BUDGETING AND ITS IMPACT ON PERFORMANCE

OF COMMERCIAL BANK (A CASE STUDY ON

SHASHEMENT BRANCH)

A RESEARCH PAPER SUBMITTED IN PARTIAL FULFILLMENT

OF THE COURSE STUDENT PROJECT FOR REQUIREMENT OF
B.A DEGREE IN ACCOUNTING EDUCATION TO ACCOUNTING
DEPARTMENT

PREPARED BY: ELALU JUHAR

ADVISOR:- ESHETU YADECHA (ATO)

JIMMA UNIVERSITY
FACULTY OF BUSINESS AND ECONOMICS
COLLEGE
ACCOUNTING DEPARTMENT

MAY, 2012
 JIMMA, ETHIOPIA

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 ACKNOWLEDGEMENT

I would like to great thanks give to almightily my Allah he has helped me in every
aspects of my life.

Next I would like to express my heart felt gratitude to my advisor Ato Eshetu
Yadecha his heart felt advice and helped me. I would also like to Jimma University
business and Economics College in general and department of Accounting

I am immensely grateful thanks to Ato Jilalu Mehamed. Finally I would like to

thanks my brothers and all people that assist me in providing me helpful
information for fulfillment of this research paper.

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 ABSTRACT

Generally the objective of this research paper is to assess the budget and its impact
on performance measurement on commercial bank of Ethiopia.

Specifically, this objective can be improving the banks budget and performance
measurement techniques by solving the problem of budget variance to much it
with the principle of activity based budget systems. The study also tried to answer
some questions such as what are the cause of variance, how the budgeting process
made? What are the bases for preparation of budget and so on. Data was collected
from both primary and secondary sources, primary data was collect at using both
unstructured interview and questionnaire. Interview was conducted from the banks
employees. Questionnaires was distributed to the selected employee’s related
leaders of the bank, secondary data had been used from published and non
published documents.

Finally, this paper concern on budgeting and related issues to address the occurred
variance and to check the banks performance. The research conclude from the
bank used budget and faces many problems. Based on this I would forward some
recommendations, the bank should be suitable, attract and control unforeseen
circumstances and externalities.

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 TABLE OF CONTENTS
Title Page
ACKNOWLEDGEMENT....................................................................................................i
ABSTRACT........................................................................................................................ii
TABLE OF CONTENTS...................................................................................................iii
CHAPTER ONE..................................................................................................................1
INTRODUCTION...............................................................................................................1
1.1 Background of the organization...........................................................................1
1.2. Background of the study...........................................................................................3
1.3 Statement of the Problem...........................................................................................4
1.3 Objective of the Study...............................................................................................6
1.5. Significance of the Study..........................................................................................7
1.6 Scope of the Study.....................................................................................................7
1.7. Limitation of the study..............................................................................................7
CHAPTER TWO.................................................................................................................8
2. LITERATURE REVIEW.................................................................................................8
2.1 Origin of the budget...................................................................................................8
2.2. Definition of Budget and Budgeting.........................................................................8
2.3 The objective and role of budgeting..........................................................................9
2.4 Budgeting procedures..............................................................................................10
2.5. Relationship Between planning and Budgeting......................................................11
2.6. Performance measurement......................................................................................12
2.6.1. Performance evolution concepts......................................................................12
2.6.2. Performance reports and communication........................................................13
2.6.3. Using performance measurement to impalement corporate strategy..............13
2.7. Budget Classification..............................................................................................14
2.8. Types of Budget......................................................................................................15
2.8.1. Program Budgeting..........................................................................................15
2.8.2. Zero Base Budgeting (ZBB)............................................................................15
2.8.3. Activity Based Budgeting................................................................................16

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 2.8.4. Incremental Budgeting.....................................................................................17
2.8.5. Master Budget..................................................................................................17
2.8.6. Variable Budget................................................................................................17
2.8.7. Fixed Values flexible Budget...........................................................................18
2.9. Government Budget................................................................................................18
2.10. International control systems................................................................................18
CHAPTERTHREE............................................................................................................20
3. METHODOLOGY........................................................................................................20
3.1 Study Area...............................................................................................................20
3.2 Method of Data Collection......................................................................................20
3.3 The Sampling design...............................................................................................20
3.4 Data analysis and preset...........................................................................................21
CHAPTER FOUR.............................................................................................................22
4.1 Data analysis and presentation.................................................................................22
4.2. Analysis of Questionnaires.....................................................................................22
4.3 Budget......................................................................................................................23
4.4. Types of budget.......................................................................................................25
4.4.1. Flexible Vs Fixed budget.................................................................................25
4.4.2. Variance analysis..............................................................................................26
4.4.3. Performance reports.........................................................................................28
4.4.4. Financial budgeting analysis............................................................................29
4.4.5. Balance sheet budget.......................................................................................35
4.4.6 Cash budget......................................................................................................38
CHAPTER FIVE...............................................................................................................40
5. SUMMARY, CONCLUSION AND RECOMMENDATION.......................................40
5.1. Summary and Conclusion.......................................................................................40
5.2. Recommendation and suggestions..........................................................................43
REFERENCE....................................................................................................................49

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 CHAPTER ONE
INTRODUCTION

1.1 Background of the organization

The state bank of Ethiopia was found in 1942 with on objectives forming the
duties of both commercial and central bank in 1963 established as share company
to take over the commercial banking activities of the state bank of Ethiopia. in the
1974 revolution commercial bank of Ethiopia got its strength by emerging with
privately owned Addis Ababa bank.

The commercial bank of Ethiopia which is striving to embark into world class
commercial bank, rendering state of the art and reliable service to its million of
customers both locally and abroad. The business strategy of the bank was focus
on the stakeholders serves. The number of branches now a day reached 500 and
stretched across the length breadth of the country. CBE combines a wide capital
base with more than 10,000 talented and committed employees. In 2011 whom it
regard as it key assets fro banking development. The state owned commercial bank
of Ethiopia still dominates the market interms of asset deposit, capital and
customers base and branch network, deposit the growing competition from private
bank over the last 15 years. This make it one of the it one of the most reliable and
strong commercial bank in the country and the region. Its strong capital base
above 67 years of rich experience in the market and large branch network through
out the country on able the bank to accommodate large demand for banking
service, bank from private and public companies and to increase its over all
revenue on sustainable base.

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VISION
To become world class c commercial bank. The term world class presumes
efficiency good cooperate with governance and move toward best international
banking practices.
MISSION
We are committed to maximizing shareholders value through enhanced financial
intermediation and up parallel customer satisfaction we strongly believe that
reliability and public confidence are the base of our success. The fundamental
component of our mission statement include
- Customer:- our customers are our most important assets.
- Shareholders:- In order to optimally meet the need of our customers and
efficiently manage out business.
- Employees:- Quality customer service is possible only through motivated
and skilled employees for the will being of its employees it tries to develop
a work force that enjoys working for and prides it self in association with
the bank.

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1.2. Background of the study
The purpose of this paper was to show the budgeting and its impact on
performance measurement of the commercial bank of Ethiopia on the Shashemene
branch. To assess the proper goals of the bank the employee in the budgetary
processes participants can give employees the feeling that “this is our budget”.

Budgeting is a quantitative expression for a given time period of a proposed

future plan of accomplishment. It covers both financial and non financial
expression of the plans and acts as an outline for an entity to follow in the future
period. Budgets are one of the regularly used devices for planning and controlling
resources by organizations. Budgeting procedures direct managers towards
proactive looking and enables it to be n a position force the problems and take
measures to eliminate or reduce their severity. A budget can cover both financial
and non financial aspects of these plan and acts as a blue print for the corporation
to follow in the coming period of time budgeting is a process for preparation of
budget which determines the target for budgets and it includes preparation of
plans, implementations and evaluation. (Hilton, Mahar, selto 20002:pp603).
Budget performance measures can over come two key limitations of past
performance as a basis for judging actual results, the first the past results in
corporate past miscues and substandard performance and the second is the future
may be expected to be very different from the past. Performance feedback must be
sufficient rapid those employees can adjust their performance in timely base.
Rapid feedback should allow employees to take compensatory actions to try to get
over all period performance inline with budget. The concept and techniques of
planning and control have been under application individual business planning,
governmental units, banks and virtual all groups endeavor even though many
effective service oriented business managers have clearly explained specific and
observable goals and objectives.

