BULE HORA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

BUDGETING AND ITS IMPACT ON PERFORMANCE OF

COMMERCIAL BANK OF ETHIOPIA (A CASE STUDY BULE
HORA BRANCH)

PREPARED BY: ID NO.

1. DANIEL ORISA ACFN/WP/040/15
2. DURSITU DUBE ACFN/WP/066/14

A RESEARCH PAPER SUBMITTED IN PARTIAL

FULFILLMENT OF B.A DEGREE IN ACCOUNTING AND
FINANCE DEPARTMENT

ADVISOR:- HASEN AREBU (MSc)

JANUARY, 2020
BULE HORA, ETHIOPIA
 APPROVAL SHEET
This is to certify that the senior research project prepared by Dursitu Dube and Dani’el
Orisa, entitled by “budgeting and its impacts on performance of commercial bank (a case
study bule hora brach). And submitted in partial fulfillment of the requirement of BA
degree in accounting and finance would comply with the regulation of the university and
meet the acceptable standard with respect to quality and originality.

Declared By: Signature Date

________________________ ___________________ __________________
________________________ ___________________ __________________
Approved by:
Advisor
Name ___________________
Signature _____________________
Date ________________

Examiner:
Name ___________________
Signature _____________________
Date ________________

I
 ACKNOWLEDGEMENT
Firstly, all praise to God who allowed us to complete this research paper and gave us the
opportunity to put all our knowledge and experience through its blow pages.
This research Could not have been possible without the support of a long list of people
who give all the support we needed to fulfill this research.
Our sincere gratitude and appreciation goes to our senior essay Advisor Hasen Arebu
(MSc) has sacrificed his time to review our research and give constructive comments and
criticism, which have contributed positively to the researchers and gave his time and
experience, and without him we wouldn’t reach this stage.
Our all the necessary comments, advises and guidance throughout our work. We well
also great full to the staff of commercial bank of Ethiopian Bule Hora branch for their
assistance through our way. Our great thanks also go to commercial bank Ethiopian
Officials for their kind assistance for the accomplishment of this study.

II
 ABSTRACT
This study was conducted on the assessment on budgeting and its impact on performance
measurement in Commercial Bank of Ethiopia Bule Hora Branch, with having the
general objective, to the budget and its impact on performance measurement in the bank.
Specifically, this objective would 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? Data was collected from both primary and secondary
sources; primary data was collected by using both unstructured interview and
questionnaire. Questionnaires was distributed to the selected employee’s including bank
manager, the researcher used census survey method. Generally, this study had been
arrived to address budgeting and its impact on performance measurement on commercial
bank of Ethiopia. The bank to presents the performance report constantly every quarter,
but this may not be sufficient enough to control 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.

III
 Table of Content
Contents
Pages
APPROVAL SHEET...........................................................................................................I
ACKNOWLEDGEMENT..................................................................................................II
ABSTRACT........................................................................................................................III
Table of Content................................................................................................................IV
List of table........................................................................................................................VI
List of Abbreviation.........................................................................................................VII
CHAPTER ONE..................................................................................................................1
1. INTRODUCTION...........................................................................................................1
1.1. Background of the study...........................................................................................1
1.2 Background of the organization.................................................................................2
1.3 Statement of the Problem...........................................................................................2
1.4 Summary of Finding..................................................................................................4
1.5 Objective of the Study...............................................................................................4
1.5.1 General objective of the Study...........................................................................4
1.5.2. The Specific Objectives of this paper................................................................4
1.6. Significance of the Study..........................................................................................4
1.7 Scope of the Study.....................................................................................................4
1.8. Limitation of the study..............................................................................................5
1.9. Organization of the Paper.........................................................................................5
CHAPTER TWO.................................................................................................................6
2. LITERATURE REVIEW................................................................................................6
2.1 Origin of the budget...................................................................................................6
2.2. Definition of Budget and Budgeting.........................................................................6
2.3 The objective and role of budgeting..........................................................................7
2.4 Budgeting procedures................................................................................................8
2.5. Relationship Between planning and budgeting........................................................8
2.6. Performance measurement........................................................................................9

