BUDGETING AND ITS IMPACT ON PERFORMANCE OF

COMMERCIAL BANK (A CASE STUDY ON JIGJIGA

BRANCH)

A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT

FOR REQUIREMENT OF B.A DEGREE IN ACCOUNTING AND
FINANCE

PREPARED BY:
S/N NAME OF STUDENTS ID
1 SHARMAKE ABDIRISAK MAHAMED 206
2 AHMED DEK SHARIF
3 MAHAMED ABDI MAHAMUD
4 AMIN HASSAN ABDI 014
5 FATUMA ABDOW IBRAHIM 103
6 MAHAMED AHMED ABDI
7 HIRSI MAHAMUD ISSE

ADVISOR:- ABRAHAM TESHALE (ATO)

MAY, 2023
JIGJIGA, ETHIOPIA
 ACKNOWLEDGEMENT

we would like to great thanks give to almightily my Allah he has helped us in

every aspects of our life.

Next we would like to express my heart felt gratitude to our advisor Ato Abraham
teshale his heart felt advice and helped us. we would also like to horn international
University college in general and department of Accounting

Finally we would like to thanks our family and all people that assist us in
providing me helpful information for fulfillment of this research proposal.

i
 ABSTRACT

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

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

ii
 TABLE OF CONTENTS
Title Page
ACKNOWLEDGEMENT....................................................................................................i
ABSTRACT…………………………………………………………………………...….ii
TABLE OF CONTENTS....................................................................................................ii
CHAPTER ONE..................................................................................................................1
INTRODUCTION...............................................................................................................1
1.1 Background of the organization............................................................................1
1.2. Background of the study...........................................................................................3
1.3 Statement of the Problem...........................................................................................4
1.3 Objective of the Study...............................................................................................6
1.5. Significance of the Study..........................................................................................7
1.6 Scope of the Study.....................................................................................................7
1.7. Limitation of the study……………………………………………………………..

CHAPTER TWO.................................................................................................................8
2. LITERATURE REVIEW................................................................................................8
2.1 Origin of the budget...................................................................................................8
2.2. Definition of Budget and Budgeting.........................................................................8
2.3 The objective and role of budgeting..........................................................................9
2.4 Budgeting procedures..............................................................................................10
2.5. Relationship Between planning and Budgeting......................................................11
2.6. Performance measurement......................................................................................12
2.6.1. Performance evolution concepts......................................................................12
2.6.2. Performance reports and communication........................................................13
2.6.3. Using performance measurement to impalement corporate strategy..............14
2.7. Budget Classification..............................................................................................14
2.8. Types of Budget......................................................................................................15
2.8.1. Program Budgeting..........................................................................................15
2.8.2. Zero Base Budgeting (ZBB)............................................................................15
2.8.3. Activity Based Budgeting................................................................................16
2.8.4. Incremental Budgeting.....................................................................................17
2.8.5. Master Budget..................................................................................................17
2.8.6. Variable Budget...............................................................................................17
2.8.7. Fixed Values flexible Budget..........................................................................18
2.9. Government Budget................................................................................................18
CHAPTERTHREE............................................................................................................19
3. METHODOLOGY........................................................................................................19
3.1 Study Area...............................................................................................................19
3.2 Method of Data Collection......................................................................................19

iii
 3.3 The Sampling design...............................................................................................19
3.4 Data analysis and preset...........................................................................................20

REFERENCE....................................................................................................................22

iv
 CHAPTER ONE
INTRODUCTION

1.1 Background of the organization

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

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

1
VISION
To become world class c commercial bank. The term world class presumes efficiency
good cooperate with governance and move toward best international banking practices.
MISSION
We are committed to maximizing shareholders value through enhanced financial
intermediation and up parallel customer satisfaction we strongly believe that reliability
and public confidence are the base of our success. The fundamental component of our
mission statement include
- Customer:- our customers are our most important assets.
- Shareholders:- In order to optimally meet the need of our customers and
efficiently manage out business.
- Employees:- Quality customer service is possible only through motivated and
skilled employees for the will being of its employees it tries to develop a work
force that enjoys working for and prides it self in association with the bank.