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1.3 Statement of the Problem
A budgeting is a plan that out lines an organizations financial goals. So it can be
vehicle for addressing objectives, goals and problems in the most careful way. It
also defined as the formal expression of the plan objectives of management of the
bank which covers all phases of operation for a specific period of time. Budgeting
is a plan it helps to allocate resources, evaluate performance. It is a financial
document used to project future in come of expense. The budgeting process may
be carried out by individuals or by companies to estimate whether the
person/company can continue to operate with its project. Should not be regarded
as expression wish full thinking but it can a description of an attainable objective.
This is the real fact that motivate we to study the problem that attach with
budgeting control and evaluation activities that take place in commercial bank of
Ethiopia on Shashemene branch. In order to achieve the target activity, effectively
and properly budget is a crucial instrument for the bank. Almost all organization,
be governmental or not use budget for different projects and programs to enhance
efficient and effective utilization of the scarce resources. However, many of the
organizations would not prepare budget according to their plan and thus, faces a
series budget variance. The real purpose of budgeting should have several
advantages. It guides (monitoring) the flow of the banks activity at all. It also
enhances the quality of the service that was rendered by the bank, control and
accountability each participants through internal and external relations of
managers to its employees, customers, suppliers, creditors and the concerned
parties at a whole. Commercial bank was one of the widest governmental
organization, that is series and successive budget variance. Related factors that is
behind preparation of budget and the challenges faced in the implementation of the
planned activities their consequence creates great impact on the bank. Problem of
budgeting is not the only preparation., but also on implementation. In the current
global market environment customer is a key concern to be raised in order to

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continue in the market. In this regard as ordinary customer is always come across
long customer guenon our service rendering branches.

From this point of view the researcher wants to investigate. Thus the them of my
questioner involves on concepts of the following.
 How the organizations is employee the budget
 How was the performance evaluation to address customers problem
 Which would be attribute for financial service rendering business as a
whole.
 What were the bases for preparation of budget?
 What type of budget was used by the bank?
 What are the challenges in the preparation and implementation of budget?
 Who are responsible to prepare budget?
 Does the bank effectively implant its budget?
 Does the variance has impact on the banks performance.

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1.3 Objective of the Study
1.4.1.General objective
The general objective of the study was to investigate the budgeting processes and
factors that affect the effective and efficient utilization of budget in commercial
bank of Ethiopia in Sheashemene branch

1.4.2. The Specific Objectives of this paper

- To investigate the budget execution of the bank between 2010 and 2011
G.C.
- To identify the budget preparation processes or system established by the
bank.
- To investigate any variance for the questioners 2 years of the budgeted
amount and actual performance of the bank and the reason for variance
between the budget and actual one.
- To examine factors that hinder the effective and efficient utilization of
budget.
- To sum up with conclusion and some possible and necessary
recommendations based up on the result of the study.

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1.5. Significance of the Study
The significance of the study would be helps to makes the reliable decisions by
managers of the bank, to create aware of active participation of all workers.
- The study would be monitoring the manager to manage its responsibility
- They used the findings of the study feedback on the budget process,
implementation, preparation and changes.
- It helps to take corrective action by the manager
- The study would be laid down a starting point for other researchers in order
to incentive study on the budgeting and its impact.

1.6 Scope of the Study

The scope of the study had been restricted to assess budgeting and its impact on
performance measurement on commercial bank of Ethiopia on Shashemen branch
the scope of the study is mainly focused on budgetary affecting factors particularly
commercial bank of Ethiopia. to come up with effective research,. It would be
better to limited the boundary of the study. If the research has been conducted
over all branch of the bank it is better. However, because of different situation this
finding would be conducted only one branch. It also better if the research would
be touch all passed years, but it is tried to touch only two years of them.

1.7. Limitation of the study

This work has many problem, especially in the case of data collection there are
some respondents are not interesting to give true information that is needed for the
study. The reason might be due to the confident of the information. In addition to
this, the study has financial and time constraint, experience on the study of the
research.

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 CHAPTER TWO
2. LITERATURE REVIEW

2.1 Origin of the budget

The word budget is originated from “The old French baguette, meaning a small
bag or pouch” This term was first used in England to describe the summons
leather bag in which the chancellor carried to the parliament, the statement which
was contained in the bag. The practice of budgets was also originated in 1217 in
England as means of asserting parliamentary control over the crown. During this
time parliament was aware of the fact that the financial control should be under its
own hands or control but not under the crown. Hence forth parliament secured the
power of controlling the financial matters of the country. (Alan pizzey
1973:pp:112)

2.2. Definition of Budget and Budgeting

There is no consensus on the definition the term Budget. (Alan Pizzey 1973:
pp:179) defines it as ‘a plan quantified in monetary terms, prepared and approved
prior to a defined period of time showing the planned income to the generated and
expenditure to be incurred during the period and the capital to be employed to
attain a given objective’. It is detailed plan expressed in quantities terms that
specifies how resources will be acquired and used during a specified period of
time. (Rounald W. Hilton: 1979:366).

Alan pizza, page: 180 Writes:

‘Budgeting is a coordinating process since all the disparate department and cost
centers which make up the business are filled in to one plan’. It is also an
imperative process. Since by a series of small steps comprising a process of a
continual review and revision, the original estimates be come firm plans’.

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Budget is an expression of a firms plan conversing all phases of operations in
financial form for a definite period of time in future. Budget spells out the policies,
plans, goals and objectives laid down in advance by top management for the
organization and for each sub- division of the same. It predicts income for a given
period as well as estimates costs and expenses, with the objective. of earning a
desired profit (Man Mohan, page: 957). It forces management to give early
consideration to what they plan to do in the future period.

Budgeting involves as a great rang of interests and concerns. It is difficult to

conceive any public policy that can be carried out with out money, and hence with
out becoming subject to budgetary process. All countries, whether developed or
developing would be engaged budgeting and operate on a budget recognizes its
invaluable aid in planning and form waiting economic policy as well as check on
its execution. Budget is used not only by government but also used by private
firms, business and various organizations, because it enables them to achieve their
goals. Nevertheless, budget had not been developed uniformity among countries
and the approaches to budgetary procedures are not the same in all countries.

2.3 The objective and role of budgeting

Given that limited availability of resources as compared with competing demand,
the process of budget making assumes a critical role in decision making process of
government in order to optimize the use of existing resources. The paper of
monetary of finance in Amharic vision of Ministry of Finance and Economic
Development (MoFED) states that the objective of the budget in three aspects.
These are allocation of resource, distribution of resources and stabilization of
economy

The first objective consists of allocating resources between the various function
consumption and investment that between the pubic and private sector. The
distributional sector (objective) necessitates the consideration of public

9
expenditure and the income groups that are anticipated to be served. It is the policy
maker or government that decides who will be benefited how much from the
available resources among the society. This may by achieved by expenditure
policies such as, subsidies, pension or social welfare schemes as much as taxation
on income and capital

Concerning the stabilizing role of budget, HL Bhatia (1980:pp246) states that

"budget plays very important role in the flow of funds in the economy. It also has
important affection in the economy not only through the flow of funds but also
through various fiscal polices and measures. "As a result, budget can be used to
control the danger of inflation by adjusting the amount of governmental taxation
and expenditure. Finally, budget plays an important role as a tool of accountability,
a means of management and instrument of plan of implementation

2.4 Budgeting procedures

There are several approaches of budgeting of which the following three are among
the common ones to be mentioned. The first one is incremental budgeting
approach. Here, the existing budget is taken as starting point (or base) for
developing the next budget .This may be the easier but not necessarily the best.
The second approach is Zero based approach (budgeting). This approach puts
much less emphasis on the past budget and focuses on what must be done to
achieve specific objectives. ZBB starts as new each year and therefore it is a more
time consuming process. Fressant J. Iydon and Ensert G. Miller (1978:pp255 )
strengthen this notion by saying 'I ZBB usually involves more managers and takes
more management time than the traditional budgeting procedures". However, this
approach has been appreciated for it gets rid of unnecessary activities that
budgeting often perpetuates.

