Budgeting systems and controls within a diversified local group of companies

Abstract

PURPOSE: This study aims to analyse and evaluate the budgeting systems and controls within a diversified local group of companies. The study focuses on the case group`s approach towards diversification, thereby understanding the environment and circumstances within which the group operates. The budgeting process of the case group is then to be discussed in detail, both at a subsidiary and at a consolidated level. DESIGN: The researcher intends to attain its objectives using a qualitative casestudy approach. Semi-structured interviews have been conducted with three groups of personnel from the case group, focusing on family owners, middle managers, and personnel from the finance team. The study mainly focuses on the operational aspect of budgeting, thus ignoring the case group`s capital structure and its access to capital financing. FINDINGS: Data findings indicate that the case group`s diversification strategy mainly intends to spread and minimize business risk. Thus, by involving itself in many industries, the case group seeks to ensure business continuity and survival, while being able to expand into new markets. Furthermore, it was identified that budgeting takes the form of a bottom-up approach, wherein budget planning and monitoring of operations mainly takes place at subsidiary level. On a consolidated level, monitoring focuses on the case group`s strategy. CONCLUSIONS: This study highlights the importance of diversification to preserve and expand business, especially by remaining alert for potential business opportunities, even those which management may not be familiar with. In fact, it was identified that the case group has consequently evolved into one of the most diversified groups locally. The research identifies that budgeting follows a bottom-up approach, first planning each subsidiary`s budgets, and then conducting frequent performance monitoring. On the other hand, it was concluded that consolidated budgets are used for the purposes of carrying out the group`s financing function, wherein top management seek to ensure the availability of resources to sustain all subsidiary operations. While the case group has been identified that it is effectively implementing its diversification strategy and budgetary planning, it has been determined that further efforts should be made to improve the design and implementation of corrective action. VALUE: Based on the above conclusions, this study has provided valuable insights on business survival and growth within the context of diversification, especially when facing significant uncertainty. With regards to budgeting, it has highlighted the potential for the formalization of the design and implementation of corrective action in the context of budgeting.