IV
 2.6.1. Performance evolution concepts........................................................................9
2.6.2. Performance reports and communication........................................................10
2.6.3. Using performance measurement to impalement corporate strategy..............11
2.7. Budget Classification..............................................................................................11
2.8. Types of Budget......................................................................................................12
2.8.1. Program Budgeting..........................................................................................12
2.8.2. Zero Base Budgeting (ZBB)............................................................................12
2.8.3. Activity Based Budgeting................................................................................13
2.8.4. Incremental Budgeting.....................................................................................13
2.8.5. Master Budget..................................................................................................13
2.8.6. Variable Budget...............................................................................................14
2.8.7. Fixed Values flexible Budget..........................................................................14
2.9. Government Budget................................................................................................14
2.10. therotical literature review....................................................................................15
2.11. Empirical literature review...................................................................................15
2.12. Research Gap........................................................................................................17
CHAPTER THREE...........................................................................................................18
3. METHODOLOGY........................................................................................................18
3.1 Study Area...............................................................................................................18
3.2 Type of data and sources.........................................................................................18
3.3 Method of Data Collection..................................................................................18
3.5 Sampling Technique and sample size......................................................................18
3. 6 Methods of data analysis........................................................................................19
CHAPTER FOUR.............................................................................................................20
4. DATA ANALYSIS AND PRESENTATION...............................................................20
4.1. Analysis of Questionnaires.................................................................................20
4.4.5. Balance sheet budget.......................................................................................27
4.4.6 Cash budget......................................................................................................30
CHAPTER FIVE...............................................................................................................32
5. SUMMARY, CONCLUSION AND RECOMMENDATION......................................32
5.1. Summary and Conclusion.......................................................................................32

V
 5.2 Recommendation.....................................................................................................33
REFERENCE....................................................................................................................35
APPENDIX........................................................................................................................36

List of table
Contents
Pages
Table 1: Demographic characterized & respondents and their educational level by
proportion of men and women...........................................................................................20
Table 2: Does the organization use a budget.....................................................................21
Table 3: Does the bank prepare its own budget and take responsible at the end?.............21
Table 4: How many times do you prepare a performance report in a year?......................21
Table 5: Analysis of Flexible Vs fixed budget..................................................................22
Table 6: Response on the banks employees does the bank effectively implemented its
budget................................................................................................................................22
Table -7 Does variance occurred when you compared the actual performance with the
budget................................................................................................................................23
Table 8: Performance reports.............................................................................................23
Table 9: Response on how the profit budget year of 2010 was compared with actual.....24
Table 10: Response on how was the cash budget of 2010 as in compared to its actual one
...........................................................................................................................................31

VI
 List of Abbreviation
Mo FED (Ministry of Finance and Economic Development )
ZBB ( Zero Base Budgeting )

VII
 CHAPTER ONE
1. INTRODUCTION
1.1. 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 Bule Hora 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 a
position force of 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 overcome 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 in line 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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1.2 Background of the organization
The Commercial bank of Ethiopia was found in 1942 with an objectives of formed the
duties of commercial bank in 1963 established as Share Company to take over the
commercial banking activities of the Commercial 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 millions of
customers both locally and abroad. The business strategy of the bank was focus on the
stack holders serves. The number of branches now a day reached 500 and stretched
across the length breadth of the country. Commercial Bank of Ethiopia combines a wide
capital base with more than 10,000 talented and committed employees. Bule Hora
branch’s of Commercial Bank was started in Bule Hora Town in 1977 E.C with branch
Manager and other 7 staffs as well as 1.2 million Ethiopian birr operating with branch
for the period of time. Bule Hora Branch of Commercial bank at this time operating with
branch Manager and other 31 employees among these 4 females and 28 male. In
2011E.C. whom it regard as its key assets from banking development. The state owned
commercial bank of Ethiopia still dominates the market in terms 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 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 throughout the country on able the
bank to accommodate large demand for banking service, bank from private and public
companies and to increase its overall revenue on sustainable base.
1.3 Statement of the Problem
A budgeting is a plan that outlines an organization’s 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.