The third one is program budgeting / master budgeting program!. It is plan

oriented and consists of three stages that include developing alternative for the
future, analyzing what the outcome of the alternative program might be, and

10
relating the programs and policies on the future costs and benefits, and lastly the
actual performance of the chosen program must evaluated.

Therefore, master budgeting is a means that government expenditures are managed

through the comparative attempt of the program proposals of all government
agencies. David N. Hyman (1969: pp190) clarifies the benefit of master budgeting
as it possesses potential to permit budget managers to compromise issues that are
not immediately unaware when the agency budgets are viewed in isolation.

2.5. Relationship Between planning and Budgeting

Planning signifies the strategies elements for selecting flows of action by a logical
consideration of resources to achieve policy objectives. It establishes program, set
goals, objectives and makes fundamental policy decisions for the economy.
Mosher, Frederick (1954: 489) puts plans as conceiving of goals and the
development of alternative courses of future action to achieve the goals. For him
planning also involves the reduction of these alternatives from a very are number
to a smaller one and finally to an approval course of action.

(Slalim Hamid, 1998) writes:

Budgeting analysis in detail, the many functions of activities that the economy
must perform the implementation of each program, analysis the alternative with
in each activity to achieve the end product and identifies the achievements of the
established goals and the associated costs’

Since budgeting is a crucial instrument for plan accomplishment, they should be

harmonized for proper plan implementation.

‘To harmonize the budget with the plan, there must be a plan in existence, there
should be on annual plan with which budget could be harmonized, ….and there
must exist at least a set of short term targets and goals towards the attainment of
which the budgetary decisions could be oriented.

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According to preme Hand (1989:pp 188) budgeting with out planning could to be
a plan of action and plans with out realistic detection of budgetary restraints have
little chance of implementation. Thus any appropriate plan can be meaningless and
the result my become paradox unless it is reelected in the budget.

Therefore, budget and plans are concerned with policy analysis and allocation fo
resources. The difference is that, in planning the economic aspects dominate,
where as, in budgeting more attention is paid for financial aspects.

2.6. Performance measurement

2.6.1. Performance evolution concepts
Performance reporting for internal management use in an important part of a
comprehensive profit planning and control system. To indicate the extensive
reporting requirements a business requires and to focus on performance reporting.
The following are an overview of financial reports.

The first one is special external reports. Here, reports are submitted to government
agencies such as regulatory commissions, creditors, investigative agencies and
other external groups. These reports are extensive and comprise a considerable
portion of the over all reporting. The next one is reports to owners. It refers to the
traditional annual report to the owners (to stock holders in the case of a business)
and other special reports got ready fro the owners. These reports based on
generally accepted accounting principles.

The last category, the internal reports are those secret reports are prepared in the
corporation for internal use only. They do not have to meet the needs of external
groups, nor the test of “Generally accepted accounting principle”. This category of
reports is subdivided in to three different sub qualifications. These are statistical
report, special report and performance reports.

All companies regardless of their size; have reporting requirements for all the
categories listed above. In small companies, most the basic reporting needs may be

12
accomplished by using a single general propose report; we are concerned
specifically with performance reports. This particular phase or reporting is an
internal part of a comprehensive budget program. (Ginna Welsch and etal 1997)

2.6.2. Performance reports and communication

Performance reporting is a crucial phase of the regulatory process. The control
process can be recapped as:
1. Approved plan (Tactical and strategic)
2. Feed forward (Planned objective and goals communicated)
3. Current controls (supervision, inspection, performance reports)
4. Feed back (Communication of different between actual performance causes
identified)
5. Correction action (designed to reduce any unfavorable differences in
routine results0. (David. N. Hyuman 1996: pp 69).
Inmost business, management depends to a great extent upon information
contained in reports that serve as an important means of accounting information.

Communication involves that a person receiving the information understands the

nature and meaning of material in the report Accordingly, clear communication
leads to effective management action and decisions that are likely to base on the
facts. Reports the communicate effectively to all levels of management stimulate
action and influence decisions (Ginna, Welsch 1976). However, some times
reports were not understood, recipients lacked time required to grasp the meaning,
or the content of reports was not relevant to problems facing the persons who
received them. (NAA Bulletin, Accounting practice report, No. 9, sec 3).

2.6.3. Using performance measurement to impalement

corporate strategy
Well-developed, coherent strategies merit well developed, coherent performance
measurement system. There are integrated sets of performance indicatory that

13
links strategic objective to functional tasks by focusing attention on the critical out
puts required by the strategy.

Traditionally, firms have oriented themselves around either a low cost or

differentiation strategy. Firms that focus on cost usually focus on mass production
technologies, attempting to stamp out variance and to attain efficiency through
constancy. Conversely. Firms following differentiation strategies, tend to
concentrate on developing flexibility, promoting rapid adaptation to changing
customer’s needs. Nationally, they will experience tension when cost and
differentiation priorities conflict
All companies ought to be aware of the performance levels of their rivals both in
absolute and incremental terms. Bench marketing systems that compare
internal performance with industry best practice can provide not only important
information for strategic planning but also a valid insight for change. (Michael
vitale and Salah C. Mavernae).

2.7. Budget Classification

Budget categorization refers to the systematic ways of organizing budgetary data
of both revenues and expenditures. It offers the form and structure of the
budgetary information that help analysis and inference. Budget classification is
one of the essential points to be beard in mind for the budget to attain its goals
more efficiently and effectively. Three general importance’s can be gained if
proper budget classification is intended. These include:
1. Budget classification play’s a significant role to maintain accountability and
fix responsibility to specific organization and even persons in a unit it the
account define responsibility accurately and precisely.
2. It offers a means of evaluating performance by alleviating comparison
between actual result and the level of funding found in the budget.
3. It provides means of controlling resources because authorized spending
limits are established in the budget. (Codinald Axelred, 1989).

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2.8. Types of Budget
Budget as a process and a system has different features and applications. Even
through many of them have common feature, they also manifest significant
differences. Since budget express plan and an organization may have a large
verity of plans: there are many type of budget. The classification of budget based
on their nature, coverage of function, characteristics of activity, period and
flexibility.

2.8.1. Program Budgeting

Program budgeting does not have a standardized definition because of its
encompassing nature. Its many aspects include concepts, systems and process,
technique and format, and in some cases almost a management philosophy.
Essentially, it is a management decision making system that tries together strategic
and long range planning with conventional budgeting and supporting analysis so
that an organization can most effectively assign resources to achieve both its short
and long range objectives. It utilizes a planning and budgeting process in an output
oriented program format, which is oriented to its objective to facilitate developing
and evaluating alternative. This process ultimately leads to an allocation of
resources over a planning period. This is then a basic for constructing a resources
(man power), materials, facilities (including equipment), and capital, which
operate together to achieve a set of common objectives with in a planning period.
(Anthony Robert 2004: PP 366).

