The effect of the current economic uncertainty on the relevance of budgeting in local manufacturing companies : an investigation

Abstract

Purpose: The main objective of this dissertation is to investigate the relevance of budgeting in local manufacturing companies, in the light of the current economic uncertainty that surrounds most businesses today. Design: The objectives of this dissertation are attained through the use of a mixed methodology research. Initially 4 interviews are conducted with the aim of providing preliminary information about the subject matter. The questionnaire was distributed to 239 local manufacturing companies through postal services and e-mail invitation. A 17.57% response rate was attained. Findings: Research finds evident that local manufacturing companies suffered from high levels of uncertainty, especially with regards to planning for the long term and forecasting demand .The respondents tend to confirm that preparing budgets in an uncertain environment is difficult however, they still value the need to prepare budgets and thus budgets are still perceived to be relevant. In fact only 2 companies replied that they are able to abandon the budgeting procedure. Respondents also confirmed that with regards to Performance Measurement, targets are set after the external environment is reviewed whilst non-financial measures are being treated equally important as financial ones. However to date, few companies are incorporating formal techniques that promote non-financial measures. Value: The relevance of budgeting in an uncertain environment is only sustained if it is used in conjunction with other techniques that mitigate the main problem of budgets; that of inflexibility, so as to allow adaptation.