2
 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 Bule Hora 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.
Elalu Juhar (2012).
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 participant 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
organizations that is series and successive budget variance. Related factors that are
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 of the budget, But also on its implementation. In the
current global market environment customer is a key concern to be raised in order to
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 researchers
wants to investigate the most studies and literatures like studies about (in case of
Shashamane Branch). But there was similar research done here on the Bule Hora branch.
This initiates the researchers to conduct study to fill the research area gap by studying the
Budgeting and its Impact on performance of Commercial Bank of Ethiopia, in case of
Bule Hora branch. Elalu Juhar (2012).

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1.4 Summary of Finding
Thus, the research question and sources of findings
 How the organization is execute and employ its budget?
 How was the performance evaluation to address customer’s problem?
 Which would be attributes for financial service rendering business as a whole?
1.5 Objective of the Study
1.5.1 General objective of the Study
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 Bule Hora branch.
1.5.2. The Specific Objectives of this paper
 To investigate the budget execution of the bank between 2010 and 2011 E.C.
 To identify the budget preparation processes or system established by the bank.
 To investigate any attribute for financial service rendering business as a whole.
1.6. Significance of the Study
The significance of the study would be used to make 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.
1.7 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 Bule Hora 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
limit 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

4
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.
1.8. Limitation of the study
This work has many problems, 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.
1.9. Organization of the Paper
The process contains five separate chapters. The first chapter is the introductory part
which includes background of the study, background of the organization, statement of the
problem, objective of the study, significance of the study, scope of the study, limitation of
the study, organization of the paper and method of the study parts. The second chapter is
literature review which is the general explanation about the topic.
Chapter three is about research methodology, Chapter four is data analysis and
interpretation, and Chapter five is includes summary, conclusion and recommendations
for the problem encountered by bank of Ethiopian in Bule Hora Branch.

5
 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 would be
acquired and used during a specified period of time. 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 become
firm plans’.

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.

6
Budgeting involves as a great range of interests and concerns. It is difficult to conceive
any public policy that can be carried out without money, and hence without 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 (Mo FED)
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 public and private sector. The
distributional sector (objective) necessitates the consideration of public 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 policies 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

7
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 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. Mosher, Frederick (1954: 489)
(Slalim Hamid, 1998) writes:

8
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’ (Slalim Hamid, 1998)
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.
According to preme Hand (1989:pp 188) budgeting without planning could to be a plan
of action and plans without 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, whereas, 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
overall 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.

9
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 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).
In most 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).

10
 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 indicators that 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 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).

11
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 principal’s advantage of zero base budgeting is that each type of cost incurred in
every budget period will be justified.

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.

12
 - Given enough time and man power, there would not be controversy on the
application of zero base budgeting.
- However, 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 output.
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)
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
individual’s 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

13
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 year. 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 from comparison intention in the monthly
report.
2.8.7. Fixed Values flexible Budget
Fixed budget is a budget from 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 from 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 without much effort.

14
2.10. Theoretical literature review
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 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.
2.11. Empirical literature review
The empirical studs concerns on prior academic research on the budget performance. in
this case there are certain empirical study under taken by different researchers related to
the budget performance and controls discussed in the following according to bank of
Ethiopia stated that even through there have been several attempts to address the
weakness of budget performance . In addition to Getachew explained that the main
problem of commercial bank of budget performance .lack of proper medium term
prospective, lack of properly integration of capital and recurrent budget, during budget
utilization performance measure is not applied and preparation of budget based on
unreliable data and estimation.

