AKSUM UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE
ASSESSMENT OF BUDGETING AND ITS IMPACT ON PERFORMANCE OF
COMMERCIAL BANK OF ETHIOPIA (A CASE STUDY ON AKSUM MAIN
BRANCH)
A SENIOR RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF
ACCOUNTING AND FINANCE IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR THE BACHLER (BA) DEGREE IN ACCOUNTING
AND FINANCE
PREPARED BY: TAFERE ATINKUT
ID NO: AKUR/0121/06
ADVISOR: - MELAK B.

JUNE, 2016
AKSUM, ETHIOPIA

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 Acknowledgment
First thanks to almighty of God. Without his support nothing can be accomplished
even work done is impossible. This research has works on the talent, advice and
encouragement of more people that the researcher can possibly acknowledge. I
wish to express my gratitude and appreciation to my advisor Melak Basaznew
whose dedication and support have made possible the completion of the activities
of this study, I wish to say thanks to employees, and manager of commercial Bank
of Ethiopia Aksum main branch, for providing the relevant data. It is a great
chance to express my deepest appreciation and thanks to many peoples and friends
whose unreserved guidance and constructive ideas have brought about the
successful completion of my paper. In addition my deepest gratitude goes to my
families for their support in fulfilling the necessary financial and other material
support.

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 ABSTRACT

Generally the objective of this research paper is to assess the budget and its
impact on performance of commercial bank of Ethiopia in Aksum main branch.
Specifically, this objective can be Specifically, this objective can be identify the
factors that affect budget distribution and its utilization in the organization ,to
investigate the impacts in preparation and implementation of budget on its
performance, to investigate any variance of the budgeted amount and actual
amount of the bank, to identify the procedures of budget distribution in the
organization. Data was collected from both primary and secondary sources;
primary data was collect at using both structured interview and questionnaire.
Interview was conducted from the banks manager. Questionnaires was
distributed to the selected employees of the bank, secondary data had been used
from, research reference books and other research materials. Finally, this
paper concern on budgeting and related issues to address the occurred
variance. The research concludes from the bank used budget and the bank
prepared flexible budget and still a flexible budget is a preferable one from the
bank’s point of view. Based on this researcher would forward some
recommendations, the bank must be use monthly base budget may be taken as
the supportive action to control the occurred variance and to continue
smoothly.

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TABLE OF CONTENTS
Acknowledgment......................................................................................................i
ABSTRACT.............................................................................................................ii
CHAPTER ONE......................................................................................................1
1. Introductio..........................................................................................................1
1.1. Background of the study...............................................................................1
1.2. Background of the organization....................................................................3
1.3. Statement of the problem..............................................................................5
1.4. Objectives of the study..................................................................................6
1.4.1. General objective of the study................................................................6
1.4.2. Specific 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
1.8. Organization of the paper..............................................................................8
CHAPTER TWO......................................................................................................9
2. LITERATURE REVIEW..................................................................................9
2.1. Definition of budget and budgeting..............................................................9
2.2. Advantage of Budgeting...............................................................................9
2.3. Disadvantage of Budgeting.........................................................................10
2.4. Budgeting Cycle..........................................................................................10
2.5. Time coverage of Budgets..........................................................................11
2.6. Types of budgets.........................................................................................12
2.7. Budget administration.................................................................................13
2.8. Budget committee.......................................................................................13
2.9. Budget director............................................................................................13
2.10. Budget manual.........................................................................................14

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 2.11. Behavioral impacts of Budgeting............................................................14
2.12. Approaches to Budgeting........................................................................15
2.13. Budgeting impacts on performance.........................................................16
CHAPTER THREE................................................................................................18
3. METHODOLOGY...........................................................................................18
3.1. Study Area..................................................................................................18
3.2. Type of data and Method of Data Collection..............................................18
3.3. The Sampling design...................................................................................18
3.4. Data analysis and presentation....................................................................18
CHAPTER FOUR..................................................................................................19
4. Data analysis and interpretation.......................................................................19
CHAPTER FIVE....................................................................................................32
5. CONCLUSION AND RECOMMENDATION...............................................32
5.1. Conclusion..................................................................................................32
5.2. Recommendation........................................................................................34
REFERENCE.............................................................................................................
APPENDIX................................................................................................................

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LIST OF TABLE
Table 4.1 Sex of respondents-------------------------------------------------------------19
Table 4.2 Age distribution of respondents----------------------------------------------20
Table 4.3 educational status of the respondents---------------------------------------20
Table 4.4 service year of respondents --------------------------------------------------20
Table 4.5, existing of budget -------------------------------------------------------------22
Table 4.6, Type of budget ----------------------------------------------------------------23
Table 4.7, responsibility to prepare Budget---------------------------------------------23
Table 4.8, prepare and take responsibility
At the end--------------------------------------------------------------------------------24
Table 4.9, Span of budget prepare-------------------------------------------------------25
Table 4.10 Effective Implementation of budget in the
Organization---------------------------------------------------------------------------26
Table 4.11 budget committee and budget director-------------------------------------26
Table 4.12 variance analysis--------------------------------------------------------------27
Table 4.13 measurement action-----------------------------------------------------------28
Table 4.14 procedures during budget
Distribution in the organization-----------------------------------------------------28
Table 4.15 impacts of preparing and implementing of
Budget on its performance---------------------------------------------------------29