2.8.2. Zero Base Budgeting (ZBB)

This type of budgeting is similar to planning programming and budgeting. The
most basic concept behind ZBB is that all programs and expenditure are evaluated
every year. Another zero base budgeting is that the responsibility, to present and
defend program. The principals advantage of zero base budgeting is that each type
of cost incurred in every budget period will be justified.

15
Its advantage falls in to the hands of mangers of respective institutions. More over
according to the method of zero base budgeting “decision packages; have to be
developed. They key to be zero base budgeting lies in the identification and
evaluation of alternative. This is favorable by ranking of decision package, the
most crucial stage in the application of this method. despite the obvious advantage
of ZBB, it has disadvantages.
- Given enough time and man power, there would not be controversy on the
application of zero base budgeting.
- How ever, if such problems exist, reviewing all programs every year would
be bulky and sometimes important.
- Another more serious problem is the ranking of problems.
- If there is in to way to continue with that inefficiency
- Activity in the future. (Anthony Robert 2004: PP 300)

2.8.3. Activity Based Budgeting

If focus on the cost of activities necessary to produced and sell product and
services. It separate indirect cost in to separate homogeneous activity cost pool.
Management uses the cause and effect criterion, to identify the cost driver for
each of these indirect cost pools comes up with the following merits of activity
based budgeting.
1. Ability to set more realistic budgets,
2. better identification of research needs,
3. Clear or linking of costs with staff responsibility and
4. Linking of cost to out put.

Conversely, it is tiresome and time consuming to determine the demand for each
individual activity based on output budgeted, production, new product
development (Anthony Robert 2004: PP 309)

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2.8.4. Incremental Budgeting
In this case the previous budget is considered as a base. The former budget figures
can be increased or reduced based on situations, particularly on the volume of
activity of the organization planned to be preformed. These types of budgeting
simplify the preparation of the budget because it needs adjustment of data from the
budget that had already been prepared. However, incremental budgeting is not
without drawbacks, particularly because the past period budget may include in
efficiency. (Anthony Robert 2004: PP 321).

2.8.5. Master Budget

It is a budget that summarizes the financial estimates of the entire organization’s
individuals budget. It helps achievement of long range plans year by year steps)

The guidance is more specific for h coming year than it is for more distant year.
The plan for the coming years is called master budget. The master budget is also
known as the static budget, the budget plan or the planning budget. The master
budget indicates the sales level, production and cost level. here, income and cash
flows that are anticipated fro coming yar. However, it has its Owen limitations that
arise from its comprehensiveness which may result in wrong formulation of the
budget. (IAIN, Maritaland, 1997: PP 119).

2.8.6. Variable Budget

The primary purpose of this type of budgeting is to accelerate control. Glevene,
Weish 1978:218) identifies three specific benefits of variable budgeting.
- To help development of departmental expense budget for insertion in the
profit plans.
- To give examples, goals for the managers of responsibility center during the
period covered by profit pan and
- To offer adjusted budget allowances fro comparison intention in the
monthly report.

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2.8.7. Fixed Values flexible Budget
Fixed budget is a budget fro a specific or fixed total amount that many not be
exceeded due to changes in the demand for goods and services. Being prepared for
a particular planned action, it is suitable for activities whose resources utilization
does not materially vary in due course. It is most appropriate when changes in the
amount of goods and services obtainable directly affect availability of resources
and expenditure needs. (IAIN, Maritaland, 1997: PP 301).

2.9. Government Budget

In governmental entities, budget services as a tools of managing resources to attain
programmed objectives. It serves as instrument fro the legislative body to ensure
whether actual expenditures are corresponding to budgeted amounts and that the
objective and levels of activity envisaged in the budget are attained or not. As
well, to obtain a share in government resources allocation, preparing and
submitting budget proposal is expected from each government entity. Moreover,
governmental budgets are legally binding upon the executive body and once fixed
by law, they are usually unalterable with out much effort.

2.10. International control systems

The council of minister’s finical regulation No. 17/1997 defines internal control
systems as:
“The plan of organizational and all the coordinated methods and measures
adopted by management to safeguarded assets ensure the lines, accuracy and
reliability of accounting data, promote operational efficiency and maintain
adherence to regulation and directives.”

The two main constituents of internal control system are the administrative and the
financial (Accounting: control

The administrative control comprises the procedures and records that are
concerned with decision making process leading to management’s authorization of

18
events . on the other hand, the financial control consists of the plan of an entity,
producers; and records that deal with protection of assets and the consistency of
financial records ascertains logical plan of an entity, new designed and accounting
configuration, an internal audit function, and quality and training of personnel’s as
among the indispensable factor to reinforce internal control arrangement.

Strong system of internal control is very essential in achieving certain goals of an

organization. internal control includes all the procedures and actions taken by an
organization in order to manage the expiating assets, ensure conformity with
organizations policy and governmental rules, evaluate operating efficiency and
ensure precise and reliable operating data and accounting records.

19
 CHAPTERTHREE
3. METHODOLOGY

3.1 Study Area

This study was would be conducted on commercial bank of Ethiopia on
Shasemene branch.

Type of data and sources

The researcher has been used two types of data. This are primary and secondary
data and unstructured interview.

3.2 Method of Data Collection

In the data collection process different data collection method has been used in the
study. According to the source of data that has been collected to conducted the
research I would have been collected firstly primary data. It had two different
types of data collection procedures has been used. This are questionnaires and
unstructured interview.

The secondary data has been collected from different sources, such as the banks
pamphlets, manuals, reference books and other research materials, magazines,
personal documents, public and official documents:- such as records, journals and
magazines and news papers reports with exchange rate and interest rates. Among
personal documents letters, memories and diaries are an important secondary
datas.

3.3 The Sampling design

The sampling techniques that is going to be implemented for the study was non
probability judgmental sampling. This techniques of sampling was selected,
because it enables to get accurate and sufficient information. By using this
techniques 30 individual workers of the bank who are believed to have sufficient

20
knowledge and familiarity with the banks activity. I would be selected 20 sample
they are currently working in the bank.

3.4 Data analysis and preset

The researcher had been used for data analysis was different systems among them
editing. Coding and tabulation. Editing was used to involves the inspection of
questionnaires on a raw data and necessary for each questions and defecting the
most glaring omission in accuracy detail.

Coding is a technical procedures by which data are categorized through coding the
raw data to transferred in to symbolic usually numerals. They may be tabulated
and counted. This can by specifying the categorizes in to which regains to be
place. The number would be depend up on the number of question on the
questionnaires. Coding is open ended questions. This can be done through
developing consistent set of standards to each questions.

Tabulation can be consists of simply counting the number facts that fall in to
various groups. It communication the result of the study, can be used for several
purpose (i.e to calculate summary statistic). Tabulation can be done by hand, it is
facilitated determining the empirical distribution. Variables and frequencies were
numerated in each table for calculation of various statistics and communicative
distributions would be employed to observer with less than or equal to specify
quantities determined.

21
 CHAPTER FOUR

4.1 Data analysis and presentation

This chapter concerned with the characteristics of sample size, the presentation as
well as analysis of data gathered through questionnaire. The data collected through
questionnaire was to be analyzed and presented in the table form and it is seems
appropriate to interpret each data which are presented in the table for. This part
concernes with the major findings of the study, which is the analysis result. In
budget period the commercial bank of Ethiopia plans to perform deferent service
rendering activity through out the country. This work can be done in order to
increase the number of customers and to motivate the revenue generation capacity
and to minimize the poor service rendering capacity of the bank commercial bank
was committed for archiving its objective by following major business principles
of the bank stated at establishment, with honest and committed staff members.
These principles are outstanding customer service, business integrity prudent
lending policy, and strict control discipline. The bank has above 430 branches up
to the close or the fiscal year 2010. It has already implemented the different of its
kind in Ethiopia. integrated computer based wide area net work. it has networked
the head office, city branches and out lining branches; the banks major activities is
commercial banking. Its vision is a reflection of aspiration of the organization, its
business and partnership development and to be the most preferred bank in
Ethiopia. It s mission is “To provide wide range of quality and quantity banking
service trough a dynamic work force and up to its solution to satisfy the desire of
all customers.