15
In the line with this abdu (2013) conduct a study on the budget performance in bule hora
brach the main aim of research was to enhance understanding commercial bank of
Ethiopia .budget performance, budget preparation, budget implementation and budget
control.
According to horngren, sundem, strattoon,burgstahler and Schwartzberg,(2014)state that
recent surveys show just how valuable budget can be. They assert that a study of more
than 150 organizations in North America listed budget preparation and utilization as the
most frequently used as most important part of budget process.
In the same book horngren et al.(2008) also point out that the result of a survey carried
out in the same place (north America ) show that most managers still agree that good
budget preparation and utilization, correctly used as significant value to management.
They reported that over 92 % of the 150 companies in North America prepared and
utilized budget and remarked budget process as the top among the top activity expected
from management. in the same view in a round table discussion organized by CIMA and
ICAEW in 2006 on the traditional role of budgeting process in organization it is stated
that budgeting and the accompanying process are dispensable and that research in
organizations seems to suggest that this is a commonly held view.
According to Bourne (2009) crane field University in 2006 teamed up with Accenture’s
finance performance management services line to under taken a large worldwide review
of planning and budgeting. They focused on 15 companies in the US and Europe which
had already made adjustment to their budgeting practices. In addition the researcher
reviewed over 100 academic and practitioner books on the subject. The result showed a
wide spread dissatisfaction with budget process.
According to Joshi et al. (2012) examines budgetary planning, control and performance
evaluation in developing countries. A questionnaire survey of 54 medium and large size
firms including listed and non –listed firms was conducted. His findings revealed that
most of the firms prepare long –range planes and operating budgets ,and budget variance
to measure performance for timely recognition of problems and to improve the next
period ‘s budgets. Moreover, findings show that the main purposes of budgeting in most
companies are to; maximization and the control performance by investigating variance.

16
Poor cooperation and ineffective planning are the main reasons for not achieving the
required standard targets.
2.12. Research Gap
Generally, different researcher conducted budget performance related titles .Abdu (2013)
conduct a study on” assessment of budget performance in case of bule hora branch”
hornngre et, a (2005) also point out that the result of the surrey carried out in the same
place (North America) shows that most managers still agree that good budget preparation
and utilization, josh et al (2012) examinees budgeting planning, control and performance
evaluation in developing countries.
The stated researchers did not conducted on the budget performance in case of
commercial bank of Ethiopia in Bule Hora. Farther more this title was not stated yet in
commercial bank of Ethiopia in Bule Hora branch. The researchers was aimed to fill this
gap by examining budgeting performance and control of money on the plane and budget
integration appropriate and actual budget implementation in commercial bank of
Ethiopia in Bule Hora branch.

17
 CHAPTER THREE
3. METHODOLOGY
3.1 Study Area
Bule Hora Town is located in the southern parts of Oromia regional state and it is the
zonal town of West Guji zone. It is located at distance of 467KM from Finfine on the
main road that leads to southern region of Ethiopia. Bule Hora town is established in
1915 and covers of 8587 hectares of land. It is one of the oldest town’s in Ethiopia (Bule
Hora town 2009).
Bule Hora town has three kebele’s and now the town is expanding outwards and include
certain farmers kebele’s such as Ogo Danbi to the East , Cari Gololcha to the west, Bule
Qagna to the south and Muri Turkuma to the north direction.
3.2 Type of data and sources
The researchers have used two types of data. These are primary and secondary data;
Questionnaire and structured interview.
3.3 Method of Data Collection
In the data collection process two types of data collection method has been used in the
study. The primary source of data has collected to conduct this research through well
designed questionnaire and structured interview.
The secondary data has been collected from different sources, such as the bank’s

pamphlets, manuals, records, reports, journals and reference books.

3.4 Target Population
The target population of the study were (32) employees of Bule Hora branch the
Commercial bank of Ethiopia. The study has conducted at Bule Hora town which is
located Southern part of Ethiopia 467 km from Addis Ababa.
3.5 Sampling Technique and sample size
The sampling size of population used by the researchers is census survey method because
the some of the employees are small. It can be presumed that in such an inquiry, when all
item are coverage no element of chance is left and highest possibility is taken.