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 CHAPTER ONE
1. Introduction
1.1. Background of the study
Budget is a plan relating to a period of time expressed in monetary and
quantitative terms. The chartered institution of management Accountant
(C.I.M.A) London, has defined a budget has “financial and quantitative
statement. Prepared prior to a defined period of time, the policy to be
perused during that period for the purpose of attaining a given objective”. It
may include income, expenditure, and employment of capital (MN.
ARORA.2003) ‘budget reflects what the government intended to do.
Government budget like personal and business budget involves total revenue
and total expenditure tax provides most government income of important
area of spending budget. Budgeting is the most widely used accounting tools
for planning and controlling organization, advantage of budget are major
feature of management control system which administers wisely budget
complete. Planning including the implementation plan provides performance
criteria and promotes coordination and communicating with the organization
(world book encyclopedia, 2001)

Budgeting is a collective process in which operating units prepare their plans

in conformity with corporate goals published by top management. Each unit
plan is intended to contribute to the achievement of the corporate goals. The
budget itself is the projection of these values for the next calendar or fiscal
year. Budgets can also be instrumental in winning over investors, convincing
banks your business is a good loan risk, or bringing on new partners or
customers (Ackoff. RLA, 2009).

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Budgeting is a process of preparation of budget which determines the target
for budgets and it includes, Preparation of budget, implementation and
control of budget. A budgeting can cover both financial and non-financial
aspects of these plans and act as a blue print for the corporation to follow the
coming period of time (Hilton, Maher, selto, 2002).

Budgeting preparation is a common affair in most established companies.

Most of the time, the preparation procedure and formats are inherited from
the predecessors. Giving short time and tight dead line are very common.

Most people, who are involved in the budget, were always too engrossed to
rush and meet the deadline.

Budget implementation is the responsibility of the budget directory.

Communication and support determine the success of budget
implementation process, proper communication of expectation and targets to
all key people in the company is essential, all employees involved in the
operation of the business must know what is expected of them and they must
receive directions on how to their goals. Equally important top management
must support the budgeting process and encourage implementation of the
budget. The processes will succeed only if middle, and lower level manager
can see that top management truly is interested in the outcome and willing to
reward people for meeting the budget goals (Needles, Andirson,2006).

Budgeting control is the process of establishment budgets relation to various

activities and comparing the budgeted figures with the actual performance
for arriving at the deviations, if any. Budgetary control is a system which
uses budgets a means of planning and controlling. Budgetary control is a
process of developing plan for company’s expected operations and

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 controlling operations to help carry out those plans (Needles, Anderson,
2006).

Budget performance measures can overcome key limitation of past

performance as a basis for judging actual results. The past results in
corporate past misuses and standard performance and 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
bases. Rapid feedback should allow employees to take compensatory actions
to try to get over all period in line with budget. The concept and techniques
of planning and control have been under application individual business
planning, governmental unit, banks and virtual all groups endeavor even
though many effective service oriented business managers have clearly
explained specific and observable goals and objectives.

In this study the researcher will assess the budgeting and its impacts on
performance of commercial bank of Ethiopia in Aksum branch.

1.2. Background of the organization

The state bank of Ethiopia was founded in 1942 with an objective 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 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 in to world class commercial bank,
rendering state of the art and reliable services to its millions of customers
both locally and abroad. The business strategy of the bank was focus on the
stake holders serves. The numbers of branches know a day reached 900, and
stretched across the length, breadth of the country. Commercial bank of
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Ethiopia combined a wide capital bases with more than 22,000 talented and
committed employees. The commercial bank Ethiopia in Aksum was
established in 1964. Commercial bank of Ethiopia in Aksum is found in
Northern part of Ethiopia it far 1024 km from Addis Ababa. The branch also
involves three sub branches, such as Hawelt. Remhai and NigisteSaba. The
branch involves 54 employees.

Vision

To become world class commercial bank. The term world class presumes
efficiency good corporate with governance and move towards best
international banking practice.

Mission

We are committed to maximizing shareholders value through enhance

financial intermediation and up parallel customer satisfaction, we strongly
believes that reliability and public confidence are the base of our success.
The fundamental component of our mission statement includes;

 Customer: our customers are our most important asset

 Shareholder: in order to optimally meet the need of our customer,
and efficiently manage our business
 Employees: quality customer services is possible only through
motivated and skilled employees for the well-being of its
employees it tries to develop a work force that enjoys working for
and prides itself in association with the bank.

