZATION: All establishment whether government or privately owned