Budget Administration Performance Analys

BUDGET ADMINISTRATION PERFORMANCE ANALYSIS CASE STUDY
ON ETHIOPIAN ELECTRIC POWER CORPORATION NORTHERN

REGION
RESEARCH PAPER SUBMITED TO THE DEPARTMENT OF

ACCOUNTING AND FINANCE AS PARTIAL FULFILLMENT OF
BACHELOR OF ARTS IN ACCOUNTING and FINANCE
BY
HAILE GEBREHIWOT KASSA
ADVISOR:
EPHREM KALAYU (MSC)
MEKELLE UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCUNTING and FINANCE
June, 2016
Mekelle, ETHIOPIA
ABSTRACT
This research paper are conducted and evaluate the budget administration performance analysis
case study on Ethiopian Electrical Power Corporation for the problem identified feasible solution
would be recommended. In order to achieve the derived objectives the study assess the
organization overall budget administration performance analysis for obtaining the information
both primary and secondary data were used. Primary data would conducted through interview
question. The secondary data obtained by referring the organization produce manual documents
and other related reports. The data were processed analyzed interpreted in a way that help the
organization. Finally the study would be concluded and possible solution is recommended.
This study is organized into four chapters with different characteristics. The first chapter deals
with introduction parts that include background statement of the problem and objectives of the
study. The second chapter deals with both the theoretical and empirical literatures reviewed. The
third chapter is where the major objective of the study discussed and hence it deal with graphical
and tubular reparation where take place. The last chapter for consist of summary conclusion and
recommendation
Budget administration performance analysis: case study on Ethiopian electric power corporation i
Haile Gebrehiwot Kassa
ACKNOWLEDGEMENTS
Prior to any thing I thank the almighty GOD for giving me each unit of seconds, holy will and
strength to prepare this research paper.
Second I am so indebted to my Essay Ephrem Kalayu for his unreserved advice and invaluable
comments through the whole process till the paper are finalized.
My special heart-felt gratitude goes to all Ethiopian electric power corporation stuff members,
particularly to the department planning and program, as well as. Operating department. Who
have provided all necessary material for may paper. Finally my special gratitude goes to my
secretary friends for the all round support.
Budget administration performance analysis: case study on Ethiopian electric power corporation ii
TABLE OF CONTENT
Title Page
Abstract.............................................................................................................................I
Acknowledgements...........................................................................................................II
Table of content ...............................................................................................................III
CHAPTER ONE
Introduction.......................................................................................................................1
1. Background of the corporation...............................................................................1
Background of the study .......................................................................................................,..2
Statement of the Problem...........................................................................................................3
...........................................................................................................................................
Objective of the Study ........................................................................5
Significance of the study............................................................................6
Scope of the Study.....................................................................................6
Data source.................................................................................................................................6
Methodology of study.................................................................................................................6
Organization of the study............................................................................................................7
Limitation of the study................................................................................................................7
CHAPTER TWO
Literature Review...............................................................................................................8
2.1 Budget and Budgeting concept............................................................................8
2.1.1 Administration of budget............................................................................9
2.1.2 Characteristic of budget..............................................................................10
2.2 Historical development of modern government budget.......................................11
2.2.1 Historical development of Ethiopian budget...............................................11
2.3 The power of budgeting........................................................................................12
2.4 Budgeting objective and obstacles........................................................................13
2.5 Performance evaluation and management control................................................15
2.5.1 Performance reported and communication................................................15
2.5.2 Adapt performance reports to requirements of user..................................16
2.5.3 Management follow-up procedures...........................................................17
2.5.4 Technical aspect of control reports............................................................18
2.6 Studding Revenues...............................................................................................18
2.7 Study expenditure.................................................................................................19
2.8 The importance budget classification...................................................................20
2.8.1 Budget classification.................................................................................21
2.8.2 line item budgeting (traditional budget0...................................................25
2.8.3 Performance budget...................................................................................25
2.8.4 Zero base budget........................................................................................26
2.8.5 Master budget............................................................................................26
2.8.6 Fixed versus flexible budget.....................................................................27
2.9 Analysis of budget variance..................................................................................29
Budget administration performance analysis: case study on Ethiopian electric power corporation iii
2.9.1 Analyzing variances....................................................................................29
CHAPTER THREE
3. DATA ANALYSIS AND INTERPRETATION ........................................................... 30
3.1 Budget Preparation ................................................................................................... 30
3.1.1 Operating Budget Preparation ......................................................................... 30
3.1.2 Capital budget Preparation ............................................................................. 32
3.2 Performance measurement ......................................................................................... 33
3.3 Revenue of the corporation ....................................................................................... 34
3.4 Master budget .................................................................................................................... 34
3.5 Revenue collection ............................................................................................................ 35
3.6 Building power generation station ................................................................................... 38
CHAPTER FOUR
4. Summary, Conclusion and Recommendation...................................................................43
4.1 Summary of findings.........................................................................................................43
4.2 Conclusion ....................................................................................................................44
4.3 Recommendation ........................................................................................................45
Reference ....................................................................................................................
Interview Question.......................................................................................................
Budget administration performance analysis: case study on Ethiopian electric power corporation iv
Budget administration performance analysis: case study on Ethiopian electric power corporation v
CHAPTER ONE
INTRODUCTION
1. Background of the corporation
The Ethiopia electric light and power authority (EELPA) which was established in 1956, after having
under gone restructure have been recognized as Ethiopia Electric power corporation (EECPO). As
everybody observed. Electric power is one of initial pre-requesting for one country development. The
corporation also take this basic issue in to consideration and utilize, its full financial and fiscal
potential to satisfy the Electric power need both in town and rural of the country. The corporation
(EEPCO) is responsible for generating, transmitting distributing and selling of electricity to notional
wide presently the corporation maintain different power supply systems namely, the interconnected
system (ICS). which is mainly supplied from hydropower plants, and the self contained system (SLS)
which consists of mini hydropower plants and a number of isolated diesel generating units that are
widely spread all over the country when it can be describe in terms of coverage, the majority part
power supply is come from the interconnected system (ICS). It can be cover 98% the country power
and 2% the power supply is come from the self-contained system (SLS).
The objective of Ethiopia Electric power corporation (EEPCO) on:

- Job opportunity for citizens
- Attract foreign investor by facilitate
- The infrastructure of Electric power need
- To satisfy its customer by distributed electric power in town and
rural.
Make the country to computer global market by using recent technology
It also save the country capital amount that spend for the propose of purchase substitute
electric power (like generator)
Budget administration performance analysis: case study on Ethiopian electric power corporation 6
1.1 BACKGROUND OF THE STUDY
Budget is statement of future expenditures and revenue that help managers plan and control the use of
financial and other resources.
Budget is a quantity of future plan of action and aid to the coordination and implementation of plan.
It is a systematic and formalized approach for stating and communicating the firm's expectations. A
budgeting system builds on historical or actual performance. Budget is the most widely used method
of its unique feature in controlling financial resources. Because of is unique feature in controlling
financial resources preparation of an annual or other wise budget is mandatory. In most of the
organization it can quantity the planned financial effects of activities of continuous improvement and
cost reduction. It serves as an important mechanisms for achieving predetermined your in every kind
of organization including private profit matching companies, governmental not for profit-unit. The
experience in several countries and in much organization indicates 90% of organizational activity
depends an budget.
Ethiopian Electric power corporation is also one kind of the above list types of organization, which
indicates that 90% of its activities depend on this budget.
1.2 Statement of the Problem
A budget is a plan that outlines organizations financial goals. So a budget may be thought of as an
action plan, planning a budget helps a business allocate resources, evaluate performance and
formulate plans.
While planning a budget can occur of any time, for many business's planning a budget is an annual
task where the past years budget is reviewed and budget prosection save made for the next three or
even five years.
Budget is a financial document used to project future income of expenses. The budgeting process
may be carried out by individuals or by companies to estimate whether the person/company can
continue to operate with its projected in come expenses.
Each budget center prepares its own budget by estimation. Were as, budget should not be regarded as
expression of wish full thinking but rather as a description of an attainable objective. This the real
fact that motivate we to study the problem that attach with budgeting control and evaluation activities
that take place in Ethiopian Electric Power Corporation.
This is an obstacle for the company to attain its objective. In addition to this the Ethiopian Electric
power Corporation is one of governmental organizations in the country. which under take varies
activities. In order to achieves theses activities effectively and properly budget is important
instrument for the corporation (EEPC). By understanding this we need to investigate the following
problem in addition to above mentioned.
There are like:
 What amount (%) budget sends from federal government budget?
 How allocate these budgets to its different activities of the corporation?
 How to report the company's performance in relation to budget utilization and
distribution?
 Which part is responsible for the preparation and presentations of performance reports
are presented?
 Which method of budget system is used and preferable during several year
experiences?
 When the performance report presented to responsible center, if there was a significant
variance where shown with in the report. What measurement should be taken by
corporation manager to determine the underling causes. What about the correction
action to be taken.
 What is the basis of budget allocation to varies unit
 How to administer a given budget to its different activities of the corporation
1.3 Objective of the Study
The over all objective of this study to examine budget and budgeting related concept line: budgeting
administration; budgeting control and performance evaluation of the Ethiopian Electric power
corporation (EEPC)
The specific objectives of the study are:

1. To look, with due attention in to the budget of EEPC, which actually is send to them by
government.
2. To identify in to the budget system that adopted by the EEPC.
3. To identify in to any variance for 5 years of the budget amount and actual performance of
EEPC and the reason for the implied division between the budgeted and actual figure.
4. To identify in to the preparation of performance report of the company (EEPC).
5. At end to analyze and recommend the company (EEPC) performance based on the available
data.
1.4 Significance of the study
Budget play a significant role by controlling and protecting the over and understatement of revenue
and expenditure of different company and government units. But much emphasis doesn't given by
these entities. There for the study tries to address the area where emphasis doesn't give with (EEPC)
corporation. Look with due attention, where the problem of over and under statement where take
place within the corporation (EEPC). Then the study highlights the solution to control these issues by
using budget.
1.5 Scope of the Study

The main concern of this study is to see the importance of budget for administration and control
varies activities within the corporation (EEPCO). More over the study assess the corporation
performance evaluation, reporting and its presenting to expecting focus group.
1.6 Data source

In organizing the study and mainly to come up with some empirical results, annual data for sequence
of 5 years are collected, internet different pamphlet and from various books. The main source of the
data for accomplishing the study is Ethiopia Electric power corporation annual reports. It also uses
other different research paper for the purpose of full up of the procedure and system they design.
1.7 Methodology of study

The study uses both primary and secondary sources of data for the primary data like. Interview and
observation are conducted. Regarding secondary source of data available of organization documents.
Federal budget report and international Journal some of this source. Regarding the analysis part
where accomplished through the data that are collected from primary and secondary sources. These
data are organized in quantitative and qualitative method. For the quantitative data the analysis part is
conducted through percentages and tables regarding the qualitative types of data the explanation take
place briefly and sequential manner.
1.8 Organization of the study

The study is organized into four chapters with different characteristics. The first chapter deals with
introduction parts that include background statement of the problem and objectives of the study. the
second chapter deals with both the theoretical and empirical literatures reviewed. The third chapter is
where the major objective of the study discussed and hence it deal with graphical and tubular
reparation where take place. The last chapter for consist of summary conclusion and recommendation
1.9 Limitation of the study