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1.3. Statement of the problem
A budgeting is a plan that outlines organization financial goals, so it can be
vehicle for addressing objectives, goals and problems in the most care full
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 income of
expense.
The budgeting process may be carried out by individual or by companies to
estimate whether the person or company can continue to operate with its
project. Should not be regarded as expression wishful thinking, but it cana
description of an attainable objectives. In order to achieve the target activity;
effectively and properly budget is a crucial instrument for the bank. Many of
the organization will not prepare budget according to their plan and thus,
face series budget variance. The real purpose of budgeting should have
several advantages. It guides /monitoring/ the flow of the bank activity at all.
It also enhances the quality of the services that was rendered by the bank,
control and accountability of each participant through internal and external
relation of manager to its employees, customer supplies, creditors and
concerned parties at a whole. Commercial bank of Ethiopia in Aksum main
branch was one of the widest governmental organizations that is series and
successive budget variance (Elalu, 2012). This is a real fact that motives
researcher to study the problem that attach with budgeting control and
evaluation activities that take place in commercial bank of Ethiopia on
Aksum main branch. The challenges faced in the implementation of the
planned activities their consequence creates great impacts on the bank from
this point of view the researcher wants to address the following questions.

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  What are the main factors that affect budget distribution and its
utilization in this organization?
 What are impacts in preparation and implementation of budget on
its performance?
 Does the variance have impacts on the banks performance?
 What are the procedures of budget distribution in the organization?
1.4. Objectives of the study

1.4.1. General objective of the study

The general objective of the study is to assess the budgeting and its impacts
on performance of commercial bank of Ethiopia in Aksum main branch.

1.4.2. Specific objective of the study

 To identify the factors that affect budget distribution and its utilization in
the organization
 To investigate the impacts in preparation and implementation of budget
on its performance
 To investigate any variance of the budgeted amount and actual amount of
the bank.
 To identify the procedures of budget distribution in the organization

1.5. Significance of the study

This study may be important to the organization and the researcher. In the
organization it may serve as starting point for other researcher. It helps to

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 manage and use budget in effective and efficient manner, it may give in
sight understanding the budget distribution for the manager.

It helps to increase the research experience and to get the first degree for the
researcher. It helps as a reference material for those who would have interest
to study on this area in the future.

1.6. Scope of the study

The scope of the study would be restricted to the assessment of budgeting
and its impacts on performance on commercial bank of Ethiopia in Aksum
main branch. To come up with effective research, it would be better to limit
the scope of the study. If the research would be conduct overall branch of
the bank is good. However, because of different situations have for this
finding would be conducted only one branch. If also good if the research
will be touch all passed years, but it is difficult to touch, because have no
enough time to touch all passed years. So the research touches only
theoretical parts of budgeting and its impacts from 2005 to 2007.

1.7. Limitation of the study

This study has many limitations; especially in case of data collection lack of
reference books that is need for the study. In addition to this the study has
financial and time constraints, experience on the study of the research.

1.8. Organization of the paper

This study has five chapters. Chapter one deals with the introduction part
which includes, The back ground of the study, background of the
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organization, statement of the problem, objective of the study, significance
of the study, scope of the study, and limitation of the study. Chapter two
deals with summarizing review of literature. Chapter three deals with the
research methodology. Chapter four deals with the data analysis and
presentation. Chapter five deals with conclusion, and Recommendation.

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 CHAPTER TWO
2. LITERATURE REVIEW
2.1. Definition of budget and budgeting
Budget is an important tool of planning and controlling. Planning involves
looking systematically at the future so that decision can be made to day
which will bring the company its desired results. Controlling is the process
of measuring and correcting actual performance to ensure that plan for
implementing the chosen course of action are carried out. Budget is based on
the idea of a plan. It is plan relation to a period of time expressed in
monetary and quantitative terms. The chartered institution of management
Accountant (C.I.M.A) London, has defined a budget “a financial and
quantitative statement prepared prior to a defined period of time of the
policy to be perused during that period or the purpose of attaining a given
objective” it may include income, expenditure and employment of capital
(MN. Arora, 2003).

A budget is a detailed plan for acquiring and using financial and other
resources over a specified time period. It represents a plan for the future
expressed in formal quantitative terms. The act of preparing a budget is
called budgeting. The use of budgets to control organizations activities is
known as known as budgetary control (Garrison, Noreen, Brewer, 2006).

2.2. Advantage of Budgeting

Companies realize many benefits from a budgeting program. Among these
benefits are the following.

 Budgets communicate management’s plans throughout the

organization.

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  Budgets force managers to think about and plan for the future. In
absence of the necessity to prepare a budget, many managers would
spend all of their time dealing with daily emergencies.
 The budgeting process provides a means of allocating resources to
those parts of the organization where they can be used most
effectively
 The budgeting process can uncover potential bottle neck, before the
occur.
 Budgets coordinate the activities of the entire organizations by
integrating the plan of its various parts.
 Budgeting helps to ensure that everyone in the organization is pulling
in the same direction.
 A budget defines goals and objectives that can serve as bench work
for evaluating subsequent performance (Garrison, 2006).

2.3. Disadvantage of Budgeting

Budget is a systematic approach to some the problems, but it is not full
proof it suffer from a certain problems and limitations. The major problem in
developing budget system are seeking the support and involvement of all
level of management, developing a meaning full forecast plans, establishing
realistic objectives policies, procedures and standard performance and
applying budgeting system flexible manner (IM, pandy, 1983).

2.4. Budgeting Cycle

Well managed companies usually cycle through the following budgeting
steps during the course of the fiscal year.