4.2. Analysis of Questionnaires

In this section the researcher has tried to put all respondents answer which is
collected by using questionnaires and it analyzed and interpreted in this section of
the study. The respondents are the employees of commercial bank of Ethiopia

22
Table 1: Demographic characterized & respondents and their educational level by
proportion of men and women.
Sex Second degree First degree Diploma Total
No % No % No % No %
Male 3 15% 8 40% 3 15% 14 70%
Female - - 2 10% 4 20% 6 30%
Total 3 15% 10 50% 7 35% 20 100%
(Source:- Data collected through questionnaires)

From the above table reflects the educational background of women as compared
to men is low female those graduate with first degree are 10% of the total
respondents. In the 2nd degree no one and in the diploma holders are 20% males
with second degree holders are 15% of total respondents and first degree holders
and 40% of the respondents and diploma holders are 15% out of respondents in
general academical level of female as compared with men was does not
proportional in the commercial bank employees of Shashemene branch.

Table 2: Does the organization use a budget

Type of response No of respondents Percentage (%)
Yes 17 85%
No 3 15%
Total 20 100%

4.3 Budget
Budget is the back bone of any organization to archive its objectives. The bank
was used budget. All respondents say the bank was use appropriate budget
procedure. The banks budgeting objective was on the different aspects. Among
this the cost gain and the cost lend funds. The major concerns of the budget was
projecting availability of the funds. Interest rates, lonable conditions, deposit
demand and operating expense and the bank uses flexible types of budget system.
Budget responsibility

23
The banks budget was prepared and take responsibility by the banks top level
officials. The respondents response shows that the budget was prepared by
corporate planning and business development department and the responsibility
taken by it. I would also asked to the respondents to investigate each branch that
are found on the bank are prepared their own budget and take responsibility at the
end most participates of budget preparation was the budget committee of the bank
and the concerned top to Lowe employees of the bank.

Table 3. Does all branches prepare their own budget and take responsible at
the end
Type of response No of respondent Percentage (%)
Yes 16 80%
No 4 20%
Total 20 100%

Based on the above table the bank was prepared and take responsible at the end
the majority of the respondents that is 16(80%) was said the organization properly
prepared and used. The remaining was that is 4(20%) was said the banks
preparation of budget is does not known by the lower level servants.

The problem that occurred on preparing of the banks budget was lack of
formalization between employees of the bank because the upper level officials are
does not concern to lower level servants.
- lack of activate flow of essential information from top to botton and vice
versa
- unforeseen circumstance: change in market condition, customer awareness.
- thereat from exiting and potential competitors
- understand markets to obtain resources
- New markets exploit.
The procedure the bank follow up to prepare budget was bottom to up and vice
versa and most of the time quantitative procedure was used. It is the measurement

24
of quantity or amount that is the bankss activities. It is applicable for phenomenon
that can be expressed intermes of quantity.

The procedure followed by the bank was top to bottom and vice versa due to top
officials participate in budget processing activities and gave appropriate
instructions to concerned lower level worker. Bottom level workers ware
participated by supplying customer based information to upper level officials and
commented upper level officials when unnecessary action was occurred

4.4. Types of budget

Budget in major companies span a period of one year or below. However in this
case they may be prepared vary from company to company. The researcher gathers
different information about the span of the period prepared by the bank.

Table 4: response on for how long the budget you prepared was run (used)
Respondents Amount of response For semi Percentage (%)
for a month For a quarter For a year
annual
Yes - - - 20 100%
No - - - - -
Total - - - 20 100%
(Source: Data collected through questionnaires)

Based on the above table we can observe that the respondents reply concerning on
their response 100%(20) respondent are said the bank used its budget for a year.

4.4.1. Flexible Vs Fixed budget

A flexible budget is a budget that is developed by using revenue or costs amounts,
it is adjusted (Flexible) to the actual level of the out put achieved or expected to be
achieved during the budget period. Where as fixed budget that is based on one
level of out put and can not be adjusted or shifted after its finalized. Based on from
the two opposing budget types, the researcher wants to investigate which one more

25
applicable in the organization. to get appropriate answer for this question which is
taken 20 sample respondents from employees of the bank.

Table 5: Analysis of Flexible Vs fixed budget

Respondents Response flexible Fixed Percent (%)
A. Flexible 18 90%
B. Fixed 2 10%
Total 18 100%
(Source: Data Collected from questionnaires)

From the analysis of the above table we can understand that what looks like the
respondents reply to questions are the majority of the respondent says the bank
uses flexible budget due to the reality of the advantages. The response which is the
above table shows 18(90%) was flexible budget used the bank and the remaining
2(10%) said that the bank uses fixed budget. The reason flexible budget was
choosen by the bank was
- Flexible budget can adoptable to any given set of operational conditions.
- It is also more realistic
- Practical activity was achieved.
- Useful than fixed one.

4.4.2. Variance analysis

Comparison of actual results with planned or budgeted goals has been concerned
as an important part of the control process in the commercial bank of Ethiopia. the
most important features of performance report was the respoting of difference
between actual result and planned goals in different companies. Variance may
occurred by appropriately implemented the budge and actual result of the
organization.

Table 6: Response on the banks employees does the bank effectively

implemented its budget

26
 Repleiants Response Percentage (%)
Yes 14 70%
No 2 10%
Neutral - -
May be yes 4 20%
Total 20 100%
(Source: From employees of the bank)

From the above table we can observe the majority of the respondents that is
14(70%) was said the bank used its budget appropriately. But the remaining was
which is 2(10%) are said that the bank does not implement its budget effectively
and 4(20%) was may be used said due to uncontrollable nature.

Schedule -6 Does variance occurred do you compared the actual with the budget
Respondents No Percentage (%)
Yes 20 100%
No - -
Total 20 100%
(Source: From the Data collected)

The variance that was occurred in the bank was favorable to the bank. The
respondents of the bank gave their response to this idea all of them are said that
20(100%) favorable to bank. Relating to this would like to investigate why
variance was occurred in the bank. The reason for occurrence of variance was
- unforeseen circumstance e.g. Unexpected revenue capital gain
- changes in the market condition
- improvement of the general administrative policy of the bank
- Increase civil servants participation in the bank and create awareness about
their responsibility.

4.4.3. Performance reports

Performance report is not satisfaction unless there is a sustainable flow of reports.
These report would be formulated at regular manner based on the organizations
performance each month, quarter, semi annual and annually. To show the

27
difference of actual with the budgeted ones, Such types of reports showing
satisfactory or fair or unsatisfactory (unfair) variance from different budget angles
based on this for how may times does the bank prepared performance report with
in a year all respondents gave their response on the following table.

Table 7: Does how many times do you prepared performance report a year
Respondents Every Every Every Every year %
month quarter semi
annual
A. Yes - 14 - - 70%
B. No - 6 - - 30%
Total - 20 - - 100%
Based on the above table we are concluded that the bank was prepared
performance with in a quarter. Because the respondent said that 14(70%) of males
are reply their response on a quarter and 6(30%) of female also said that the same
answer about the performance of the bank.

From this the essential features of performance report was the reporting of
variance among actual and planned results occurred. So that, I would like to know
when the bank takes the measure action in order to control the variance. To obtain
reliable answer for this issue would analysis the following tables and gain their
answer.