2
1.2. Background of the study
The purpose of this paper was to show the budgeting and its impact on performance
measurement of the commercial bank of Ethiopia on the Jigjiga branch. To assess the
proper goals of the bank the employee in the budgetary processes participants can give
employees the feeling that “this is our budget”.

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

3
1.3 Statement of the Problem
A budgeting is a plan that out lines an organizations financial goals. So it can be vehicle
for addressing objectives, goals and problems in the most careful way. It also defined as
the formal expression of the plan objectives of management of the bank which covers all
phases of operation for a specific period of time. Budgeting is a plan it helps to allocate
resources, evaluate performance. It is a financial document used to project future in come
of expense. The budgeting process may be carried out by individuals or by companies to
estimate whether the person/company can continue to operate with its project. Should
not be regarded as expression wish full thinking but it can a description of an attainable
objective. This is the real fact that motivate we to study the problem that attach with
budgeting control and evaluation activities that take place in commercial bank of
Ethiopia on Jigjiga branch. In order to achieve the target activity, effectively and properly
budget is a crucial instrument for the bank. Almost all organization, be governmental or
not use budget for different projects and programs to enhance efficient and effective
utilization of the scarce resources. However, many of the organizations would not prepare
budget according to their plan and thus, faces a series budget variance. The real purpose
of budgeting should have several advantages. It guides (monitoring) the flow of the banks
activity at all. It also enhances the quality of the service that was rendered by the bank,
control and accountability each participants through internal and external relations of
managers to its employees, customers, suppliers, creditors and the concerned parties at a
whole. Commercial bank was one of the widest governmental organization, that is series
and successive budget variance. Related factors that is behind preparation of budget and
the challenges faced in the implementation of the planned activities their consequence
creates great impact on the bank. Problem of budgeting is not the only preparation., but
also on implementation. In the current global market environment customer is a key
concern to be raised in order to continue in the market. In this regard as ordinary
customer is always come across long customer guenon our service rendering branches.

From this point of view the researcher wants to investigate. Thus the them of my
questioner involves on concepts of the following.
 How the organizations is employee the budget

4
 How was the performance evaluation to address customers problem
 Which would be attribute for financial service rendering business as a whole.
 What were the bases for preparation of budget?
 What type of budget was used by the bank?
 What are the challenges in the preparation and implementation of budget?
 Who are responsible to prepare budget?
 Does the bank effectively implant its budget?
 Does the variance has impact on the banks performance.

5
1.3 Objective of the Study
1.4.1.General objective
The general objective of the study will investigate the budgeting processes and factors
that affect the effective and efficient utilization of budget in commercial bank of
Ethiopia in jigjiga branch

1.4.2. The Specific Objectives of this paper

- To investigate the budget execution of the bank between 2021 and 2022 G.C.
- To identify the budget preparation processes or system established by the bank.
- To investigate any variance for the questioners 2 years of the budgeted amount
and actual performance of the bank and the reason for variance between the
budget and actual one.
- To examine factors that hinder the effective and efficient utilization of budget.
- To sum up with conclusion and some possible and necessary recommendations
based up on the result of the study.

6
1.5. Significance of the Study
The significance of the study will help 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.

1.6 Scope of the Study

The scope of the study will restrict to assess budgeting and its impact on performance
measurement on commercial bank of Ethiopia on jigjiga branch the scope of the study
will mainly focus on budgetary affecting factors particularly commercial bank of
Ethiopia. To come up with effective research, It would be better to limited the boundary
of the study. If the research has been conducted over all branch of the bank it is better.
However, because of different situation this study will conduct only one branch. It also
better if the research will touch all passed years, but will try to touch only the last two
years .