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 1. Working together, managers and management accountants plan the
performance of the company as a whole and the performance of its
subunits (such as department or division).
2. Senior manager’s gives subordinate managers in a frame of reference,
asset of specific financial or Non-financial expectation against which
actual results will be compared.
3. Management accountants help managers investigation variations from
plans, such as reduction in price to boost sales or cutting of costs to
maintain profitability
4. Managers and management accountant takes in to account market
feedback, changed conditions and their own experience as they begin to
make plan for the next period (Charles T. Horngren, 2009).

2.5. Time coverage of Budgets

Budgets typically have asset of period, such as month, quarter, year, and
soon. The set of period can itself be broken in to sub periods. For example, a
12 month cash budget may be broken in to 12 monthly periods so that cash
inflows and outflows can be better coordinated, the motive for creating a
budget should guide a manger in choosing the period for the budget. The
most frequently used budget period is one year. This is often subdivided in
to months and quarter. The budgeted data for a year are frequently revised as
the year goes on for example, at the end of the first quarter, management
may change the budget for next three quarters in light of new information
obtained during the first quarter. Businesses are increasingly using rolling
budgets. A rolling budget also called a continuous budget, is a budget that is
always available for a specified future period it is created by continually

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 adding a month, quarter, or year to the period that just ended (Charles T.
Horngren, 2009).

2.6. Types of budgets

Business uses several different types of budget. The most forward looking
and least detailed budget is the strategic plan. This sets the overall goals and
objectives of the organization. While the strategic plan does not deal with a
specific time frame and does not produce forecasted financial statements, it
provides the overall framework for long, range planning. Long –range
planning typically produce forecasted financial statements for five to ten
year periods.

Capital budget: a budget that details the planned expenditure for facilities,
equipment, new product, and other long-term investments. Short-term plan
and budget guides day to day operations.

Master budge: is a detailed and comprehensive analysis of the first year of

the long range plan. It summarizes all of the planned activities of an
organization. The master budget express amount in the form of forecasted
financial statements and supporting operating schedules.

Continuous budget or rolling budget: are other common forms of master

budgets that simply add month or quarter in the future as the month or
quartered just ended is dropped. In this way, budgeting becomes an ongoing
instead of periodic process. Continuous budget force mangers to always
think about the next full year, not just the reminder of the current fiscal year
(Horgren, 2009).

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2.7. Budget administration
It need become impassive again the budget preparation is line function while
the organization and administration of budgeting is staff function. The line
executive has responsibility of deciding what the plans are to be. Is not the
function of staff organization to decide what the plan is to be the area of
responsibility other than its all. The primary responsibility of staff
organization is to assess line executives in preparing budget by providing
data technical advice and coordination of the budget from various
departments to from master budget (IM pandy 1983).

2.8. Budget committee

A joint effort of all managers needs to prepare budget all should participate
in setting goals, developing plans and formulating policy. Generally the
administration of budgeting may be delegated to a budget committee. The
member of budget committee consists of executives from each department
frequently member from production, seal and finance are including on the
budget committee. The budget director is over all in charging the budget
committee (Roland W. Hilton, 1994).

2.9. Budget director

The overall responsibility of budget committee lies on the budget director or
the budget officer. He/she is responsible for drawing a detail time table for
the preparation of budget and makes necessary adjustment and calculates to
consolidate individual budget to master budget (IM pandy 1983).

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2.10. Budget manual
It is usually describe to express objective goals procedures organizational
structure and authority and responsibility in writing this matter are explicitly
set out in budget manual. The budget manual is written set of instruction and
information that serve as a rule book and reference for the implementation of
budget program, it tales what to do, who to do it, when do it, which from to
do it on (IM pandy 1983).

2.11. Behavioral impacts of Budgeting

One of the underlying themes stressed in this text is the behavioral impacts
of managerial accounting practices. There is no other area where the
behavioral implication are more important than in the budgeting area, those
who use the budget to facilitate decision making, and those who are
evaluated using the budget. A great deal of study has been devoted to the
behavioral effects of budget. Here will barely scratch the surface by briefly
considered two issues: budgetary slack and participative budgeting.

Budgetary slack: padding the budget: The information up on which a budget

is based comes largely from people throughout an organization. Budget
padding means under estimating revenue or over estimating costs. The
difference the revenue or cost projection that a person provides and a
realistic estimate of the revenue or cost is called budgetary slack.

Participative budgeting: most people will perform better and make grater
attempts to achieve a goal if they have been consulted in setting the goal.
The idea of participative budgeting is to involve employees throughout an
organization in the budgetary process. While participative budgeting can be
very effective, it can also have short coming. Too much participation and
discussion can lead to vacillation and delay. Also, when those involved in

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 the budgeting process disagree in significance and irreconcilable ways. The
process of participation can accentuate those differences. Finally the
problem of budget padding can be serving unless incentives for accurate
projections are provided (Roland Hilton, 1994).

