The implementaion of a budgeting system in a local construction firm

Abstract

PURPOSE: The purpose of this study is to analyse the operations of a company in the construction industry and to assess the type of budgeting system currently in use. These will then be compared with the literature available. DESIGN: The objectives of this study were achieved by using a qualitative approach and carrying out semi-structured interviews with key personnel in the company, including management. A detailed literature review regarding budgeting, in particular for the construction industry was required in order to carry out the analyses of the case study. FINDINGS: The company does not perform a budgeting process but forecasts cash flows for large scale projects. The company can be divided in departments depending on its activities. The revenue is generated mainly from construction projects and sales of construction materials, while major costs include labour costs and purchases of construction materials. It resulted that the most suitable budgeting system for the company, except for construction work, is an incremental approach, with the application of some zero based budgeting principles and a rolling budget approach. For construction work, a profit-based approach is more appropriate. CONCLUSIONS: Budgeting is important for every company and the company in this case study is no different. Therefore, the company should try to adopt the proposed budgeting systems in order to reach its goal, which is to remain in business and make a profit. VALUE: This study sheds light on the budgeting practices in the local construction industry since there is a lack of literature available in the local context. Further studies about budgeting in the local construction industry are encouraged. One area that could be explored is a comparison of budgeting methods used across the local construction industry.