18
The researcher used sampling technique on most employees in the selected branch to get
right answer to our question.
3. 6 Methods of data analysis
The researchers have used both qualitative and quantitative method of data analyzing to
analysis the collected data from two sources. To analysis these collected data we have
analyzed the data through table, frequency and percentage.

19
 CHAPTER FOUR
4. 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.
4.1. 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
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 1 3.12% 22 68.75 3 9.37% 26 81.25%
Female - - 2 6.25% 4 12.5% 6 18.75%
Total 1 3.12% 24 75% 7 21.87% 32 100%

(Source:- Survey result 2020)

From the above table reflects the educational background of women as compared to men
is low female those graduate with first degree are 6.25% of the total respondents. In the
2nd degree no one and in the diploma holders are 12.5% males with second degree holders
are 3.12% of total respondents and first degree holders and 68.75% of the respondents
and diploma holders are 9.3% out of respondents in general academicals level of female
as compared with men was does not proportional in the Commercial Bank of Ethiopia
Bule Hora Branch.

20
 Table 2: Does the organization use a budget
Type of response No of respondents Percentage (%)
Yes 26 81.25%
No 6 18.75%
Total 32 100%
(Source:- Survey result 2020)
According to the above table, 26(81.25%) respondents responded the bank used the
budget, 6(18.75%) respondents responded the bank does not used the budget.
Table 3: Does the bank prepare its own budget and take responsible at the end?
Type of response No of respondent Percentage (%)
Yes 26 81.25%
No 6 18.75%
Total 32 100%
(Source:- Survey result 2020)
Based on the above table the bank has prepared and took responsible at the end of the
majority of the respondents that were 26(81.25%) was said the organization has prepared
its own budget and take responsible at the end. The remaining 6(18.75%) were said the
bank does not prepare its own budget and take responsible at the end.
Table 4: How many times do you prepare a performance report in a year?
No Number of employees Percentage (%)
Every month 12 37.5%
Every three month 8 25%
Every six month 7 21.87%

Every year 5 15.63%

Total 32 100%
(Source:- Survey result 2020)
Based on the above table, 12(37.5%) respondents responds every month, 8(25%)
respondents responds every three month, 7(21.87%) respondents responds every six
month, 5(15.63%) respondents responds in a year.

21
 Table 5: Analysis of Flexible Vs fixed budget
Respondents Response flexible Percent (%)
A. Flexible 26 81.25%
B. Fixed 6 18.75%
Total 32 100%
(Source:- Survey result 2020)
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 26(81.25%) was flexible budget used the bank and the remaining 6(18.75%) said
that the bank uses fixed budget. The reason flexible budget was chosed by the bank was,
Flexible budget can adoptable to any given set of operational conditions, It is also more
realistic, Practical activity was achieved and Useful than fixed one.
Table 6: Response on the banks employees does the bank effectively implemented its
budget
Repellants’ Response Percentage (%)
Yes 6 18.75%
No 22 68.75%
Neutral - -
May be yes 4 12,5%
Total 32 100%
(Source:- Survey result 2020)
From the above table we can observe the majority of the respondents that is 6(18.75%)
was said the bank used its budget appropriately. But the remaining was which is
22(68.75%) are said that the bank does not implement its budget effectively and
4(12.5%) was may be used said due to uncontrollable nature.

22
Table -7 Does variance occurred when you compared the actual performance with
the budget
Respondents No Percentage (%)
No 18 56.25%
Yes 10 31.25%
Neutral 4 12.5%
Total 32 100%
(Source:- Survey result 2020)
The respondents of 18(56.25%) the bank gave their response to this idea all of them are
said that 10(31.25%) favorable Theme are said that 4(12.5%) 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.
Do you take measure action of Performance reports?
Table 8: Performance reports
Respondent Response Percentage (%)
type Immediate Quarterly Semi annual At the end
of the year
Yes - 20 - - 62.5%
No - 12 - - 37.5%
Total - 32 - - 100%
(Source:- Survey result 2020)
Based on the above table evaluating measure action is do not simple task, it needs very
critical and needs very high attention.
Among the total sample of 20(62.5%) were said that taking measure action was
performed three months later from the variance occurred. On the other hand the

23
remaining 12(37.5%) of the respondent said that the occurred variance could be measured
and evaluate at semi-annual. From the above table the researchers could 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.