One of the limitations that this study faced is in related with time and cost. Since Ethiopian Electric
power corporation is the largest having branch in the country. It is time taking and costly to collect all
branch budgeting data.
Another limitation of study concerns with related to data collection. The study uses only 4 (four) year
budgeting data. This happens because of difficulty to collect every year budgeting data, as well as, to
arrange the data properly and timely. The study selects these years data. The above two limitation
occurred because of the reason that are beyond the researcher's capacity.
CHAPTER TWO
Literature Review
2.1 Budget and Budgeting concept
This part tries to review the nature and importance of budget, as well as, its measurement system.
Virtually everyone has heard the term budgeting and has concept of its meaning. Like many
accounting terms; budgeting is used commonly in our daily language. For example every one might
have heard that the mass media reports budgets of administrative regions, budget of Federal
government, budget of private company and budget of different government units. This concept is
raised for the purpose of introducing the basic frame work of the budget.
More about budget can be defined by different scholars. Different scholars defined budget in different
managers. However most of them have come up with similar connotation of budget and budgeting
some of the definitions selected represented below.
To deal with, it is important to begin on the meanings of the essence and purpose of budget. The
word budget is derived from the French word “boguette” meaning a small bag or pouch. The oxford
dictionary defines a budget as “a statement of the probable revenue and expenditure for the ensuring
year with functional proposal funded there on” it is also defined as a financial or quantitative
statement prepared prior to define period of time. A budget is a plan showing the company’s
objectives and how management is intend to acquire and use resources to attain objectives.
Another scholar defines the word " budget" originally meant the most buy of the public purse (small
bag). which served as a receptacle for the revenue and expenditure of the state. Jesse burse Head.
Government budgeting
Budget participation has been used successfully in many companies, it does not always work, studies
have shown that in many organizations budget participation failed to make employees more
motivated to achieve budgeted goals. (Her manson princ:pie of accounting P. 1110).
This means that the term budget has negative connotaions for many employees who feel they are
subjected to a budget. oftern in post management has imposed a budget from top without considering
the opinion and feeling of the personnel affected. This problem can be minimized through
administration of budget. (Ibid, p. 1110)
The concept and history of budgets
Budgets are financial blue print that qualifies a firms plan for the future. It‟s a detailed plan that
outlines the acquisition and use of financial and other resources over a given period of time.
According to Flamholtz (1983) a budget in an organization acts as a mechanism for effective
planning and controlling. Schick (1999) concurs by stating that the main purpose of a budget in any
organization is for planning and controlling in order to achieve organizational goals and objectives. A
budget is a standard against which the actual performance of an organization can be compared and
measured. A budget stipulates which programmes and activities should be pursued. Lucey, (2002)
defines a budget as a quantitative statement, for a period of time which may include planned
revenues, assets, liabilities and cash flows.
Budgeting in non-governmental organizations is used as a planning tool. Organizations use a budget
as a guiding tool of its activities. According to Goldstein (2005), a budget is used by institutions in
setting priorities by allocating scarce resources to those activities that are most important to the
organization. The annual budget is commonly referred to as the master budget and has three principle
parts namely the operating budget, cash budget and the capital budget.
Premchand (2000), states that a budget is a company policy and determine the manner in which
resources are managed. The financial task in budget implementation includes spending the specified
money, maximizing savings and avoiding over expenditures at the end of the financial year. Frucot
and Shearon (2001) argues that implementation of the budget require an advance program of action
evolved within the parameters of the end of the budget and means available. According to Horngren
(2003), effective budget implementation is usually assessed by addressing various variances between
the actual performance and budgeted performance.
According to Atkinson (1993), one of the most visible and highly publicized economic challenges
facing the implementation of operational budget is the decline in the purchasing power of an
institution. Continuing budget pressure in an organization is forcing management to
re-think their current service delivery and develop initiatives that reduce costs and increase
efficiency. Budgetary task is usually rendered operational through the administrative process in any
organization.
In any organization, budget implementation officers determine the portion of the organization‟s
resources that a manager of each unit would be authorized to spend. Budgets establish organizational
performance goals for each organizational unit in terms of costs and revenues. A budget enables an
organization to predict the movement of their short term and future performance. According to
Premchand (2000), if institutions fail to provide fairly accurate predictions in operations and capital
projects, then doubt is cast on the performance of that institution.
Even though money management has been around as long as money existed, the idea of a budget is a
recent concept, often attributed the British monarchy in the 1700s. The Parliament was put in place to
establish some form of checks and balances. At that time, budgeting was mainly self- serving as the
first controls were put on the military so the King couldn‟t create a force to overthrow the Parliament.
However, things were rarely written down, there wasn‟t a regular review and any auditing or
reporting. As the budget expanded to include more areas of the government, the idea of a true budget
evolved to mean more control and accountability.
At the beginning of the Nineteenth Century, many of the currently accepted policies and procedures
were taking shape. It was actually the French efforts to streamline their own government that
budgeting became a useful and practical practice. By the mid-1800s, they had put together guidelines
for performing audits, defined a standard fiscal year, and created accountability reporting. They
required written reports that detailed all of the revenue and
expenses for the year with a reconciliation of where all funds came from and how they were
dispersed. In the early 1800s, American government and business began to recognize the concept of
a balanced budget. While it would appear to mean something different to people now, in those days a
balanced budget meant controlling expenditures and keeping them low while reducing or eliminating
debt.
Starting as a tool to manage governments, budgets appear in business and personal lives. It is a way
to accurate track what is coming in and what is going out. That gives you the data to determine where
you can make changes in your income and expense strategies to make the most of the money you
have.
Budget Process
Budgeting process pushes managers to take time to create strategies, targets and goals before activity
begins. Budget preparation helps management focus on the next month or the entire coming year. The
budgeting process forces managers to assess current operating conditions and aids in forecasting and
implementing needed changes (Anderson,1996).
Budget preparation is also an excellent vehicle with which to work with all supervised personnel by
requesting their managers and their staffs. At the end of a period the budget helps managers evaluate
performance, locate problematic areas, bottlenecks and provide solutions to these problems (David,
1988).
Budgets analysis should be a regular and ongoing part of management duties because helps chart the
course of operations and provides a means to evaluate performance once the task has been
completed .If realistic goals have been established comparing the actual results with budgeted targets
can help management assess how well the organization performed( Belverd, 1996).
Budget Goals and Objectives
According to (Anderson, 1996), the following are five groups of budgetary principles and are
explained as follows: First, long Range goal principle: Annual operating plans cannot be made unless
those preparing the budget know the direction that top management expects for the organization.
Long range goals projections covering a five to ten year period must be set by the top management.
In doing so management should consider economic or industry forecast.
The long range goals themselves should include some information about the expected quality of
products or services and growth rates. Second, short range goals: These short range targets and goals
form the basis for the organization‟s operating budget for the year. Third, responsibility and
interaction principles: Budgeting success or failure is in large part determined by how well the human
aspect of the process are handled from top management down through the organization all
appropriate people must take part actively and honesty in the budgeting process (Anderson,1996).
This kind of cooperation will occur only if each person realizes that he or she is important to the
process. Fourth, budget follow up principles: Since the budget consists of projections and estimates, it
is important that it be checked and corrected continuously. It makes more sense to correct an error
than to work with an inaccurate guide (Anderson, 1996).
A number of writers have argued that there are several objectives of budget. According to (Caldwell,
1996), the main objectives of budget include; to aid in establishing procedures for
preparing a company‟s planned revenue and costs, also budgets aid in coordinating and
communicating these plans to various levels of management and, they formulate a basis for effective
revenue and costs control. Conventional budgeting concentrates on expenditures by budget centers
under conventional cost headings for example salaries, telephone and travelling expenses.
These are sometimes known as line items budgets as there is a line for each expenditure item.
Traditional budgeting systems have been criticized as it is claimed that they do not support the drive
for continuous improvement, nor do they relate expenditure to the activities which cause them. It is
claimed that budgeting based on activity analysis overcomes some of these problems (Kariuki, 2010).
Budgetary Control
Planning and control and related resources and their costs are the keys to good management. The
process of developing plans for a company‟s expected operations and controlling operations
helps to carry out those plans is known as budgetary control. Objectives of budgetary control are: To
aid in establishing procedures for preparing a company‟s planned revenues and costs. Budgets also
aid in coordinating and communicating these plans to various to various levels of management
(Kariuki, 2010).
In addition, budgets formulate a basis for effective revenue and cost control .for companies to benefit
from budgetary control, they should first set quantitative goals, define the roles of individuals, and
establish operating targets. Short term or one year plans are generally formulated in a set of period
budgets. A period budget is a forecast of operating results for a
segment or function of a company for specific period of time (Caldwell,1996).
In practice, most of the manufacturing companies in Nairobi County use period budgets as their
budgetary control. These follow several management accounting tools. These are, Knowledge of
responsibility accounting reporting systems, cost behavior patterns, and the use of cost, volume-
profit analyses help management project revenues and costs for departments or products. A profit
planning in itself is possible only after all cost behavior patterns have been identified. (Caldwell,
1996).
Budgeting Techniques
There are two main techniques for budgeting i.e. Incremental budgeting and Zero based budgeting.
An incremental budget is a budget in which the figures are based on those of the actual expenditure
for the previous year with a percentage added to cover for an inflationary increase for the New Year.
It is an easy technique that saves time but is often inaccurate. This budgeting technique is only
appropriate for organizations where each year is very similar to the earlier one in terms of activities.
In normal situations however, very few dynamic organizations or projects are so stable as to make
this budgeting technique really work for them (Lucey, 2004).
In zero based budgeting scenarios, past figures are not used as the starting point .the budgeting
process starts from „scratch‟ fore posed activities for the year. This results in a more detailed and
accurate budget, although it takes more time and energy to prepare. This technique is most useful for
new organizations and projects but is also probably the best route to go in a dynamic organization
that is proactive in taking on fresh challenges (Kariuki, 2010).
Problems Associated With Budgeting
There may be too much reliance on the technique as a substitute for good management. The
budgetary system, perhaps because of undue pressure or poor human relations, may cause antagonism
and decrease motivation. Variances are just as frequently due to changing circumstances, poor
forecasting or general uncertainties as due to general managerial performance (David, 1988).
Budgets are developed around existing organizational structures and departments which may be
inappropriate for current conditions and may not reflect the underlying economic realities. The very
existence of well documented plans and budgets may cause inertia and lack of flexibility in adapting
to change (David, 1988).
There is a major problem in setting the levels of attainment to be included in budgets and
standards .Although much research has been done in these areas by Stedry, Becker and Green and
others, knowledge is still incomplete. There are many factors to be considered including the
aspiration level of individuals, group pressures, and the extent of participation and past performances
(David, 1988).
Budget Review
Budgets are one of the accounting measures which are used to assess a company‟s performance. The
reward system of the organization (i.e. pay, promotion) is often linked to the achievement of certain
levels of performance, frequently measured in accounting terms. It is conventionally assumed that by
establishing formal performance measurement and rewarding individuals for their performance they
will be encouraged to maximize their contribution towards the
organization‟s objectives (Horngren, 2000).
In this way it is assumed that goal congruence will be achieved. On the other hand , if performance
measures and the way they are used motivate managers in ways that do not contribute to
organizational objectives this is a dysfunctional consequence and leads to a lack of goal congruence
(Simiyu, 1979).
Unfortunately, the research evidence suggests that not too often accounting performance measures
leads to lack of goal congruence. Managers seek to improve their performance on the basis of the
indicator used even though this is not in the best interest of the organization as a whole. For example,
Likert found out that concentration on short term cost reductions produced damaging long term
effects on labor turnover and absenteeism which were dysfunctional. (Simiyu, 1979).
This problem occurs not only with budgets but with other types of accounting measurements. For
example, assessing managements performance by the return on capital employed has been found by
Dear den to cause managers to delay making new investments which are in the interest of the
organization as a whole but which would cause their own R.O.C.E. to fall (Williamson, 1999).It
should be noted that concentration on a single measure or target causes problems.
The law of requisite variety states that for full control the control system must have as much variety
as the system being controlled so that concentration on a single measure (Sales budget level, return
on capital employed) cannot hope to control adequately a complex system. Numerous organizations
have attempted to deal with the problem of assessing managerial performance using multiple criteria
and one of the pioneers was the General electrical company of America which identified eight key
result areas: Productivity, personal development,
profitability, market position, product leadership, employee attitudes, public responsibility, balance
between short term and long term goals (Horngren, 2000).
Manufacturing firms prepare a manufacturing budget rather than a purchases budget. A
manufacturing budget contains more details than a purchases budget, but both budgets accomplish the
same objectives: providing cost of goods sold for the budgeted income statement, disbursements for
each cash budget, and inventory values for the balance sheet (Kariuki, 2010).
A manufacturing company produces instead of purchasing its inventory. The focus of a
manufacturing firm‟s budget is the production budget, which specifies the number of units to be
produced. Like the purchases budget, the production budget is based on the sales forecast and the
desired change in inventory (Kariuki, 2010).
Budgeted units of production =desired units in ending inventory+ units of sales –units in beginning
inventory.
After determining the units to be produced, a manufacturing company prepares detailed budgets for
direct material, direct labor, factory overhead and cost of goods manufactured and sold (Horngren,
1990).Budgeting in manufacturing companies is a vital tool in financial management; some of its
benefits are, first, budgets are the major formal way in which the organizational objectives are
translated into specific plans, tasks and objectives related to individual managers and supervisors. It
should provide clear guidelines for current operations. Secondly; the budgets are an important
medium of communication for organizational plans and objectives and of the progress towards
meeting those objectives (Kariuki, 2010).
More so, the development of budgets (done properly) helps to achieve co-ordination between the
various departments and functions of the organization. Budgets also through the involvement of all
levels of management with setting budgets , the acceptance of defined targets , the two way flow of
information and other facets of a properly organized budgeting system all help to promote a coalition
of interest and to increase motivation (Horngren, 1990).
Through the budgets, management‟s time can be saved and attention directed to areas of most
concern by the „exception principle‟ which is at the heart of budgetary control. Budgets allow the
systematic reporting and monitoring of performance at all levels and thus aiding in the control of
current activities. The investigation of operations and procedures, which is part of the budgetary
planning and the subsequent monitoring of expenditure, may lead to reduced costs and greater
efficiency (Lucey, 2004).
The regular systematic monitoring of results compared to plan that is the budget provides information
upon which either, to adjust current operations to bring them into line with the previous plan or, to
make adjustments to the plan itself where this becomes necessary. The integration of budgets makes
possible better cash and working capital management and makes stock and buying policies more
realistic (Lucey, 2004).
2.1.1 Administration of Budget
Budgeting take a lot of management time top managements want lower level mangers have valuable
knowledge about the day to day aspects of running the business. Participation also creates greater
commitment and responsibility to ward the budget among lower level managers. The widespread
prevalence of budgets indicates that the advantages of budgeting systems out weigh their costs. This
can be observed from survey company practice. Budgeting management at all levels of the company
should understand and support the budget and all aspects of the management control system. Top
management support is critical for obtaining active line management participation in the formulation
of budget and for successful administration of the budget. (Chaples, J.Horngren 2003)
2.1.2 Characteristic of Budget
Budget can be characterized in different way in varies organization. From this some of the lists are:
 Budget is quantitative
 Budgets are stated in monetory terms, although the monetary terms may be backed by non-
monetary amount.
 Budget is future oriented
 Many financial figures are meaningless unless they are associated to specific time reference.
 Budget deals with a specific entity
 Generally budget cover a period of one year.
The purpose of budget is earning a reasonable return on resources used is a primary company's
objective. It is one of the measure purposes of budget, there are also some list of purpose:
 Shows management's operating plans for the coming period (S)
 formulizes management's plans in quantitative terms.
 Forces all levels of managemnt to think a head. anticipate results
 May also be used to motivate individual so that they strive to achieve stated goal. (jet
manson, principle of accounting p. 112-13)
 Well-managed organization usually have the following budgeting cycle
 Planning the performance of the organization as a whole as well as its subunit
 Providing a form of reference, uses of specific expectation again which actual result can
be compared
 Investigating variation from plans. If necessary corrective action follows investigation
(Charles, J.Horngven 203)
 Planning against, considering feedback and changed condition
Historical Development of Modern Government Budget