2.12. Approaches to Budgeting

Depending on their intended usage. They can be prepared under of several
approaches. The major ones are;

A. line-item approach
B. Performance approach
C. Program and planning-programming budgeting (PPB)
D. Zero-base budgeting (ZBB)
A. Line item Approach:- The line item, also called traditional, approach is
the most popular to budgeting, under this approach, the budget shows
every budget category of expenditure to be made as line item during the
year.
B. Performance approach: Refers to the linking of expected results to
budgets. Budgets emphasis the output and efficiency. Output measure in
terms of goods or services produced, the number of cases handled. The
number of persons impacted. Efficiency is measure in terms of cost per
unit of output. The main focus on the revaluation of the performance
(Anwar, Shah, 2007).
C. Program and planning-programming budgeting (PPB): The program
approach to budgeting is a planning oriented one which emphasis
program, activities and functions rather than evaluation and controlling.
The program may take several forms. Implement the plan and accomplish

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 goals of enterprise. Budget may, therefore be used to serve as index for
measuring employee’s performance (Anwar, Shah, 2007).
D. Zero-base budgeting (ZBB): The zero budgeting approach is one that
forces managers to assess the value of each activity and to justify
continuation of each activity under their supervision. Every activity is
justified each year. The manager starts from scratch or zero, hence the
name “Zero-based-budgeting” Zero budgeting is a combination of
through and action processer. A services of budget unit is developed after
the review of top to down an important aspects of Zero based budgeting
is the consideration given to each level of “accomplishment” that is likely
to result from an activity (Anwar,Shah,2007).

2.13. Budgeting impacts on performance

Budgeting can either have a positive or a negative effect on performance of
the state corporation, but still this depends on how the operation are manage
to achieve the set targets. It influences on financial objective, the allocation
of funds as well as investment venture that organization under takes has to
be sought. Budgeting can be prone to challenge which may hinder effective
Achievement of budgetary objectives. The impact of the budgetary process
on group of persons may be quite different from the impact of the
individuals with in a group. When a budget process is discussed traditionally
it is related to performance. Where budgets used to measure performance,
the manager who sets these budgets may be tempted to build in some
element of spare resources that allow a lapse from actual high level of
performance without deviating from budget targets. Indeed, the basic
significance of the subject stems from increasing importance of determining

16
dimension of budgetary process impacts on subordinates performance in the
present competitive condition for firms (C.FAITH,2011).

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 CHAPTER THREE
3. METHODOLOGY
3.1. Study Area
This study would be conducted on commercial bank of Ethiopia on Aksum
main branch.

3.2. Type of data and Method of Data Collection

The researcher would use two types of data. These are primary and
secondary data. The primary data would be collected from the questionnaire
and interview. The questionnaires through both open and close ended
questions to selected respondents and conducted structured interview to the
manager. The secondary data would be collected from different sources,
such as, research reference books and other research materials.

3.3. The Sampling design

The sampling techniques that are going to be implementing for the study
was non probability judgmental sampling. This sampling technique was
selected, because it enables to get accurate and sufficient information. The
total populations are 54 employees in the bank. The researcher would be
selected19 samples they are currently working in the bank.

3.4. Data analysis and presentation

The researcher would be used for data analysis was by using descriptive
statistical methods. Their purpose is to describe the behavior of variables
and to attempt is made to analysis either by tables and percentage to describe
the behavior of the data.

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 CHAPTER FOUR
4. Data analysis and interpretation
This chapter is concerned with the characteristics of sample size, the presentation
as well as analysis of data gathered through questionnaire and structure interview.
In this chapter, the data collected through questionnaire and interview is going to
be analyzed and presented in the table form and it is seems appropriate to interpret
each data which are presented (both qualitatively and quantitatively).The result is
analysis done on budgeting and its impacts on performance of commercial bank of
Ethiopia in Aksum main branch. A total of eighteen (19) questionnaires were
distributed to respondents that are working in commercial bank of Ethiopia in
Aksum main branch. All questionnaires are filed properly by respondents. The data
gathered in the two methods, that are questionnaire and interview and analysis
made on this data is presented on the following section.

Table 4.1 Sex of respondents

No Sex No of Percent (%)

respondents
1 Male 15 79
2 Female 4 21
Total 19 100
(Source:- questionnaires,2016)

As the above table4.1, clearly shows that the sex of the respondents of the
organization. Regarding their sex, greater number of respondents 15(79%) were
males and the remaining 4(21%) of respondents are females. This shows the
involvement of males is greater than females in commercial bank of Ethiopia in
Aksum main branch. So females are less in number in the organization.

Table 4.2 Age distribution of respondents

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No Age No of Percent (%)
respondents
1 Below 30 18 95
2 31-40 1 5
3 41-60 0 0
4 Above 60 0 0
Total 19 100
(Source: questionnaire, 2016)

As the above table 4.2, indicates that the age of respondents in the organization, the
table clearly shows that the majority of the respondents were aged below 30 years
which includes 18(95%) of respondents and the remaining 1(5%)of the
respondents was aged between 31-40 years. The researcher can understand for the
above table 4.2 the data shows that most of respondents of the commercial bank of
Ethiopia in Aksum main branch are young age category. So the employees of the
organization are not tired to work

Table 4.3 educational status of the respondents

No Level of education No of respondents Percent (%)

1 Preparatory complete 0 0
2 Diploma 0 0
3 Degree 17 89.4
4 Post graduate 1 5.3
5 PHD 1 5.3
Total 19 100
(Source: questionnaire, 2016)

From the above table 4.3, indicates that the educational status of the respondents in
organization. Regarding to the table, 17(89.4%) of the respondents are degree
holders and 1(5.3%) of respondents is post graduate, the remaining 1(5.3%) of the
respondents is PHD holders in the organization. From this table the researcher can
understand most of the respondents were degree holders in the commercial bank of

20
Ethiopia in Aksum main branch. Therefore, the bank is perform the activities
effectively because of the employees are skillful.

