Budgeting practices in manufacturing firms in Kenya
Abstract
The manufacturing sector in Kenya contributes approximately 13% of the GDP and is
thus a significant player in the economy. The objective of this study was to establish the
budgeting practices in the manufacturing industry in Kenya. The study was aimed at
establishing whether budgets exist in the sector and if so, the methods used for budgeting,
uses to which the budgets are put and the factors considered important while budgeting.
To achieve this, a questionnaire was issued to 75 companies of which 45 (60%)
responded. The responses were analysed using percentages, measures of central tendency
(the median and mean) and for dispersion, standard deviation was used.
The findings of the study indicated that majority of the firms in the sector prepare
budgets. Incremental (prior year) budgeting is the most widely applied method of
budgeting. The most significant use of budgets according to the research is maximisation
of shareholders' value. Firms were asked to rate their agreement or disagreement with the
budget criticisms that were proposed as the basis for "beyond budgeting". All the firms
disagreed with the criticisms except one where they indicated that budgets stifle
innovation to some extent.
The conclusion is that budgeting is a widely applied tool in the manufacturing industry in
Kenya and budgeting in its current form is widely accepted. The more traditional method
of incremental budgeting is widely applied. Management in the industry should aim to
adopt more advanced methods like zero based and activity based budgeting. Incremental
budgets have the very significant shortcoming of carrying forward inefficiencies from
prior years. Criticisms should be used as basis for developing a more flexible planning
model that focuses on the entire performance management process.
Citation
Masters of business administrationSponsorhip
University of NairobiPublisher
School of business,University of Nairobi