Historical the practice of budgeting generally originated in the central government of great Britain at
the year of 1217. However an entirely new approach to government budget was initiated during the
year 1930's economic depression in the advanced capitalist countries. During that period, new
possibilities of using financial measures to regulate the level of employment one economic activity
were recognized. (Hiness, JJ and Edward R.J. 1954)
The historical development of modern budgeting suggests two significant generalizations concerning
the distribution of budgetary responsibility.
The budget system developed as an instrument for democratic control over the executive. The power
of the purse comes to raised in the legislature in order arbitrary tax payments in his subjects. The
budget is an expression of ultimate legislative authority.
The pattern of responsibility which characterizes the budgetary process may be examined from a
number of stand points.
o As a legal institution, the budget is an expression of the constitution and statutes of a
government.
o Viewed interms of organization
o As a matter of procedure, the budget is the product of a time sequence of decisions made
in an organization as context. ( Jesse Burkhead 2001)
2.1.3 Historical Development of Ethiopian Budget

Ethiopian starts the practice of government budget early at the regimes of Hailesilase. However, at
the beginning, it was not structured in such a way as to permit efficient financial administration, but
through time period continuous modification of the budget system was made before it attained its
present status.
The budgetary system varied in diffident regimes based on the administrative structure each
government followed. In centralized system, resource allocation and financial administration is the
major responsibility of central government. The budget would be formulated and resources allocated
by the central government. The entire spending process was also under a closer supervision of
executive bodies at central government.
In a decentralized governmental structure on the other hand, the responsibility of financial
administration is developed in to autonomous and semi-autonomous governmental unit like ministry
offices, regional and local governments.
Ethiopians budgeting systems reach to this current situation, after a number of modifications. This
modification were approved by the constitution of the country. The Federal Democratic Republic of
Ethiopia (FDRE) constitution defines the budget system and its structure briefly under article 65 and
proclamation No.1/1995, 57/1996 and 17/1997.
Effects of budgets on financial performance
Without losing its control and accountability mechanisms, modern budgeting can better support
performance management by integrating known financial outcomes with frequent re-forecasting of
the budget and linked to analysis of performance trends. A manufacturing firm‟s financial
performance management reporting systems will draw on a number of information sources and
reflect the range of stakeholder and departmental perspectives (MelekEker, 2007).
There are a variety of approaches to developing the performance metrics and the reporting of
performance. But without integration of the financial resources consumed, the firm cannot measure
value for money or make informed choices about future resourcing and service priorities. One way in
which the in-year operational performance and financial information can be integrated more closely
is to develop a system which encourages the issues to be considered together and to develop
management reports that provide a rounded picture (Hansen and Mowen, 2005).
Manufacturing firms should develop an approach that consciously attempts to consider the financial
and non-financial processes together. A key feature is that before any review of the financial
variances takes place, the firm asks questions about the expected position, based on the understanding
of what has happened, what happened that was unexpected and what planned events did not take
place. It needs to structure its responses and planned management actions into
those that can be taken in-year and those that require a longer timeframe, with consideration
of what specific financial actions may be required as well as substantive operational actions
(Drury, 2004).
The best management reports detail what has happened and what is expected to happen in the
future. The accounts and report provide the information needed to take any corrective action
required. Such action needs to take place for the firm as a whole, so it is important that all
areas are covered. This implies that the operational data and financial data are presented
together in a comparable and consistent form (Kariuki, 2010). It also implies that risk and
other aspects of performance are reported along with the financial headlines. The risks are
thus quantified financially and uncertainty in the financial forecasts is made explicit. Some
firm have found it helpful to present a regularly updated board-level report of risks and
opportunities, in which the main possible financial up- and downsides are shown alongside
each period‟s forecasts. This permits focus on a range rather than a spot forecast (Horngren,
2000).
Where big deviations from budget have occurred, it may be necessary to formulate and report
on a recovery plan alongside the routine budget profile. Getting the reporting framework right
is critically important so that the Board has the full picture on which to base its decisions. It
ensures that everyone is considering issues within the context of a consistent reporting
template and using a consistent language. For management it brings the benefit that a
common framework for reporting can enhance co-operation between the operational
managers and the finance function (Engler, 1995)
2.2 The power of Budgeting

Budgeting can be the vehicle for addressing objectives, strategies and problem in the most
intelligent way. It should be the vehicle which gives reality to the company’s objectives and
strategies and should reflect the organizations considered decision on strategies, courses of
action and responses to problems.
Further, it should consistently communicate all these things to the entire organization. Finally
it is the only vehicle that can accomplish all these things, because it expresses the decision,
responses, and action with numerical specificity in relation to time and is subsequently used
to measure the performance of the company and its component department (Robert G.
Firuny, p.5)
Budget administration performance analysis: case study on Ethiopian electric power 28

corporation
In addition to this budget play significant guideline for the organizations in overall aspect.
Budget when approved by the authorized, it become standard against actual operation. It also
thus the critical managerial tool of execution both guiding the organizations operations and
ensuring that spending does not exceed appropriations. It can be used as control standard, as
well as, it is carrying the status allows. Other element of the execution process measure actual
performance against that standard and implement control system to correct the variance. It
can be set the maximum limit for spending (Tesfaye Tadese 2006: 3
New trends in budgeting: activity-based budgeting, rolling budgets and forecasts,
beyond budgeting
Despite the widespread use of traditional budgeting, academics consider that it is far from
perfect, it has lost relevance with the modern business environment and is no longer
satisfying the needs of managers (Rickards, 2006; Goode&Malik, 2011).
As a response the literature (McNally, 2002; Banovic, 2005) proposed two distinct
approaches to address the shortcomings of traditional budgeting practices:
 Better budgeting approach – presumes improving the budgeting process by focusing
on the planning problems with budgeting;
 Beyond budgeting approach – supposes radical changes to the budgeting process and
it is concentrated on performance evaluation problems with budgeting.
Both approaches consider that traditional budgeting is fundamentally mismatched to today’s
rapidly changing and uncertain environment and the existing alternative or advanced
budgeting models address the limitations of traditional budgeting.
In the following sections we are going to address the most popular alternative budgeting
models in more detail. Activity-based budgeting and rolling budgets and forecasts are
approaches and techniques that can aid improved budgeting and planning processes, while
beyond budgeting focuses reinvigorates the business operation and performance (Neely et al.,
2003).
From the perspective of the whole organization each alternative improves profit and
incorporates three important budgeting functions: forecasting, operational planning and
performance evaluation (Hansen, 2011). Further on we will clarify the concepts used,
describe the models’ implementation process, and emphasize the associated benefits and
drawbacks. Then we will examine the applicability and usefulness of these models in
practice.