Table 4.4 service year of respondents

No Service year No of respondents Percent (%)

1 Below 5year 18 95
2 5-10 year 1 5
3 Above 5 year 0 0
Total 19 100
(Source: questionnaire, 2016)

As the above table 4.4, shows that the service year of the respondents in the
organization. Regarding to service year the majority of the respondents 18(95%)
has below 5 year of service. The remaining 1(5%) of the respondents have 5-10
year of service. With regard to the above table 4.4, the researcher can understand
majority of the respondents are less service year in the commercial bank of
Ethiopia in Aksum main branch. So the employees of the bank are not well
experienced.

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 in
Aksum main branch.

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Table 4.5, existing of budget

Type of response No of respondents Percentage (%)

Yes 19 100
No 0 0
Total 19 100
Source: Questionnaire, 2016

As the above table 4.5 indicates that the commercial bank of Ethiopia in Aksum
main branch was used budget. Whereas the majority of the respondents 19(100%)
of the respondent or all respondent replied the bank use the appropriate budget.
Therefore, the researcher can understand the above table 4.5, all of the respondents
(100%) the organization use budget and budget is the back bone of any
organization to achieve its objectives. So the bank was used budget.

Table 4.6, Type of budget

Types of respondents No of respondents Percent (%)

Flexible 14 74
Fixed 5 26
Total 19 100
Source: Questionnaire, 2016

As the above table 4.6, indicates types of budget in the organization, from the
analysis of table the researcher can understand that what looks like the respondents
answer to questions are the majority 14(74%) of the respondent says the bank use
flexible budget and the remaining 5(26%) of the respondents said that the bank
uses fixed budget. According to this the researcher to understand the bank was
used to flexible budget. The reason flexible budget was chosen by the bank was:

22
Flexible budget can adoptable to any given set of operational conditions; it is also
more realistic and Useful than fixed one.

Table 4.7, responsibility to prepare Budget

Types of response No of respondent Percent (%)

Financial department 4 21
Management department 3 16
Board of director 10 53
All of together 2 10
Total 19 100
Source: Questionnaire, 2016

As the above table 4.7, indicates that the responsibility to prepare a budget in the
organization. With regarding to the table 4(21%) of the respondents says financial
department is prepare budget, the other 3(16%) of the respondents said that
management department have responsibility to prepare a budget. Whereas 10(53%)
of the respondents said that board of director have a responsibility to prepare a
budget and the remaining 2(10%) of the respondents said that all of together have
responsibility to prepare a budget. So that the researcher understand from the
above analysis board of director have a responsibility to prepare a budget in the
commercial bank of Ethiopia in Aksum main branch.

Table 4.8, prepare and take responsibility at the end.

Type of response No of respondents Percent (%)

Yes 18 95
No 1 5
Total 19 100
Source: Questionnaire, 2016

As shown the table 4.8, indicates that the branch prepare their own budget and take
responsibility at the end, based on the above table 4.8, the majority 18(95%) of the

23
respondents are says that the organization properly prepared their own budget and
take responsibility at the end, the remaining 1(5%) of respondent was said that the
bank does not prepare their own budget and take responsibility at the end.
Therefore, the researcher can understand that the organization properly prepared
their own budget and take responsibility at the end.

Procedure to prepare a budget:

The procedures the bank follow to prepare budget was top to bottom and vice
versa. When the bank prepares long run budget it follows top to bottom procedure
and when the bank prepares short run budget follows bottom to top procedure and
most of the time quantitative procedures was used due to top level officials
participate in budget preparing activities.

Problems faced to prepare budget. The problem that occurred on preparing of the
bank budget was:

 Lack of formalization between employees of the bank

 Shortage of budget information
 Un foreseen circumstance: change in market condition
 Previous year budget, whether it was occurred variance or not if variance
occurred corrective action made or vice versa.
 Lack of understand markets to obtain resource

Table 4.9, Span of budget prepare

Types of response No of respondents Percent (%)

For monthly 1 5
For 3 month 0 0
For semi-annually 0 0
For a year 18 95
Total 19 100

24
Source: questionnaire, 2016

As the table 4.9, shows that the time for preparing the budget, based on the above
table 4.9 the researcher can observe that the majority 18(95%) of the respondents
are said that the bank used its budget for a year and the remaining1 (5%) of the
respondent was said that the bank used its budget for monthly. From this analysis
the researcher can understand that the bank preparing their budget for a year 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.