Table 9: Response on how the profit budget year of 2010 was compared with
actual
Response type Number of Percentage (%)
Respondents
Very good 20 62.5%
Good 12 37.5%
Total 32 100%

(Source:- Survey result 2020)

From the above table we can understand how the profit budget year of 2010E.C. was
compared to actual. Majority of the respondents that is 62.5% said very good and the
remaining respondents that is 37.5% said good. Therefore, while we compare the profit
budget of 2010 and 2011 with their actual we have understood it was very good.
To compare the profit budget of 2010 and 2011with their actual the following income
statement analyzed.
Commercial bank of Ethiopia
Income statement
For the year ended June 30,2010
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, charges 39,176,276 36,252,957 2,923,319 Unfavorable
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

24
 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

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 & charge 418,635,975 422,411,420 3,775,445 Unfavorable

25
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 loans 178,968,500 186,258,650 Favorable
and advance
Provision for doubtful debts 30,203,650 29,070,829 1,132,821 Unfavorable
other than loans and advance
Direct write of other than 409,630 370,850 38,780 Favorable
loans and advance

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

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

From the above income statement table of 2010 and 2011, it can be observed that the
bank total asset & 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 in

26
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 days. 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. The
researcher concluded that the budget year of 2011E.C. was more successful than
2010E.C.

27
 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 from 125,005,475 1,213,321,868 21,683,605 Unfavorable
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 of 43,683,699 39,742,532 941,167 Favorable
credit
Provision of or profit tax 16,583,630 14,224,186 2,359,444 Unfavorable
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 reserve 188,351,795 175,908,908 12,442,887 Favorable
Total liability, capital 1,639,853,814 1,587,187,559 5,266,255 Favorable
and reserves

28
 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 deposit 248,294,591 20,8957,647 39,336,944 Favorable
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 customers 153,0944,846 1,281,410,567 249,534,279 Unfavorable
Deposit from financial 247,473,182 243,882,658 3,590,524 Unfavorable
institution
Other liabilities 118,428,665 109,345,785 9,082,880 Unfavorable
Margin held on letters 84,661,826 42,683,699 41,978,127 Favorable
of credit
Provision of or profit 23,367,734 20,385,412 2,982,322 Unfavorable
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

29
Total capital and 254,668,268 239,946,219 14,682,049 Favorable
reserves
Total liabilities capital 225,9544,521 1,937,649,340 321,850,181 Favorable
and reserves

From the above balance sheet budget year of 2010 E.C. and 2011E.C, we can understand
that the total asset has shown as an increment of 3.3% over the budgeted year of 2010
E.C. and also in 2011E.C. 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 2010E.C. and 2011E.C. when they compared with their actual
and competed each other.
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.

30
Table 10: Response on how was the cash budget of 2010 as in
compared to its actual one
Response type Respondent Number Percentage (%)
Very good 20 62.5%
Good 8 25%
Moderately 4 12.5%
Total 32 100%

(Source:- Survey result 2020)

From the above table the majority of the respondent said that 20(62.5%) very good, the
remaining 6(25%) and 4(12.5%) said that good. In connection with this the researcher
would also what about the cash budget of 201 1E.c, similar answer they gave me for the
question. It was very good cash budget year of 2011E.C. even it compared with 2010
E.C., it was better in 2011 E.c.

31
 CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATION
5.1. Conclusion
To conclude this budgeting research 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.
Many business managers believe that it is neither necessary nor practical to use budget in
a service rendering 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
overall activities of the bank.
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
Changing of the market condition-externalities such s creditors, customers, suppliers and
users of the budget. Performance report can be effective, especially if it is presented
continuously. However, 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 18(90%) known when measure action was taken, the
remaining respondents that were 2(10%) did not know when measure action was taken. It
would be concluded that majority of the respondents of the bank known when measure
action was taken.