corporation
Activity-based budgeting
Activity-based budgeting (ABB) is not a new idea. It appeared in the late 1990s as an
extension of activity-based costing and management (Pietrzak, 2013). Activity-based costing
approach is one of the new approaches in costing that have efficiency in providing detailed
cost information and identifying valuable activities in the process of cost management
(Lotfi&Mansourabad, 2012). This approach led to extend the methodology into planning and
budgeting. Activity-based budgeting focuses on creating the budget based on activities rather
than units. Moreover, ABB requires determination of the cost of planned activities based on
their expected size and resources which they consume.
Usually, companies are using ABB to forecast the demand for activities and also for the
usage of the resources they need creating a balance between the demand and available
resources, thus creating an operational plan. Further on, the operational plan is used to
determine the cost of resources and to create the financial budget. Because revenues and costs
are linked to activities, they are allocated more effectively and are not linked to prior year
figures, but to actual needs (Hanninen, 2013).
The ABB approached is very well explained by Hansen et al. (2003). According to them the
ABB approach involves two stages. First, ABB creates an operationally feasible budget
before generating a financial budget. In the operational loop activity- based concepts are used
to convert the estimated demand for products and services into activity requirements using
activity consumption rates. Once the activity and resource consumption requirements are
known the ABB approach works to achieve an operational balance between the resources
required to fulfill demand and the resources available. In traditional budgeting, if the initial
plan leads to an imbalance, the budget can be balanced only by changing the quantity of
demand or resources available. In ABB the organization can adjust the quantity of demand,
resource capacity, resource consumption rates or activity consumption rates.

corporation
The second stage is the financial loop. In this stage a financial plan based on the operational
plan is developed. Financial balance is achieved when the financial plan meets a
predetermined financial target. Once demand, activities and resources are known, cost of
resources are determined and then this costs are associated to activities and then to products
or services. The projected financial results can be viewed in the aggregate or can be separated
by resources, activities, products or other cost objects.
Using ABB resource needs could be easily identified; costs can be more accurately associated
with activities; costs can be better linked to outputs; the planning process could be more
precise and corrections could be done more effective; more realistic budgets could be
established (Pietrzak, 2013). According to Hansen (2011) ABB is a new budgeting model
which changes and improves operational planning; gives the company more flexibility to
react to unexpected events; reduces bureaucracy and time needed in traditional budgeting
(Hanninen, 2013). Moreover, if the ABB model is computer based, it can easily be updated to
new circumstances (Hansen, 2011).
Still, ABB implementation it’s not an easy process, some requirements are needed which may
prove to be overwhelming especially for small companies. According to Pietrzak (2013)
changes in the business perspective; thorough knowledge of the organization; knowledge
about activity based concepts are needed when implementing ABB. Rolling budgets and
forecasts
Rolling budgets along with rolling forecasts are some of the concepts discussed in the
contemporary management and managerial accounting literature. Nowadays, companies seek
to mitigate their traditional budgeting problems by implementing forms of budgeting and
forecasting that allows managers to update budgeted numbers with actual results from past
periods. According to Player (2009) “forecasts are used to predict what may happen in the
future, often seeking to confirm whether pre-determined annual targets will be met”.
A rolling budget is defined as a budget that has a fixed time span, it is updated regularly and
provides an overview of the coming periods (Golyagina&Valuckas, 2012). Due to the rolling
budget, managers have to rethink the process and make changes each month or each period.
The result is usually more accurate, up-to-date budget incorporating the most current
information (Banovic, 2005).
Rolling forecasts are used as a replacement to or in combination with a traditional budget, to
run the business as conditions change. The definitions of rolling forecast differ among several
authors. Researchers (Sivabalan, 2011; Golyagina&Valuckas, 2012) consider that rolling
corporation
forecasts are short-term budgets for medium-term horizon and compels the organizations to
focus on the future. Others consider that rolling forecasts are financial estimates of likely
future outcomes based on current assumptions and economic forecasts about the environment
and organization’s plan (Zeller& Metzger, 2013); or that rolling forecasts maintains a
constant forward-looking time horizon, usually between 12 and 18 months (Hansen, 2011)
predicting changes in sales, profit, costs and investments.
Rolling forecasts are used to manage weaknesses of traditional budgeting; allows companies
to advance financial and operational management; speed up decision making process and
promotes the value- added activities (Lorain, 2010). In order to be efficient the rolling
forecasts should be strategically oriented; it should not be as detailed as a budget and must
include only key income statement and balance sheet items. Moreover, statistical applications
should be used to analyze the data and understand the trends and to set reasonable tends.
Forecasts should be closely integrated with budgeting because they are providing the
necessary updated information for the budget creation (Golyagina& Valuckas, 2012).
While in traditional budgeting there is a specific period of time during which the planning is
done, rolling forecast are updated continuously. Moreover, it promotes flexible resource
allocation and planning; it can give accurate projections to estimate capital expenditures,
show trends of performance indicators, support decision making and cash management, assist
in strategy implementation (Hope&Fraser, 2003).
Besides the benefits rolling forecasts has some limitations also. Researchers (Banovic, 2005)
consider that the preparation process can be costly and time consuming; and because the
forecasts are reviewed and updated periodically it could become a too complex process for
specialists without sufficient training (Lorain, 2010). According to Sivabalan (2011)
successful implementation involves skilled and trained accountants and specialists who
understand the organizational environment.
Beyond budgeting
The originators of beyond budgeting (BB) are Jeremy Hope, Robin Fraser and the Beyond
Budgeting Round Table (BBRT). Beyond budgeting has been proposed as an influential idea
that will reinvigorate managerial accounting contribution in business operation and
performance and it requires significant changes in the existing management models;
reconsideration of the existing budgeting processes and the budgeting mind set.
According to Chartered Institute of Management Accountants [CIMA] (2007) beyond
budgeting is a set of guiding principles that will enable an
corporation
organization to manage its performance and decentralize its decision making process without
the need for traditional budgets. BB proposes replacing the rigid annual budget-based
performance evaluations with performance evaluation based on relative performance
contracts with hindsight (Hansen et al., 2003).
Compared with the traditional budgeting beyond budgeting has two fundamental differences.
First, it is a more adaptive way of managing. In place of fixed annual plans and budgets
targets are reviewed regularly and based on stretch goals linked to performance.
Second, BB enables a
more decentralized way of managing. In place of the traditional hierarchy and
centralized leadership, it enables decision-making and
performance accountability to be devolved to line managers and creates a self-
managed working environment and a culture of personal responsibility. This leads to
increased motivation, higher productivity and better customer service. Individually these two
main features can produce significant benefits, but it is in their combination where its real
strength lies (Hope, 2003). Hansen (2011) shares similar ideas. He considers that the beyond
budgeting approach starts with the premise that the annual budget and budgeting process are
broken and need to be replaced with other control mechanisms. BB focuses on replacing
many of the budget’s processes with better alternatives making the organization more
responsive to the environment. In order to abolish traditional budgeting changes in the
internal business processes are needed. Hanninen (2013) identify
six points and leaderships principles that must be
changed: target setting; rewarding people; action
planning; managing resources; coordinating
actions; measuring and controlling performance. To a successful
implementation there must be a governance framework
with clear priorities and boundaries in every organization; managers should consider
carefully the degree of decentralization; there is a need for trust and openness, collaboration
and communication at all levels of the organization (Hope&Fraser, 2003; CIMA, 2007).
According to Banovic (2005) beyond budgeting is very difficult to implement. It involves the
implementation of various complicated systems and
requires harmonization in such way that not only the budgeting system but also
organizational and cultural environments must radically be changed.