1.7. Limitation of the study

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

7
 CHAPTER TWO
2. LITERATURE REVIEW

2.1 Origin of the budget

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

2.2. Definition of Budget and Budgeting

There is no consensus on the definition the term Budget. (Alan Pizzey 1973: pp:179)
defines it as ‘a plan quantified in monetary terms, prepared and approved prior to a
defined period of time showing the planned income to the generated and expenditure to
be incurred during the period and the capital to be employed to attain a given objective’.
It is detailed plan expressed in quantities terms that specifies how resources will be
acquired and used during a specified period of time. (Rounald W. Hilton: 1979:366).
Alan pizza, page: 180 Writes:
‘Budgeting is a coordinating process since all the disparate department and cost centers
which make up the business are filled in to one plan’. It is also an imperative process.
Since by a series of small steps comprising a process of a continual review and revision,
the original estimates be come firm plans’.

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

8
forces management to give early consideration to what they plan to do in the future
period.
Budgeting involves as a great rang of interests and concerns. It is difficult to conceive
any public policy that can be carried out with out money, and hence with out becoming
subject to budgetary process. All countries, whether developed or developing would be
engaged budgeting and operate on a budget recognizes its invaluable aid in planning and
form waiting economic policy as well as check on its execution. Budget is used not only
by government but also used by private firms, business and various organizations,
because it enables them to achieve their goals. Nevertheless, budget had not been
developed uniformity among countries and the approaches to budgetary procedures are
not the same in all countries.

2.3 The objective and role of budgeting

Given that limited availability of resources as compared with competing demand, the
process of budget making assumes a critical role in decision making process of
government in order to optimize the use of existing resources. The paper of monetary of
finance in Amharic vision of Ministry of Finance and Economic Development (MoFED)
states that the objective of the budget in three aspects. These are allocation of resource,
distribution of resources and stabilization of economy
The first objective consists of allocating resources between the various function
consumption and investment that between the pubic and private sector. The distributional
sector (objective) necessitates the consideration of public expenditure and the income
groups that are anticipated to be served. It is the policy maker or government that decides
who will be benefited how much from the available resources among the society. This
may by achieved by expenditure policies such as, subsidies, pension or social welfare
schemes as much as taxation on income and capital
Concerning the stabilizing role of budget, HL Bhatia (1980:pp246) states that "budget
plays very important role in the flow of funds in the economy. It also has important
affection in the economy not only through the flow of funds but also through various
fiscal polices and measures. "As a result, budget can be used to control the danger of
inflation by adjusting the amount of governmental taxation and expenditure. Finally,

9
budget plays an important role as a tool of accountability, a means of management and
instrument of plan of implementation

2.4 Budgeting procedures

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

10
these alternatives from a very are number to a smaller one and finally to an approval
course of action.
(Slalim Hamid, 1998) writes:
Budgeting analysis in detail, the many functions of activities that the economy must
perform the implementation of each program, analysis the alternative with in each
activity to achieve the end product and identifies the achievements of the established
goals and the associated costs’
Since budgeting is a crucial instrument for plan accomplishment, they should be
harmonized for proper plan implementation.
‘To harmonize the budget with the plan, there must be a plan in existence, there should
be on annual plan with which budget could be harmonized, ….and there must exist at
least a set of short term targets and goals towards the attainment of which the budgetary
decisions could be oriented.
According to preme Hand (1989:pp 188) budgeting with out planning could to be a plan
of action and plans with out realistic detection of budgetary restraints have little chance
of implementation. Thus any appropriate plan can be meaningless and the result my
become paradox unless it is reelected in the budget.