32
 Regarding the impact of variance whether it was favorable or unfavorable on the
performance of the bank seemed as followed.
 Most of the time the variance observed on the bank was favorable of the bank
second as followed.
 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 2010E.C. with the budgeted year of
2011E.C. the bank was shown more improvement in budget year of 2011E.C. in 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
5.2 Recommendation
Based up on the data findings and conclusions made, the researcher suggested the
following recommendation for the problem.
 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.
 68.75% 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 bank presents the performance report constantly every quarter, but this may
not be sufficient enough to control 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.
 To take any measure action on the bank informing to all related participants,
including mangers, employees, customers and all department those have to
know when measure action was taken. Means unnecessary action cannot be

33
 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 become a serious. So that, it can be
advisable to the bank to take measure action if possible immediately, otherwise
a month later.

34
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- (Naser , K., Kabhari, Y., & Zulkifli, M. (2004). Impact of ISO 9000 registration
on company performance: Evidence from Malaysia. Managerial Auditing Journal,
19(4), 509-516. Onduso, E. O. (2013). The Effect Of Budgets On Financial.
- Evans, F. (2013): Budgeting and Budgetary Control Practices and Procedures in
Timber Firms within Kumasi Metropolis, International Journal of Research in
Social Sciences, July. 2014. Vol. 4, No.3.
- Gujarati, (2004): Basic Econometrics, Fourth Edition.

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 APPENDIX
BULE HORA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
Questionnaire for employees
Dear respondents:
We Dursitu Dube and Dani’el Orisa are BuleHora University graduate students we are
currently conducting a research project titled “Budgeting and its impact on
performance of commercial bank (a case study in bule hor banch) for our partial
fulfillment of BA Degree in Accounting and finance. We kindly request you to genuinely
complete this questionnaire and this would greatly enhance the quality of our research.
We assure you that the information that you provide will kept confidential and would
only be used for academic purpose.
Thank you in advance for taking your precious time to fill it on for me.
NB. Do not write your name
Part I: General Background of information of employees
Instruction I: Respond for the following items by putting a tick () mark on the box
provided.
1. Gender - A. Male B. Female
2. Age of the respondent
A.10 – 25 B.26 – 30 C. above 30
3. Income Level
A. Birr 650 – 1000
B. Birr 1001 – 1500
C. Birr 1501 – 3000
D. Above Birr 3000
4. Your position in the bank _________________________________________
__________________________________________________________________
5. Educational level
A. Diploma/TVET B. First degree C. Above first degree
6. Employment

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 A. Permanent B. Temporary
7. Experience
A. 1 – 5 years C. 10 – 15 years
B. 5 – 10 years D. Above 15 years
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 
3. Who is responsible to prepare budget?
A. Financial department C. Management department 
B. Board or director  D. all of together 
E. Other bodies _________________________________________
4. Does the bank prepare their own budget ad take responsibility at end
A. Yes  B. 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?
A. For month  B. For three month  C. for semi annual 
D. For year 
8. How many time do you prepare a performance report in a year?
A. Every month  B. every three month  C. every six month 
D. very year
9. Does the bank effectively implement its budget?
A. Yes  B. certainly  C. No  D.many years  E
neutral 
10. Does valance occurred when you compared the budget with actual
A. Yes  B. No 
11. If your answer for Question No 10 is yes specify the reason for the occurrence of
variance __________________________________________________

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12. If your answer for Question No 10 is yes does the variance fair
A. Yes  B. No 
13. If variance was occurred when did take the measure action?
A. Immediately  B. 3 month later  C. Six month later 
D. At the end of year 
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?
A. Good  B. very good  C. moderate  D. No satisfactory
16. How was the cash budget compared with actual?
A. Good  B. moderately  C. No satisfy 
17. How was the balance sheet budget as it compared with actual?
A. Good  B. very good  C. moderately  D. 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?
A. Flexible  B. Fixed  C. 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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