corporation
2. Beside its advantages BB presents disadvantages also. Without budgets, without
detailed plans of its current position and future goals organizations can lose direction.
Moreover, a drastic culture change can leave employees feeling disillusion and the
decentralized structure may be impractical for some organizations (Goode&Malik,
2011). Budgeting in practice
Budgeting is an interesting topic among researchers and practitioners. Over the years
studies were made in order to decide whether traditional or alternative budgeting methods
are better and have a positive impact on businesses.
Although traditional budgeting has met intense criticism it still is universally used, it seems
that most companies do not have plans of abandoning it. About 90% of companies from all
over the world are using budgets for planning, coordination and evaluation of activities; for
motivation and evaluation of the staff performance and for supporting the internal control
system of the organization (Banovic, 2005; Pietrzak, 2013).
Similar results were found by Dugdale&Lyne (2006) in UK or by Libby&Murray in 2007
and 2010 in the USA and Canada. The survey results show that managers admit the
importance of budgets in planning, controlling and performance measuring activities and
disagree that budgets leads to dysfunctional behaviour and provides little or no value.
Moreover, the surveyed companies indicated that they were not planning to abandon
traditional budgeting in the near future. Only a small percentage (smaller than 5%)
indicated that they were planning to abandon traditional budgeting in the next two years.
The results show that traditional budgeting will not soon be eliminated.
As for the use of alternative budgeting techniques in practice the literature presents a mixed
picture.
To analyze the prevalence of ABB in the world various surveys have been undertaken.
Pietrzak (2013) shows that 65.9% of surveyed Dutch companies (international companies,
listed on the Amsterdam Stock Exchange) have implemented ABB, including 15.9% where
it has been used for the whole company. In Sweden very few companies are using ABB,
while all the companies that had implemented some form of activity-based costing were
still using traditional budgetary techniques. In Poland results are the same. The spread of
the new budgeting alternatives is low.
In 2009 CIMA conducted a study about current and intended usage of managerial
accounting tools, split into operational, managerial and strategic groups. The majority of
the survey respondents were from UK (61%), while the rest were from all over the world
(rest of Europe, Asia, Africa, Australia, America and Middle East). The manufacturing
sector, financial services, professional services, public sector, education, retail and trade, IT
and telecommunications and the hospitality industry was represented in the survey. The
results show that organizations use a range of budgeting tools such as beyond budgeting,
flexible budgeting, zero-based budgeting, activity-based budgeting, rolling forecasts, cash
forecasts and

corporation
financial year forecasts. Beyond budgeting seems to be the least popular tool while rolling forecasts
and financial year forecasts are the most popular overall. The smallest companies make the least use
of budgeting tools; they use less sophisticated techniques as owners have greater control and
oversight of expenditure. However, this size effect is not as apparent in the use of the top three
budgeting tools. Financial year forecasts, cash forecasts and rolling forecasts are used by all
organizations to a similar extent regardless of size. Nevertheless, several large organizations have
begun to experiment with supplementing or even replacing the budget with alternative management
control systems. Beyond budgeting practices and applicability is examined in various fields and
industries. Hope&Fraser (2003) reported the case of Skandinavian Bank; Mitchell (2005) presented
the experiences of six leading North American financial services organization when adopting
beyond budgeting; Rickards (2006) presented a report about well known companies (Unilever-
health and hygiene; German Railways, IT services, petrochemical manufacturers) being in various
stages of successful integration of beyond budgeting; Ostergren&Stensaker (2011)
examined beyond budgeting in practice in a large multidivisional oil
and energy company. Starting from the studies carried out we can conclude that budgeting stands at
a crossroads. Every organization has unique requirements for their financial planning. It is not a
simple choice to choose between traditional or alternative budgeting methods. Each budgeting
model produces its own direct or indirect effects throughout the organization, it generates a set of
complex interactions and non-intuitive optimal outcomes (Hansen, 2011).
solutions to commonly known problems of traditional budgeting, although each alternative has
contributed to the evolution of budgeting. Activity- based budgeting helps to improve the focus and
accuracy of budget outputs but it involves more work than traditional budgets. Rolling budgets and
forecasts improve forecast accuracy and overcome the traditional budgeting time-lag problem. The
beyond budgeting concept is difficult to implement, it involves the implementation of various
complicated systems, it radically abandons traditional budgeting altogether.
We consider that alternative budgeting methods are not a standardized solution for budgeting
problems for every organization. They are a set of practices used by advanced companies that
managed to successfully deal with certain shortcomings of traditional budgeting. Each company has
to find out its own combination of management tools and customize them to their internal budgeting
system considering each company’s culture, structure, history, IT infrastructure and other internal
needs.
2.3 Budgeting objective and Obstacles
The superficial purpose of the budgeting process is to predict the result of the following year. In
reality, however there are a number of valid objectives and the problem is that they differ from
participant to participant. A single owner of business wants a budget that plans the best prefix
realistically achievable; the main concern of the lowest level functional managers is to know what is
expected to them and to give enough resources to accomplish it.
To be successful, the budgeting process is just responsive to the needs of all participants. Fortunately
the goals of the different participants are similar enough that a realistic composite set of objectives
can be formulated and used as a basis for budgeting requirements. These composite objective are a
budget that:
 realistic, accreted and consistent
 Plans the best results achievable consistent with acceptable risk and long term health.
 Contains the information must useful to management
 Is consistent with strategy
 Facilitates goal setting and measurement at all levels.
 Communicates strategy, plans and required out put to the organization.
 Will be beaten
Unfortunately, there is a significant conflict between two of the budgeting objective: the contradiction
between planning the best result achievable and budget that "will be beaten" this conflict of objective
is the first of the inherent problems, the budgeting obstacles that are fundamental to the activity of
budgeting and can not be avoided or removed.
Other inherent problems are that performance is measured against the budget the future is uncertain,
the outside environmental is uncontrollable and budgeting is fundamentally a psychological process.
The fundamental problem of budgeting can be summarized from the obstacles. The budget deals with
next year. Many thing about next6 year are uncertain because.
1. it is in the future and
2. Much it is uncontrollable
Of the part that can be known the people who know best the functional management directly on the
firing line are not motivated to be realistic in their budgeting submissions. The finished budget is then
(usually cost in concrete and (always) used to measure the participants (wakjira, P. 11)
2.4 Performance evaluation and management control

The purpose that needs performance report performance reporting for internal management use is an
important part of a comprehensive profit planning and control system. the performance reporting
phase of comprehensive significantly Influences the extent to which the organization's planned year
and objectives are attained.
The following overview of financial reports indicates the extensive reporting requirements needed by
business firm. Those are:
1. Special extern al reports
These are reports to government agencies regulatory commissions creditors, investigative
agencies, and other groups external to the active management
Such reports are costly and involve significant management attention.
2. Report to owner
These reports by and large are based on "GAAP" foot not and generally report data that have
been subject to an audit by an independent CPA.
3. Internal report: These confidential reports are prepared within the company for internal use
only this report is subdivided into three different sub classification
a. Statistical report
b. Special report and
c. Performance report
All companies, regardless of their size, have reporting requirements for all the categories
listed above. (Glenna welshe and et alp. 543)
2.4.1 Performance Report and Communication

In most business, management must rely to a great extent upon information contained in reports
developed with in the business. These internal reports serve as an important means of
communication.
Reports that communicate effectively to all levels of management stimulate action and influence
decisions. (Glnna Welsch P. 542-43) It has been agreed that a business firm focus difficulties in
making capital budgeting decision under uncertainty. Methods that employee with risk adjusted
discount ration or dolar risk premium suffer from a large of normative theory. There has been non
theoretically accepted method proposed for a business man to apply in determining the amount by
which the time value of money should be adjusted for risk or the site of the dollar risk premium that
should be deducted from the net present value of an investment that has been computed by using a
defult. free discount rate as the time value of money (Journal of finance Vol.20 No. 51-2 1973)
2.4.2 Adapt Performance Reports to requirements of User

The extent to which the various managers use their performance `reports depends on many factors
some behavioral and some technical one important factor is the extent to which the performance
reports serve the measurement and decision making a needs of the users communication is a suitable
management problem and it is facilitated by performance reports it the difference needs and
experiences of the users are taken in to account. Different managerial levels have their own duty and
responsibility like:
 Top management
 Middle management
 Lower-level management (departmental supervisors)
The ways of communicating financial information can be broadly classified as follow:
1. Written
a. Formal financial statement
b. Tabulated and statistics
c. no published and written expositions
d. Ratio and other performance indicators
2. Graphical
a. Charts
b. Diagrams and pictures
3. oral
a. Group meetings
b. Conferences with individuals
A company should use a variety of ways for communicating information to management. In most
company, on the ways listed above should be used from time to time. (Ginna walsch. p. 550)
2.4.3 Management Follow up Procedures