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

2.6. Performance measurement

2.6.1. Performance evolution concepts
Performance reporting for internal management use in an important part of a
comprehensive profit planning and control system. To indicate the extensive reporting
requirements a business requires and to focus on performance reporting. The following
are an overview of financial reports.
The first one is special external reports. Here, reports are submitted to government
agencies such as regulatory commissions, creditors, investigative agencies and other
external groups. These reports are extensive and comprise a considerable portion of the

11
over all reporting. The next one is reports to owners. It refers to the traditional annual
report to the owners (to stock holders in the case of a business) and other special reports
got ready fro the owners. These reports based on generally accepted accounting
principles.
The last category, the internal reports are those secret reports are prepared in the
corporation for internal use only. They do not have to meet the needs of external groups,
nor the test of “Generally accepted accounting principle”. This category of reports is
subdivided in to three different sub qualifications. These are statistical report, special
report and performance reports.
All companies regardless of their size; have reporting requirements for all the categories
listed above. In small companies, most the basic reporting needs may be accomplished by
using a single general propose report; we are concerned specifically with performance
reports. This particular phase or reporting is an internal part of a comprehensive budget
program. (Ginna Welsch and etal 1997)

2.6.2. Performance reports and communication

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

Communication involves that a person receiving the information understands the nature
and meaning of material in the report Accordingly, clear communication leads to
effective management action and decisions that are likely to base on the facts. Reports the

12
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, se

2.6.3. Using performance measurement to impalement corporate strategy.

Well-developed, coherent strategies merit well developed, coherent performance
measurement system. There are integrated sets of performance indicatory that links
strategic objective to functional tasks by focusing attention on the critical out puts
required by the strategy.
Traditionally, firms have oriented themselves around either a low cost or differentiation
strategy. Firms that focus on cost usually focus on mass production technologies,
attempting to stamp out variance and to attain efficiency through constancy. Conversely.
Firms following differentiation strategies, tend to concentrate on developing flexibility,
promoting rapid adaptation to changing customer’s needs. Nationally, they will
experience tension when cost and differentiation priorities conflict
All companies ought to be aware of the performance levels of their rivals both in
absolute and incremental terms. Bench marketing systems that compare internal
performance with industry best practice can provide not only important information for
strategic planning but also a valid insight for change. (Michael vitale and Salah C.
Mavernae).

2.7. Budget Classification

Budget categorization refers to the systematic ways of organizing budgetary data of both
revenues and expenditures. It offers the form and structure of the budgetary information
that help analysis and inference. Budget classification is one of the essential points to be
beard in mind for the budget to attain its goals more efficiently and effectively. Three
general importance’s can be gained if proper budget classification is intended. These
include:

13
 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).
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.

14
The principals 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.
- Given enough time and man power, there would not be controversy on the
application of zero base budgeting.
- How ever, if such problems exist, reviewing all programs every year would be
bulky and sometimes important.
- Another more serious problem is the ranking of problems.
- If there is in to way to continue with that inefficiency
- Activity in the future. (Anthony Robert 2004: PP 300)
2.8.3. Activity Based Budgeting
If focus on the cost of activities necessary to produced and sell product and services. It
separate indirect cost in to separate homogeneous activity cost pool. Management uses
the cause and effect criterion, to identify the cost driver for each of these indirect cost
pools comes up with the following merits of activity based budgeting.
1. Ability to set more realistic budgets,
2. better identification of research needs,
3. Clear or linking of costs with staff responsibility and
4. Linking of cost to out put.
Conversely, it is tiresome and time consuming to determine the demand for each
individual activity based on output budgeted, production, new product development
(Anthony Robert 2004: PP 309)
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

15
prepared. However, incremental budgeting is not without drawbacks, particularly because
the past period budget may include in efficiency. (Anthony Robert 2004: PP 321).