Table 4.10 Effective Implementation of budget in the organization

Types of response No of respondents Percent (%)

Yes 17 89.5
No 0 0
Neutral 0 0
Maybe yes 2 10.5
Total 19 100
Source: questionnaire, 2016

From the table 4.10, the researcher can understand the majority 17(89.5%) of the
respondents are said that the bank implemented its budget effectively, but the
remaining 2(10.5%) of the respondents are said that the bank may be implemented
its budget effectively. From this analysis the researcher can understand the
organization can be implemented budget effectively in order to minimize budget
surplus, to achieve the objective of the organization and to minimize budget fraud.
25
Table 4.11 budget committee and budget director

Types of response No of respondents Percent (%)

Yes 14 74.68
No 5 26.32
Total 19 100
Source: questionnaire, 2016

As the above table 4.11, shows that majority 14(74.68%) of the respondents replied
that there are a budget committee and budget director in the organization and the
remaining5 (26.32%) of the respondents replied that there is no budget committee
and budget director in the organization. Based on the analysis the researcher
conclude that the organization have their own budget committee and budget
directors.

Function of budget committee and budget director

As per the response of employees the following are the main functions of budget
committee and budget director in the organization, those are prepare the budget
and make decision in the prepared budget and comparing the budget and actual,
and reporting in to management to take corrective action and also drafting the
annual budget of the organization, forecasting future budget demand in the
organization to decide the annual budget.

Table 4.12 variance analysis

Types of response No of respondents Percent (%)

26
Yes 8 42
No 11 58
Total 19 100
Source: questionnaire, 2016

As shows the above table 4.12 indicates that the variance that was occurred in the
bank. The employees of the bank gives the response 8(42%) of respondents said
that the variance was occurred in the bank. The remaining 11(58%) of the
respondent said that the variance does not occurred in the bank. Regarding to this
the researcher can understand that the variance does not occurred in commercial
bank of Ethiopia in Aksum main branch ,because the bank implements budget
effectively.

Table 4.13 measurement action

Types of response No of respondents Percent (%)

Immediately 8 42
3 month later 8 42
6 month later 1 5.3
At the end of the year 2 10.53
Total 19 100
Source: questionnaire, 2016

As the above table 4.13, shows that to take the measure when the variance
occurred. The respondent replied that 8(42%) of the respondents said that to take
measuring action was performed immediately from the variance occurred. Whereas
8(42%) of the respondents said that to take the measure was performed three
month later and the remaining 1(5.3)of the respondents said that take measuring
action six month later and 2(10.53%) of respondents said that take measure
performed at the end of a year. The researcher can understand this majority of the
respondent said that taking the measure immediately and three month later in order
to achieve better result and the desired objective.

27
Table 4.14 procedures during budget distribution in the organization

Types of response No of respondents Percent (%)

Yes 16 84
No 3 16
Total 19 100
Source; questionnaire, 2016

As clearly shows in the table above 4.14, 16(84%) of the respondents replied that
there are procedure to be followed during the budget distribution and the remaining
3(16%) 0f the respondents replied that the organization does not have any
procedure during the budget distribution. According to this analysis the researcher
can conclude that in the organization there is a procedure during budget
distribution, because to distribute a budget effectively the organization follows
procedures.

Table 4.15 impacts of preparing and implementing of budget on its performance

Types of response No of respondents Percent (%)

High 13 68.4
Medium 6 31.6
Low 0 0
Total 19 100
Source: questionnaire, 2016

As shown the above table 4.15, indicates that impact of preparing and
implementing of budget on its performance in the organization. With regarding to
28
these 13(68.4%) of the respondents replied that impacts of preparing and
implementing of budget on its performance are high in the organization and the
remaining 6(31.6%) of the respondents replied that impacts of preparing and
implementing of budget on its performance are medium. Therefore, the researcher
can understand that impacts of preparing and implementing of budget on its
performance are high in the organization. The bank does not work effectively.

Interview to the manager

The researcher made interview with the manager of the bank and the following
data are presented as follows.

What are factors that affect budget distribution and its utilization in the
organization?

 The manager of the bank responds that there are many factors that affect
budget distribution and its utilization in the organization. Such as:
 Shortage of government budget
 Fluctuation in market
 The amount of budgeting that is approved by the
government body
 Fluctuation number of customers with their needs
 The organization does not have effective budget
administer
 Is the organization using effectively distributed budget?

29
 As interviewed to the manager, the manager of the organization replied that
the organization is using effectively distributed the budget, it transfers a
budget properly in to the user.
 What are the main objectives to implement budget by the organization?

As interviewed with the manager, there are various objectives to implement budget
by the organization. These are:

 To attaining or achieving the goal of the organization

 To facilitating communication and coordination in the
organization
 For formulating or implementing the future plan of the
organization
 For managing financial and operational performance of the
organization

30
 CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATION
5.1. Conclusion
To conclude this paper, the data which are collected, have been analyzed and
interpreted with in the boundary of its constraints. So that the issues addressed in
this paper was shortly concluded in the following paragraphs

 The involvement of males is greater than females in commercial bank of

Ethiopia in Aksum main branch. So females are less in number in the
organization.
 Most of employees of the commercial bank of Ethiopia in Aksum main
branch are young age category. So the employees of the organization are not
tired to work and the employees were degree holders in the commercial bank
of Ethiopia in Aksum main branch. Therefore, the bank is perform the
activities effectively because of the employees are skillful.
 The bank was used budget. 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.