Table 8: Does do you take measure action

Participants Response Percentage (%)
Immediate Quarterly Semi At the end
annual of the year
Yes - 20 - - 100%
No - - - - -
Total - 20 - - 100%
(Source: Collected from questionnaire)

28
Based on the above table evaluating measure action is do not simple task, it needs
very critical and needs very high attention. Based on understanding of customers,
suppliers, creditors and employees of the bank and the nature of the job by it self.
Among the total sample of 15(75%) was said that taking measure action was
performed three months later from the variance occurred. On the other hand the
remaining 5(25%) of the respondent said that the occurred variance would be
measured and evaluate at semi annual. From the above table I would think that
variance was occurred in the bank and to know the degree of the variance was
positive or negative its impact on the performance of the organization concerned
respondents gave their response to this opinion positive one.
- Ultimately through the achievement of a goal for a profit generally in all
area of operations of the bank was customer based.
- They give quick and quality service to their customers
- To be better responsible to their task
- Built the over all preparation of the bank
- To award its customers and workers of the bank

4.4.4. Financial budgeting analysis

Under this area I would like to analysis the profit budget, balance sheet budget,
income statement budget, and cash budget of 2010 and 2011. I would collected
this relevant information from the banks sample respondents and by comparing the
actual with the budgeted one.

Profit budget analysis

Profit on the bank was the result of many reasons, how ever the profit activity of
the bank was customers service rendering purpose. based on this I would specify
some of them.
- Profit is the ultimate measurement of financial performance of the bank.
This shows the success ness of the bank earning a net return on its
activity.

29
- Share holders have special initiator on the profitability of the bank
because profit is the ultimate initiator of business oriented
organizations.
- The contributor of each factor to the bank was consistently improve its
service and the demand of customer also shifted to this bank.
- Management activity to achieve the seated goals was played many
roles. He guide and control the banks essential activity by cooperating
with its employees, customers, suppliers, shareholders etc.
- The banks service giving performance was very interesting now day it
integrates and build up with computerized system and this computerized
system helps to customers to save time, energy and reduced unnecessary
time wastages and increase working speeds to workers and customers.

30
Table 9: Response on how the profit budget year of 2010 as it compared with actual
Number of Response Percentage
Very good Good Moderately No %
Respondent
satisfaction
s
A 15 75% - - - - 75%
B - - 5 25% - - 25%
Total 15 75% 5 25% - - 100%
(source: Data collected through questionnaire)

From the above table we can understand how was the profit budget year of 2010
as it compared to actual. Majority of the respondents that is 75% said very good
and the remaining respondents that is 25% said good. In connection with this I
would try to asked to what about profit budget year of 2011. All of them are said
very good. Additionally I would also wanted to know in which year was the bank
more profitable the sample respondents all are said budget year of 2011 is more
preferable than 2010. based on the above table the researcher tried to checked the
income statement of the bank was whether it is positive variance or negative the
variance of the bank was positive one and I would have been seen the variance the
majority of the banks transaction was increased in actual as competed with
planned on.

To compare the profit budget of 2010 and 2011 with their actual the following
income statements are analysied.

In 2011 to compare profit budget with actual the following income statement are
present

Commercial bank of Ethiopia

Income statement
For the year ended June 30,2010

31
 Income Actual Planned Variance
Interest income 79,913,317 73,680,815 6,232,507 F Favorable
Interest expense (24,515,475) (26,420,213) (1,904,738) Favorable
Net interest income 55,397,842 47,260,602 8,137,240 Favorable
Commission fee, 39,176,276 36,252,957 2,923,319 Unfavorable
charges
Net gain from leasing in 29,370,387 24,652,123 4.718.174 Favorable
foreign currency
Other operating income 1,280,673 1,223,970 56.703 Favorable
Net operating income 128,725,214 111,858,810 16.866.404 Favorable
Provision for doubtful 19,082,579 23,153,214 4.070.635 Unfavorable
loans and advances
Provision for doubtful 2,899,757 3,102,428 102,671 Unfavorable
debits other than loans
advances
Net interest and other 106,242,886 85,203,178 21,039,710 Favorable
income after provision
for doubtful loans and
advance
Operating expense
Salaries and benefits 20,070,095 20,000,000 (70,095) Unfavorable
General administration 22,655,141 19,986,540 (2,668,601) Unfavorable
Directors fee 124,500 125,005 505 Favorable
Audit fee 1000,000 101,480 1,480 Favorable
Total operating expense 42,949,736 40,213,025 2,736,711 Unfavorable
Net profit before tax 63,393,152 44,990,153 18,302,999 Favorable
Provision for profit tax (15,583,530)
Net profit after tax 47,709,622
Legal reserve (11,927,405)
Net profit after tax and 35,782,217
legal reserve
Earning per share of birr 478

32
 Commercial bank of Ethiopia
Income statement
For the year ended June 30,2011
Income Planned Actual Variance
Interest income 122,697,352 135,257,216 12,559,864 Favorable
Interest expense (30,523,780) (34,553,832) (40,300,52) Unfavorable
Net interest income 92,173,572 100,703,384 8,529,812 Favorable
Commission fee & 418,635,975 422,411,42 3,775,445 Unfavorable
charge 0
Net gain from dealing in 42,502,390 46,379,629 3,877,239 Favorable
foreign currency
Other operating income 1,354,200 1,564,220 210,020 Favorable
Provision for doubt full 178,968,500 186,258,650 Favorable
loans and advance
Provision for doubtful 30,203,650 29,070,829 1,132,821 Unfavorable
debts other than loans
and advance
Direct write of other 409,630 370,850 38,780 Favorable
than loans and advance

Net interest and other 196,816,971 173,685,350 23,131,621 Favorable

income after provisions
for doubtful loans and
advances and other
debts.
Operating expense
Salaries and benefits 31,622,548 29,720,170 1,902,378 Favorable
General administration 87,286,596 85,880,253 1,406,343 Favorable
Directors fee 1,487,457 1,600,512 113,055 Unfavorable
Audit fee 92,000 98,529 6,529 Unfavorable
Total operating expense 64,488,601 67,299,464 2,810,863 Unfavorable
Net profit before tax 57,594,961 94,230,748 36,635,787 Favorable
Provision for profit tax (23,367,734)
Net profit after ax 70,863,041
Legal reserve (17,715,754)
Net profit after tax legal 53,147,260
reserve
Earning per share of birr 553

33
Basic factors that affecting budgetary performance are different situations that are
involved in the organization from the above table observed that major factors
affecting budgetary performance is appropriate budget allocation to concerned
department and the banks civil servants mainly focus on the appropriate budget
allocation according to the organization principles.

The second factors that affecting the organizational variance was its manager. The
manager plays a significant role in the organizations performance and he
participates or concerns every aspects of the bank and communicate each
employees and civil servants. Also looks facilitation of budget with in the
organization.

The third factors that affecting the banks budgetary performance are employees of
the bank. Employees are major factor whether positively or negatively affecting
the organization performance by minimum involvement or not participate their
specific job accordingly. Based on this reason the banks work facilitation is low
and the movement of transaction whether revenue or expense is not accurately
recorded on time and vice versa.

The forth factor that causes to variance occurred was customers. The bank
formulates and stretch customer handling activity to satisfy its customers because
customer is the key factor for any activity. Based on this the bank arranges its
work on computer based for speed up purpose and time and economic wastages
are lower. The fifth factor that are satisfy the variance was sufficient fund to
achieve the seated goals whether investment or loans purpose. The bank was have
been enough budgetary transaction to achieve and lead the performance variance.

From the above income statement table of 2010 and 2011, it can be observed that
net profit before tax has shown an increase by 40% over the budgeted in 2010 and
2011. It also shows net profit before tax has been increased by 64% over the
budgeted one. In general a net income before tax of birr 94.2 million was recorded

34
in 2011, an increment of 40% from a level of 63.3 million in 2010 net profit after
tax of birr 70.9 million was register in the against the preceding years birr 47.7
million.