Well-managed companies use monthly performance report covering call aspects of operations. This
reports give favorable and unfavorable variances between actual and planned performance for the
month just ended and cumulatively for the year to date. Take place for different company according
to there preferred other in written or by conferences to discuss the causes and corrective action to be
taken follow-up procedures should begin at the top management level to discuss and analyze both
unsatisfactory and satisfactory conditions.
Satisfactory condition should be analyzed in order to
 To determine whether the goals were realistic
 To comment those responsible for high performance and
 To transfer some "know-how" to other responsibility centers
Full-up procedures should embody contractive action to correct unfavorable conditions rather than
punitive actions for failure, the result of which obviously cannot be raised. (Ibid p, 554)
2.4.4 Technical Aspect of Control Reports
The primary value of performance report is in the comparison of the actual result with budget
objectives and in the analysis of the resulting variances.
2.5 Studying Revenues
Budget contains both revenue and expenditure. Revenue considerations will enter into budget making
at numerous points. If the classification of revenues and expenditures presented here is used in the
budget, it will cable administrative officials to fix a definite goal, establish a means of control and
secure coordination of activates.
Revenues should be shown by source and funds. Accurate revenue estimates are dependent up on a
source classification because factors which determine the amount of revenue do not affect each
source uniformly. The revenue side of budget is more likely to be realized if estimates are segregated
by sources and controlled accordingly.
The annual forecast of revenue to be raised by government through taxation and other discretionary
measures amount of revenues raised this way differ from country to country both in magnitude and
structure. (Standard classification of nominal accounts no, 17 in series of publication July 1953)
Some government made corrupt by misstated budget Governments were supposed to underestimate
their revenue and overestimate their expenditures. Then when reality caught up with the estimators,
there would be an automatic budget surplus in order to protect this some governments the revenue
estimating application of this principle written in to budget low.
In France as early as 1823 "the rule of penultimate year" was adopted. This required that revenue for
the budget year must be forecast as identical actual revenues for the fiscal year lost ended (Jesse Buiz
head government budget).
2.6 Study Expenditure

Expenditure should be show in the budget classified by the funds from which they are paid by the
departments, bureaus, divisions or other agencies spending the many by the object of the expenditure
are made and by the activities for which the expenditure. The object classification provides greater
detail top judging and controlling estimates but greater emphasis should be land on activity than on
object. (A standard classification of municipal account no.17 in series of publications July 1953)
In preparing the expenditure the aim was to estimate probable developments, including those
resulting from the effort of government to promote a desirable rate of growth but not all government
programs are included that might be considered desirable in the interest of economic growth or of
social objectives or that have been recommended by various gropes of knowledgeable and
responsible export (Gorhord calm and peter WAGNER)
2.7 The importance of Budget classification

Budget classification is a means to observation and gives to information on government operations
the form and structure which is essential for analysis and inference.
Budget classification may serve more than one purpose but the usefulness of classification techniques
can be judged only in relation to their operational character. Their ability of facilitate the decision
making that characterizes and comprises the various phascs of the budget process. These decisions
determine the role, scope, and complexity of governmental operations, and the activities which must
be classified and budgeted.
Classification is the structural key to conscious and rational government budgeting. The manner in
which the items of revenue and expenditure are grouped will be determined by and also will
determine, the character of the decisions that can be made in the budgetary process. This decision
result from a constant interplay of questions and answers among level in the hierarchy of government.
Meaningful and adequate classification of budget data is the basis for the adjustment process. the
general purpose of classification budget includes;
- Budget account should to arrange to facilitate program
formulation.
- It can show clearly the program decisions that have been made
and the changes recommended from year-to-year
- Budget account must be established in such a way as to
contribute to effective budget exclusion
- Budget classification used as control of accountability it is a
means of accountability that for specific organizational units and
specific person within these units must be charged with
responsibility for each classification of budget.
Therefore budget accounts and the responsibility fixed there by must be arranged so that they can be
effectively checked by persons other then those who have immediate legal responsibility. It can be
use to analyze the economic effect of governmental activities (Burkhed, Government Budget p.110-
13) Follow-up is key phase of effective control: some companies require wanton explanations of
significant variances.
2.8.1 Budget classification
Budget can be classified indifferent way based on the time span they cover the purpose they serve
and the specific level of government or business to which they apply.
They are many classification
o The strategic budget
o The long range budget
o The capital budget
o The short term budget
o Continuous budget
o The master budget
Budget also classified based on specific level of governmental organization.
Over the past many years a variety of budget types and formats have been utilized governmental
organizations. the development of more advanced budget philosophies reflects growth in both scope
and complexity of government operations and the need for systems which are capable of translating
the variety of policy decisions into financial plans. The budget that currently being used by various
government organs are:
a. Line-it cm or "traditional" budget
b. performance budgeting
c. Planning programming and budgeting (PPB). and
d. Zero-base budget
Lets us tries to see some of the
A. The strategic budget
The strategic budget is forward looking type of budget, which sets the overall goals and objectives of
the organization. Some businesses analyses do not classify the strategic budget as an actual budget,
though because it does not deal with a specific time fram, and it does not produce forecasted financial
statements.
B. the long range budget

The strategic budget lead to long-range budget which produces, forecasted financial statements for
five to ten year periods. long-term budgets are prepared to quantify formally the longterm goals and
determining the means to achieve them. The financial statements are estimates of what management
would like to see in the company's future financial statements. Long-term plan are coordinated with
capital budgets that contain detail of the planned expenditures for facilities, equipment, new products
and other long-term investment. long-range plans and budgets give the company direction and goals
for the future, while short-term plans and budgets guide day-to-day operations. (Grennu welshe p.
556)
C. Capital budgeting
Capital budgeting is the process of considering alternative capital projects and selecting those
alternatives that provides the most profitable return on available fund. In addition to this capital
budget contain the plans and resource allocations for capital acquition to support the program of the
organization. It often governed by low and regulation capital budgets involve multi-year expenditure
projections with approval for current year expenditure.
- Unlike operating budgets, capital budgets on non-recurring goods . land and Building are
well known capital goods
Capital budget also consider alternative to purchase, build. lease, or renovate buildings, equipment, or
other long range. major items of property, based on the input available on his had managed give
decision. The type of the decision that launch by manager can lead the organization to be profitable or
loss poor capital budgeting decision lead the company:
 To lose all or part of fund the funds originally invested in the project.
 It can be harm the company's competitive position
 Workers who were hired for the company might be laid off if the project fails, thus
creating unemployment and moral problems
 At the end it can lead the company automatically swiched (Her manson p. 1112-38)
D. Short Term budget

Short term budget is prepared to formally express the short term plan in quantities terns usually a year
is considered as short-term plan period short term planning addresses broader issue such as
developing new product line replacement of plans and equipment and other issues. Which require
year of advance planning Long-term budgets therefore. could have a time from 5 year to 10 years
even more range
Depending upon the seasonal patterns of business firm might develop budgets quarterly, monthly, or
even weekly for some important factors. A typically short term budget would then divide into
monthly budgets. Then, towards the end of the succeeding quarter, the next quarter budget will be
divided into monthly segments postponing the division of quarter's budget into months lead to more
exact results because more recent data are available by the time the monthly figures are prepared
(Tesfaye Taddese, 2006)
E. Ending Inventory Budget

This budget reflects the inventory of the firm
 Manufacturing overhead budget
 It is a summary of overhead material need to product the quantity of finished products
indicated in the production budget
 This budget is a schedule presenting a summary of marketing and cost related that the
company incurs over the budet period.
 Budgeted income statement: this is a performances statement that presents a summary
of the above separate schedules.
 Financial budget
Focuses on the effect of those operational budgets and other plans such as capital expenditure and
repayment of debt will have on case on the other hand finical decision center focus on how to obtain
the fund to acquire those available resources. (Horgren, 2003)
2.8.2 Line Item budgeting ( Traditional Budget )

Line budgeting is a way of allocating fund in a very detailed way. It also a budget list in vertical
columns, each of the government organizations revenue sources and each of the types or classes of
items the government organization will purchase during the Fiscal year.
This system has the meant and demerits some of the merits are listed below:
- After the simplicity is take place, this form is case for preparation
are recognizational by all involved in the budget development
process
- It can be allow for the accumulation of expenditure data by
organizational unit for use intend or historical analysis
- It can be a good for accountability
However, its demerits lies on the fact that if fails to make any relationship between the goods and
services provided and the over all program. (Ibid, p.17)
2.8.3 Performance Budget

Performance budget is management oriented type of budgeting. It has been utilized since 1949 G.C.
The focus of this approach is on efficiency (based on the measurement of the cost and standard
process input) and the budget is considered a “performance contract” between the superior and
his/.her subordinate”.
Performance budgeting must appropriately associated with a budget classification that emphasizes the
things which government does, rather thing which government buy. Performance budget shifts
emphasis from the mean of accomplishment to the accomplishment itself. Some characteristics of
performance budget are listed:
- It stresses on the end product
- It stresses on relationship between input and out put
Resources are allocated based on the functions and activities of
the government
- It presents the purpose and objectives for which funds are
required. Generally its method is particularly interested in
reducing work cost. blcsse burkhead p. 133)
2.8.4 Zero Base Budget
Zero base budget is an emerging process adopted by variety of industrial organizations, as well as
municipal governments in the USA, Governor Jimmy) curter of Georgia first adopted Zero Base
Budget (ZBB) in government for preparation of fiscal 1973 budget .Zero-base budgeting has many
interpretations.
"Zero base" means the evaluation of all programs under ZBB all programs and expenditure are re
evaluated every year. (Ibid P.133)
2.8.5 Master Budget