2.8.5. Master Budget

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

The guidance is more specific for h coming year than it is for more distant year. The plan
for the coming years is called master budget. The master budget is also known as the
static budget, the budget plan or the planning budget. The master budget indicates the
sales level, production and cost level. here, income and cash flows that are anticipated fro
coming yard.
However, it has its Owen limitations that arise from its comprehensiveness which may
result in wrong formulation of the budget. (IAIN, Maritaland, 1997: PP 119).
2.8.6. Variable Budget
The primary purpose of this type of budgeting is to accelerate control. Glevene, Weish
1978:218) identifies three specific benefits of variable budgeting.
- To help development of departmental expense budget for insertion in the profit
plans.
- To give examples, goals for the managers of responsibility center during the
period covered by profit pan and
- To offer adjusted budget allowances fro comparison intention in the monthly
report.
2.8.7. Fixed Values flexible Budget
Fixed budget is a budget fro a specific or fixed total amount that many not be exceeded
due to changes in the demand for goods and services. Being prepared for a particular
planned action, it is suitable for activities whose resources utilization does not materially
vary in due course. It is most appropriate when changes in the amount of goods and
services obtainable directly affect availability of resources and expenditure needs. (IAIN,
Maritaland, 1997: PP 301).

16
2.9. Government Budget
In governmental entities, budget services as a tools of managing resources to attain
programmed objectives. It serves as instrument fro the legislative body to ensure whether
actual expenditures are corresponding to budgeted amounts and that the objective and
levels of activity envisaged in the budget are attained or not. As well, to obtain a share in
government resources allocation, preparing and submitting budget proposal is expected
from each government entity. Moreover, governmental budgets are legally binding upon
the executive body and once fixed by law, they are usually unalterable with out much
effort.

17
 CHAPTERTHREE
3. METHODOLOGY

3.1 Study Area

This study will conduct on commercial bank of Ethiopia on jigjiga branch.

Type of data and sources

The researchers will use two types of data. These are primary and secondary data and
unstructured interview.

3.2 Method of Data Collection

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

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

3.3 The Sampling design

The sampling techniques that is going to be implemented for the study will be non
probability judgmental sampling. This techniques of sampling will select, because it
enables to get accurate and sufficient information. And this techniques will be used 30
individual workers of the bank who are believed to have sufficient knowledge and
familiarity with the banks activity. We would like to select 20 sample they are currently
working in the bank.

18
3.4 Data analysis and presentation
The researchers will use the data analysis with different systems among them editing.
Coding and tabulation. Editing will be used to involves the inspection of questionnaires
on a raw data and necessary for each questions and defecting the most glaring omission
in accuracy detail.

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

19
 CHAPTER FOUR

4.1 Data analysis and presentation

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

20
Table 1: Demographic characterized & respondents and their educational level by proportion of
men and women.
Sex Second degree Second degree Diploma Total

No % No % No % No %
Male 3 15% 8 40% 3 15% 14 70%
Female - - 2 10% 4 20% 6 30%
Total 3 15% 10 50% 7 35% 20 100%

(Source:- Data collected through questionnaires)

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

Table 2 Does the organization use a budget

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

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

21
 Budget responsibility.

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

Table 3. Does all branches prepare their own budget and take responsible at the end
Type of response No of respondent Percentage (%)

Yes 16 80%
4 20%
 No
20 100%
Total

Based on the above table the bank was prepared and take responsible at the end the majority of
the respondents that is 16(80%) was said the organization
properly prepared and used. The remaining was that is 4(20%) was said the banks preparation of
budget is does not known by the lower level
servants.The problem that occurred on preparing of the banks budget was lack of formalization
between employees of the bank because the upper level officials are does not concern to lower
level servants.-lack of activate flow of essential information from top to button and vice versa
unforeseen circumstance: change in market condition, customer awareness
.-thereat from exiting and potential competitors
-understand markets to obtain resources-New markets exploit. 
The procedure the bank follow up to prepare budget was bottom to up and vice versa and most of
the time quantitative procedure was used. It is the measurement  
of quantity or amount that is the bankss activities. It is applicable for phenomenonthat can be
expressed intermes of quantity.The procedure followed by the bank was top to bottom and vice

22
versa due to
topofficials participate in budget processing activities and gave appropriateinstructions to concern
ed lower level worker. Bottom level workers ware participated by supplying customer based
information to upper level officials and commented upper level officials when unnecessary action
was occurred
4.4. Types of budget
Budget in major companies span a period of one year or below. However in this case they may
be prepared vary from company to company. The researcher gathers different information about
the span of the period prepared by the bank.