4.4.5. Balance sheet budget

The balance sheet is an essential picture of any organization to determine the
financial position of the entity. Physical and financial resources. It activities in a
particular day. It creates the banks future sales and profit targets. When we return
to the bank’s financial statement strength or financial capabilities we mean it has
potential to generated the future income. Based on this point of angle the
researcher gathers different balance sheet related information from the
organization and analysis to know its actual result with budgeted one. If also
compares the difference between actual and budgeted. Based on our analysis put
the respondents answer to this concept. From their response 80% said that it was
very good, and the remaining 4(20%) said that good. Connecting with this also
asked to respondents to gave me their opinion about the balance sheet budget of
2011. As competed with its actual. All of them said that it was very good. In
addition to this they said it compared with budget year of 2011, was more
successful than 2010.

35
 Commercial bank of Ethiopia
Balance sheet
For the year ended June 30,2010
Assets Actual Planned Variance
Cash balances with 209,075,620 203,687,620 5,380,000 Favorable
banks
Reserve with NBE 63,223,893 580,896,215 4,324,678 Favorable
Foreign bank deposit 35,522,0893 343896215 11324678 Favorable
Loan and advances 96,1027,335 935,652,253 25,375,082 Favorable
Stock of supplies 4,729,112 4,360,685 368,427 Favorable
Other assets 18,104,786 15,859,796 224,499 Favorable
Deferred changes 2,451,714 2,266,775 184,939 Favorable
Fixed assets 26,022,495 22,568,000 3,455,495 Favorable
Total assets 1,639,853,814 1,587,187,559 52,666,255 Favorable
Liabilities deposit 125,005,475 1,213,321,868 21,683,605 Unfavorable
from customer
Other liabilities 68,455,699 60,312,250 8,143,449 Unfavorable
Deposit from financial 87,773,518 83,677,815 4,095,703 Unfavorable
institutions
Margin held on letters 43,683,699 39,742,532 941,167 Favorable
of credit
Provision of or profit 16,583,630 14,224,186 2,359,444 Unfavorable
tax
Total liability 1,451,502,019 1,411,178,651 40,223,368 Unfavorable
Capital and reserve
capital 112,384,000 10,8943,260 3,440,740 Favorable
Share premium 22,556,350 21,682,260 87,375 Favorable
Legal reserve 28,162,621 27,568,386 594,231 Favorable
Special reserves 3,657,722 3,535,998 91,724 Favorable
Retained earnings 41,891,897 40,260,440 1,631,457 Favorable
Total capital and 188,351,795 175,908,908 12,442,887 Favorable
reserve
Total liability, capital 1,639,853,814 1,587,187,559 5,266,255
and reserves

36
 Commercial bank of Ethiopia
Balance sheet
For the year ended June 30,2011
Assets Actual Planned Variance
Cash balances with 318,670,756 27,4495,651 44,175,105 Favorable
banks
Reserve with NBE 94,388,526 8,5642,506 8,746,020 Favorable
Foreign bank 248,294,591 20,8957,647 39,336,944 Favorable
deposit
Loan and advances 1,516,839,343 1296535774 220,303,569 Favorable
Stock of supplies 5,797,315 5,112,625 684,690 Favorable
Other assets 50,547,074 45,688,320 4,858,754 Favorable
Fixed assets 25,006,916 21,216,817 3,790,099 Favorable
Total assets 2,259,644,521 1,937,649,340 321,995,181 Favorable
Liabilities deposit
from customer
Deposit from 153,0944,846 1,281,410,567 249,534,279 Unfavorable
customers
Deposit from 247,473,182 243,882,658 3,590,524 Unfavorable
financial institution
Other liabilities 118,428,665 109,345,785 9,082,880 Unfavorable
Margin held on 84,661,826 42,683,699 41,978,127 Favorable
letters of credit
Provision of or 23,367,734 20,385,412 2,982,322 Unfavorable
profit tax
Total liability 2,004,876,253 1,697,708,121 307,168,132 Unfavorable
Capital decrease
rues
Paid up capital 14,7605,000 143,893,350 3,711,650 Unfavorable
Share premium 2,670,300 2,507,495 262,805 Unfavorable
Legal reserves 45,878,375 39,834,732 6,043,643 Favorable
Special reserves 5,367,333 5,125,413 241,920 Favorable
Retained earning 53,147,260 48,625,329 4,521,931 Favorable
Total capital and 254,668,268 239,946,219 14,682,049 Favorable
reserves
Total liabilities 225,9544,521 1,937,649,340 321,850,181
capital and reserves

37
From the above balance sheet budget year of 2010 and 2011, we can understand
that the total asset has shown as an increment of 3.3% over the budgeted year of
2010. and also in 2011 the balance sheet budget has shown an increment of 16.6%
over the budgeted. The total asset of the bank increased from birr 1.6 billion to birr
2.3 billion showing a 40% growth, during the fiscal year under consideration,
mainly as a result of an increase in loan and advances, where the volume of
economic loans reached 1.6billon, registering a close to 60% increased over that of
the preceding fiscal year (birr one billion). Like wise, aggregate deposits increased
from birr 1.3 billion to birr 1.8 billion, registering a growth rate of 3.8% over the
preceding similar period.

4.4.6 Cash budget

The requirement of the banks budget was must be forecasted to determine the
availability of cash to meet both the short terms and long-term needs of its
objectives. No business can survive without cash and cash related assets the bank
must be have active flow of cash and cash is more important than profit, because
the basis of the profit is cash. The bank can have profit when the necessary cash
was allocate to concerned departments and active follow and control of the
implantation of the allocated budget, due to cash is the most endanger assets to
theft and embezzlement. To investigate in what condition was there the cash
budget of 2010 and 2011, when they compared with their actual and competed
each other.

Does do you have customer handling system yes we have to handle our customer
we try to motivate by awarding permanent customers and by giving periodic
training to out servants.

Satisfaction is does not real tangible but we estimate our customers satisfaction by
judgmental way.

38
The bank retain its customer and increases the volume of its customer by
promotion to create initiation on its users and by attracting new users.

Table 10: Response on how was the cash budget of 2010 as in compared to its actual one
Respondents Response
no Very good Good Moderately Total %
A 4 20% 3 15% - - 17 - 35%
B 9 45% 1 5% - - 10 - 50%
C 3 15% - - - - 3 - 15%
Total 16 80% 4 20% - - 20 - 100%

From the above table the majority of the respondent said that 16(80%) very good,
the remaining 4(20%) said that good. In connection with this I would also what
about the cash budget of 2011, similar answer they game me for the question. It
was very good cash budget year of 2011 even it compared with 2010, it was better
in 2011.

In general I would competed budget year of 2010 and 2011, budget year of 2011 is
more successful than the preceding fiscal year.

39
 CHAPTER FIVE
5. SUMMARY, CONCLUSION AND RECOMMENDATION
5.1. Summary and Conclusion
To conclude this paper, the data which are collected, have been analysed and
interpreted with in the boundary of its constraints. So that the issues addressed in
this paper was shortly concluded in the following paragraphs.
 Many business managers believe that it is neither necessary nor practical to
use budget in a service renduring company. From this point of view the
researcher conducted a research on service rendering company to support
or against this idea. However the researcher can concluded from the study
the bank used budget which budget was prepared many problems faced
such as: active flow of essential information from top management level to
bottom and vice versa It is important to managing, administrating and
control the over all activities of the bank.
 Budget can be prepared by using quantitative or qualitative and both
procedures. However the bank uses both procedures.
 Budget also prepared for aspane of a month, quarter, semi annual and
annual. In spite of the fact that the bank always used annual budget since
budget is the financial plan of a bank for the period the year and it enables
to predicting financial results and the operation of the financial statements
over the year. Therefore, effective implementation of the budget enables to
achieve the desired objectives as a result of this majority respondents,
which is 16(80%) believed that the effective implementation of budget,
where as the remaining respondents which is 4(20%) did not believe the
effective implementation of budget in the bank. From this it can concluded
that the bank effectively implemented its budget.