 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 respondent, which is 17 (89.5%), believed that the
effective implementation of budget, From this it can concluded that the
31
 bank effectively implemented its budget in order to minimize budget
surplus, to achieve the objective of the organization and to minimize budget
fraud.

 When variance occurred, it is required to take measure action immediately

and three month later by informing to all employees of the bank in order to
achieve better result and the desired objective.

 The researcher can understand that impacts of preparing and implementing

of budget on its performance are high in the organization. The bank does
not work effectively

32
5.2. Recommendation
Based up on the data findings and conclusions made, the researcher suggests
the following recommendation for the problem.

 5(26.32%) of the respondents replied that there is no budget committee and

budget director in the organization. So that, it can be advisable to the bank
have budget committee and budget director, in order to work effectively and
efficiently.

 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 monthly
base budget may be taken as the supportive action to control the occurred
variance and to continue smoothly.

 The researcher can understand this majority of the respondent said that
taking the measure immediately and three month later from the occurrence
of variance. This delaying may be a reason for the occurrence of other
variance on the bank and it may become a serious. So that, it can be
advisable to the bank to take measure action if possible immediately. .

 Basic factor for preparation of budget was many situations among them:
Shortage of budget information, Unforeseen circumstance: change in market
condition, previous year budget, whether it was occurred variance or not if
variance occurred corrective action made or vice versa, and Lack of
understand markets to obtain resource so the bank avoid these problems to
prepare budget effectively.

 The bank must use flexible budget, the reason flexible budget was chosen by
the bank was: Flexible budget can adoptable to any given set of operational
conditions; it is also more realistic and Useful than fixed one.
33
 Factors that affect budget distribution and its utilization in the organization.
Such as: Shortage of government budget, Fluctuation in market, The amount
of budgeting that is approved by the government body, Fluctuation number
of customers with their needs and the organization does not have effective
budget administer.

 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.

REFERENCE
 Anwar Shah, 2007 budgeting and budgetary institution, world bank,
Washington D.C

34
 Charles T. Horngren, 2009 Cost Accounting, 13th edition, Pearson Education
Company.
 Garrison, Noreen, Brewer, 2006 Managerial Accounting, 11th edition, Mc
Graw- Hill Company.
 Horngren, 2009 introduction to management Accounting, 14th edition,
Pearson education company.
 MN. Arora, 2006 cost accounting 7th revised and enlarge edition, Pearson
Education Company.
 Ronald. Hilton, 1994 Managerial accounting, 2th edition, Tata mc Graw-hill
Company.
 World book encyclopeda,2001

APPENDIX
35
 AKSUM UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICSS

DEPARTMENT OF ACCOUNTING AND FINANCE

QUESTIONNAIRE:

This questionnaire to fill by employee of the commercial bank of Ethiopia in

Aksum main branch. Which will be used in writing up senior research paper

36
entitled “Budgeting and its impact on performance of commercial bank of Ethiopia
in Aksum main branch.

Dear respondents:

The purpose of this questionnaire is to seek information in budgeting and its

impacts on performance of commercial bank of Ethiopia in Aksum main branch.
The research is conducted for partial fulfillment of BA degree in Accounting and
Finance. Therefore, you are kindly request to fill in this questionnaires honestly
with due care because correctness of the answer have parameter importance for the
outcome of the research.

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
1. Sex: male  Female 
2. Age: below 30 31-40 41-60 above 60
3. Qualification: preparatory complete  degree  Diploma 
Post graduate  PHD 

Current position ________________________

4. Service year: below 5 year  5-10 year  above 10 year 

37
 I. Questions

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 

3. Who is responsible to prepare budget?

Financial department Management department 

Board or director  all of together 

Other bodies’ _________________________________________

4. Does the branches prepare their own budget ad take responsibility at end?

Yes  No

4. What procedure you follow to prepare budget?

Specify ________________________________________________________

6. What problem faces on preparing of your budget?

Specify ________________________________________________________

7. For how long the budget you prepared it run?

For month  for three month  for semi annual 

For year 

8. Does the bank effectively implement its budget?

Yes  no  neutral  may be yes 

38
9. Is there the budget committee and budget director in the organization?

Yes  no

10.If your answer for Question No 9 is yes what are the function of budget
committee and budget director? Describe briefly?
__________________________________________________________________
_______________________________________________________________

11. Does variance occurred when you compared the budget with actual?

Yes  No 

12. If your answer for Question No 11 is yes specify the reason for the occurrence
of variance __________________________________________________

13. If variance was occurred when did take the measure action?

Immediately  3 months later  Six month later 

At the end of year 

14. When their variance is favorable or unfavorable please specify certain points
the impact of your performance? __________________________________

15. Is there any procedure during budget distribution in the organization?

Yes  no 

16. What is the impacts of preparing and implementing of budget on its

performance??

High  medium low

Interview to the manager

39
1. What are factors that affect budget distribution and its utilization in the
organization?
2. Is the organization using effectively distributed budget?
3. What are the main objectives to implement budget by the organization?

40