CHAPTER FIVE
5. SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary and 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.

Many business managers believe that it is neither necessary nor practical to use budget in
a service renderings company. From this point of view there searcher 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

23
management level
to bottom and vice versa It is important to managing, administrating andcontrol the over
all activities of the bank.
Budget can be prepared by using quantitative or qualitative and both procedures.
However the bank uses both procedures.
Budget also prepared for as pane of a month, quarter, semi annual and annual.
In spite of the fact that the bank always used annual budget since budget is the financial
plan of a bank for the period the year and it enables to predicting financial results and the
operation of the financial statements over the year. Therefore, effective implementation
of the budget enables to achieve the desired objectives as a result of this majority
respondents, which is 16(80%) believed that the effective implementation of
budget,where as the remaining respondents which is 4(20%) did not believe the effective
implementation of budget in the bank. From this it can concluded that the bank
effectively implemented its budget.
continuously.
How ever,the bank constantly presented the performance report every quarter.
When variance occurred, it is required to take measure action by informing to all
employees of the bank in order to achieve better result and the desired objective.
So that, majority of respondent that is 15(75%) known when measure action was taken,
the remaining respondents that is 5(25%)are did not known when measure action was
take.
It would be concluded that majority of the respondents of the bank known when measure
action was taken.
Regarding the impact of variance whether it was favorable or unfavorable on the
performance of the bank seemed as followed.
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

24
When compared the overall budgeted year of 2010 with the budgeted year of 2011 the
bank was shown more improvement in budget year of 2011, in
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 and suggestions

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

25
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, that is mang
ers, employees, customers and all departmenthowever 25% of respondents of the bank
they do not know when measure action was taken. Means unnecessary action can not be
controlled by a single manager or department. In connection with this is advisable to
reduce the delay of measure action and while variance was observed but irrespective of
the fact that the bank take measure action three months later from the occurrence of
variance. This delaying may be a reason for the occurrence of other variance on the bank
and it may be come a serious. So that, it can be advisable to the bank to take measure
action if possible immediately, other wise a month later.
The bank should use activity based budgeting technique rather thanincrements. Because it 
is used to allocate resources according to thecontribution of the activity to the over all
achievement of the organization objective.
To qualify its service, and to create good customer handling or customers satisfaction, the
bank should be design its strategy on follow up and quick response base.
The banking industry should be established on the modern system.
The manager of the bank have been hire qualified and talented professionals to avoid or 
minimize employee related problems andcustomers need to get convenient service to
save time, energy and human power.
Upper level mangers should give the chance to lower level servants to participate with
them.
The bank would be give periodic training to its workers to increase
their efficient, awareness about budget and to motivate their contribution to financial
service rendering on the bank.
Basic factor preparation of budget was many situations among them
Previous year budget, whether it was occurred variance or not if variance occurred corrective
action made or vise versa.
To expansion purpose that is existing bank have ideal cash it needed to diversify its position
(power).
Market is the most critical factor to show (guide) budget.
Customer:- what amount of cash worker time, quality and others are needed to made budget.

26
The bank must use flexible budget, due to it has many advantages over fixed one according
to activity to check immediately the occurred problem.
The budget should be revise quarterly base, rather than annual base.
The bank should create awareness about budget utilization for its employee, and each budget
holder should be insuring that all expenditure is with in approved budget schedule.
 Finally the employee of the bank should be work hard for attainment of organizational goals
and objectives. Demand and capacity may be balanced based on customers need

27
28
 REFERENCE

- Robert G.finney 1993

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

29