40
 When budget was prepared it can be fixed or flexible. However, the bank
prepared flexible budget and still a flexible budget is a preferable one from
the bank’s point of view.
 Even if the bank implements its budget effectively, variance were
observed, when compared actual results with budgeted estimation the
reason for the occurrence of variance was
o Changing of the market condition-externalities such s creditors,
customers, suppliers and users of the budget. Performance report
can be effective, specially if it is presented continuously. How ever,
the bank constantly presented the performance report every quarter.
 When variance occurred, it is required to take measure action by informing
to all employees of the bank in order to achieve better result and the
desired objective. So that, majority of respondent that is 15(75%) known
when measure action was taken, the remaining respondents that is 5(25%)
are did not known when measure action was take. It would be concluded
that majority of the respondents of the bank known when measure action
was taken.
 Regarding the impact of variance whether it was favorable or unfavorable
on the performance of the bank seemed as followed.
o Most of the time the variance observed on the bank was favorable
of the bank second as followed.
o Its impact was not as such series rather it motivates to all employees
to more participate on their position. The manager also supervise
and communicate vertical and horizontal integration of its workers
and customers as a result of that they enable to exceed the targeted
fixed result.
 When compared the overall budgeted year of 2010 with the budgeted year
of 2011 the bank was shown more improvement in budget year of 2011, in

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case of profitability, wise use of budget, increase in total asset, economic
growth and all activity respects. From this we can concluded that the bank
became profitable from year to year.

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5.2. Recommendation and suggestions
Based up on the data findings and conclusions made, the researcher suggests the
following recommendation for the problem.
 Every branches of the bank have responsibility to prepared their own
budget based on the instructions received from corporate planning and
business development department and then prepared the budget and sent to
corporate planning for the purpose of verification and from this also goes to
budget committee for the sake of approval. And returned to each branches
in such process. That is long and time taking process for the bank it may be
a reason for occurrence of ineffective flow of essential information among
branches and heads. It can be amendable by giving full authority to all
branches and to finalized on that.
 20% of the banks respondents does not believe surely the effective
implementation of the budget. It is does not simple matter it is advisable to
exist clear and open communication among managers, customers
employees and as well as all concerned departments of the bank for better
performance and to become more profitable to the bank.
 The banking environment should be suitable and attractive to controlled
some extent of unforeseen circumstances and externalities unless other wise
impossible to achieve the targeted goal of the bank.
 Annual based budget has its own drawback to control variances and to
judge the performance level of the bank. So that the bank must be use semi
annual base budget may be taken as the supportive action to controlled the
occurred variance and to continue smoothly.
 The bank presents the performance report constantly every quarter, but this
may not be sufficient enough to controlled the variance. It is advisable to
the bank to present the report monthly based in order to control the variance
and better achievement of the objective.

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 To take any measure action on the bank informing to all related
participants, that is mangers, employees, customers and all department
however 25% of respondents of the bank they do not know when measure
action was taken. Means unnecessary action can not be controlled by a
single manager or department. In connection with this is advisable to
reduce the delay of measure action and while variance was observed but
irrespective of the fact that the bank take measure action three months later
from the occurrence of variance. This delaying may be a reason for the
occurrence of other variance on the bank and it may be come a serious. So
that, it can be advisable to the bank to take measure action if possible
immediately, other wise a month later.
 The bank should use activity based budgeting technique rather than
increments. Because it is used to allocate resources according to the
contribution of the activity to the over all achievement of the organization
objective.
 To qualify its service, and to create good customer handling or customers
satisfaction, the bank should be design its strategy on follow up and quick
response base.
 The banking industry should be established on the modern system.
 The manager of the bank have been hire qualified and talented
professionals to avoid or minimize employee related problems and
customers need to get convinent service to save time, energy and human
power.
 Upper level mangers should give the chance to lower level servants to
participate with them.
 The bank would be give periodic training to its workers to increase their
efficient, awareness about budget and to motivate their contribution to
financial service rendering on the bank.

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 Basic factor preparation of budget was many situations among them
o Previous year budget, whether it was occurred variance or not if
variance occurred corrective action made or vise versa.
o To expansion purpose that is existing bank have ideal cash it needed
to diversify its position (power).
o Market is the most critical factor to show (guide) budget.
o Customer:- what amount of cash worker time, quality and others are
needed to made budget.
 The bank must use flexible budget, due to it has many advantages over
fixed one according to activity to check immediately the occurred problem.
 The budget should be revise quarterly base, rather than annual base.
 The bank should create awareness about budget utilization fo its employee,
and each budget holder should be insuring that all expenditure is with in
approved budget schedule.
 Finally the employee of the bank should be work hard for attainment of
organizational goals and objectives. Demand and capacity may be balanced
based on customers need.

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 JIMMA UNIVERSITY
DEPARTMENT OF ACCOUNTING
QUESTIONNAIRE
This questionnaire is designed primarily for soliciting information. which will be
used in writing up senior research paper entitled “Budgeting and its impact on
performance of commercial bank.

So you are kindly requested to give the right answer you thin, since it contributes a
lot for the success available of this study. And the final result may be available to
you up on your request so that it may be valuable information regarding the issue
of being researched since it offers afresh and independent observation.

I would also like to for ward my thinks in advance fro your corporation.

N.B.
- There is no need of writing your name
- Make a tick in the box, which you think is an appropriate response
- Employees of the bank should fill this questionnaire

I. Respondents profile
Sex male  Female 
Qualification: 12 complete  degree  Diploma 
Post graduate  PHD 
Current position ________________________
I. Question
1. Do you use a budget? Yes  No 
2. If your answer for Q1 is yes what type of budget do you use?
Flexible  Fixed 

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3. Who is responsible to prepare budget?
Financial department Management department 
Board or director  all of together 
Other bodies _________________________________________
4. Does all branches prepare their own budget ad take responsibility at end
Yes  No
5. What problem face on preparing of your budget?
Specify ________________________________________________________
6. What procedure you follow to prepare budget?
Specify ________________________________________________________
7. for how long the budget you prepared it run?
For month  For three month  for semi annual 
For year 
8. How many time do you prepare a performance report in a year?
Every month  every three month  every six month 
every year
9. Does the bank effectively implement its budget?
Yes  certainly  no  many years  neutral 
10. Does valance occurred when you compared the budget with actual
Yes  No 
11. If your answer for Question No 10 is yes specify the reason for the occurrence
of variance __________________________________________________
12. If your answer for Question No 10 is yes does the variance fair
Yes  No 
13. If variance was occurred when did take the measure action?
Immediately  3 month later  Six month later 
At the end of year 

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14. When their variance is fair or unfair please specify certain points the impact of
your performance
15. How was the profit budget compared with actual?
Good  very good  moderate  no satisfactory
16. How was the cash budget compared with actual?
Good  very good  moderately  No satisfy 
17. How was the balance sheet budget as it compared with actual?
Good  very good  moderately  No satisfactory 
18. When you compare cash budget with actual which year more successful for
you?
19. Which type of budget system is more preferable for you?
Flexible  Fixed  other 
20 Do you have customer handling system?
21. Do you have a system to measure customer satisfaction?
22. The bank concern about retaining your customer and increase your customer
volume?

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 REFERENCE

- Robert G.finney 1993

- Charges Tahaizn green 1997
- Glenna Awtsha 1976
- David N. Hyman 1961
- By m: chael Vital and sarcah C.Haverance
- Micael Grand of 2007
- Ronald W.Hilton Managerial Accounting 4th edition
- Hilton Mahar, Salto, (2002) Cost Management Strategies for Business Decision,
MegrailPpublication, (2002) New York.
- Alan Pizzey, Cost and Management Accounting 3rd edition

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