Master budget is a comprehensive expression of managements operating and financial plan for future
time period ( usually a year) that is summarized in a set of budgeted financial statements. The master
budget is a network consisting to many separate budgets which are interdependent. The master
budget can be classified just like impact. It means that as operational budget and financial budget.
Operational budget: it focuses on operational activities of the firm incase of operating decisions it
can be focus on identified of scarce resource operational budget are accompanied by the following
schedule.
Sale budget: it is a schedule that presents a summary of the quantity of items to be sold along with
their sales birr or dollar over spocific period of time.
- Production budget
It is a schedule which presents the amount of units of product that must be produced over a
specific period time
- Purchase budget
Is a schedule that presents a summary of the quantity of each row material and/or finished
product that must be purchased over a specific period of time.
- Labor budget
It is a budget schedule to provide summary of the time of each class of labor required to
produce the desired quantity of output envisaged in the production budget.
2.8.6 Fixed versus flexible Budget
Fixed budget is a budget for a specific or total amount may not be exceeded due to changes in the
demand for governmental goods and service. The budgets that are pul together on the basis of a
number of assumption like.
- The state of the economy over the planning horizon
- Plan for adding, deleting, or changing product lines;
- The nature of the industry’s competition and so on
- The effects of existing or possible program regulations
Are some of the assumption that give the name called flexible budget after all they are called plans.
These are some of the assumption that considered about the future. After all they are caooed plan.
They are said to be flexible budget for the most part, these budgets are treated as fixed for the period
that they cover. This is important in order to establish effective cash control witching the period. to
assign responsibilities and authorities to spend with some certainty for individual and for using the
budget as tools to assess organizational and personal performance at the end of the period. (Ginna,
Welsch 1976)
2.8 Analysis of Budget Variance
A basic future of performance reports in the reporting of variances between actual result and planned
or budget goals. If a variance is significant careful management study should be made to determine
the underlying cause. The underling causes, rather than the actual results, should lead to remedies
through appropriate corrective action by management.
2.8.1 Analyzing variances

In studding and evaluating of a variance to determine the underlying causes. The following
possibilities should be considered
- the variance is immaterial
- The variance was caused by reporting errors. Both the planned of budget goal and the
actual data provided by the accounting department should be examined for clerical
errors. The variance was caused by a specific management decision
- Many variances are explainable in terms of the effect of un controllable factors that are
identifiable.
- Those variances for which the underlying causes are not known should be of primary
concern and should be carefully investigated.
These are the exceptions that usually require corrective action. (Ibid 1976)
CHAPTER THREE
DATA ANALYSIS AND INTERPRETATION
3.1 Budget preparation
In budget period the Ethiopia electric power corporation plans to perform deferent physical work.
This work can be done in order to increase the power generation capacity of the corporation and in
order to enhance the revenue generation come that from the sales of electric. In other was the
corporation spent his useful time to over come the shortage of electric power in rural and towns. The
kind physical work that the corporation done are:-
- Build power generation station
- Build distribute channel station
- Distribute wire expansion
- Corporation capacity building
- Research and development.
From the list physical work we can take the power generation station with revenue. Generally the
corporation have two types of budget system. This are:
1. Operating budget
2. Capital budget.
3.1.1 Operating budget preparation

This operating budget procedure and step applies to all staff and work unit of the corporation
(EEPCO) responsible for operating controlling and reporting of operating budget. All work unit of
the corporation prepare their own operating budget proposal supported by annual work program. This
budget proposal should be supported by the respective forms.
The summers of the proposed budget is signed by the agent who prepared it and approval by head of
work unit. The estimated budget calling proposal shall be forwarded to the executive management for
acknowledgement in THE every year.
Budget developed by work units shall be reviewed against the work program for their achievability
and realisticness up to department level. The budget reviewed and summarized up to department level
shall be reviewed with finance group budget division in mazia every year. The consolidated master
budget shall constitute the budget profit and loss statements budgeted statement of the pervious year
financial performance.
Generally the budget preparation for operation budget is range from Tir 1 up to seen 30.
Preparation budget
Schedule for both types of budget: Table 1
No Task Responsible parties for Month Sumbit to
preparation
1 Notify budget division Corporate planning of file of Ginbot every -
year
2 Reminder budget Budget divisional work unit Tir -
preparation
3 Operating budget All concerned department Yekatit-megabit -
preparation
4 budget review and Budget division Miazia 1st -
budget devotion
5 Regional budget shall be Finance group 1st miazia -
made ready
6 Consolidated master General manager 15th sene Executive
budget review management
7 Consolidated master Budget division Before sene 30 Management
budget approved board
8 notified the approved Treasury department Ginbot -
budget
3.1.2 Capital budget preparation

Capital budget prepared for long last plan and programs. This long last plan has under gone as project
building in the regional or in the center of Addis. This work unit has prepared capital budget by
consider the amount of power. The project can be generated in kilowatt/ megawatts. The office of
planning and programming send expert in order to support these work unit at the time of preparation
budget.
The prepared budget must be consistent with previous year budgeted. This can be done order to
assure the present budget not exceed by 10% of the previous year budget. This mean that it is
preparation based on last year approved budget. The proposed budget form can be send to the
corporation planning and programming department through the corporation net work system. This
form contains the budget amount is mended for the project building. The deportments see the
proposal with in relation to the power expected to generate. After this the departments send the
proposed budget form with attaching their opinion to the management board of the corporation. The
board can analyze the opinion that is sends from department with the proposed budget form in order
assure its fairness. Then if they can believes that is fair they can a proved the request amount of
budget by their signature then the signed form can be submitted to finance department in order to
disburse the required amount of budget.
The time range is similar with operational budget preparation for more information see at table 1.
3.2 Performance Measurement.

The overall budget in EEPCO is prepared as an obligation action for each department and work unit
the budget prepared as a mechanism and useful device in measuring the performance of the
corporation when they are measuring the process of performance they take different tools such as
financially tools that one applied by the financial department and the quantity amount that generate
power in megawatt or kilowatt, applied for planning and programming project department.
Performance report is provided to the corporation general manager on quarterly bases. This means
that (1st quarter 2nd quarter, 3rd quarter for past 9 months and 4th quarter for the whole year. This show
that they measure their performance in quarterly basis which mean (4 time in year) and at the end of
the year corrective measure will be taken for any deviation which is incurred in that year. The
corporation board of management department gates the planned figure from the planning and
programming project department then they can compare with actual performance in order to take
corrective action over the deviation.
The Ethiopian electric power corporation used to measure performance is:
Supply of electric power:- this is the major income generator of the corporation so the amount power
generate by the corporation is better measure corporation performance.
3.3 Revenue of the corporation

The general revenue of the corporation come from the sales of power in megawatt / kilowatt). This
sales done based on the approved Ethiopian power system master plan. In addition to the sales, the
corporations also have other revenue generation source like loan and Aid customer contribution and
from government. In order to determine the sales of Electric in birr amount the corporations use the
formula that is set by master plan office is
The average tariff shall be determined by the treasury department of the corporation. When we come
to expense the corporation recognized as an expense like cost incurred for the purpose of fuel and
lubricant production for material repair and maintains for station are some of the expenses that the
corporation recorded.
3.4 Master Budget

Ethiopia electric power corporation use master budget uses as the bases for estimating for the long
run project planning. This means that the corporation (EEPCO) achieved the long rang plan in year
by year step. In addition to this the corporation use this master budget for the purpose of planning the
amount power it can generation in kilowatt/ megawatt. It also use as an instrument for estimating the
amount of profit and cost it can be incurred.
3.5 Revenue collection
During the four budget period EEPCO planned to collected revenue from different sources. The
major source of revenue consider by the corporation are:
- From the sales of electric power.
- From the loan and Aid
- From the customer contribution and
- From the governments.
The total generation amount of revenue can be distributed to different department and work unit of
the corporation. This like:
- For building of power generation station
- For expanding channel station
- For increasing and development
- Fore research and development
- For corporation capital building
These considered by the corporation basic activities for over all budget year. The revenue distribution
process to this different department and work unit can be take place through the established policy
and procedures of the corporation.
When we can look in to each budget year revenue collection unit it can be observed as follow:
During 1999 budget year the corporation planned to generate 2,332, 699.47. This total planned
amount can be collected from the sales of electric power 1,731, 048.57 from loan and aid 524, 601.13
and from customer contribution 77,049.77. Having this planned amount the corporation actually
collected 1244979.61 this amount also collected from the sales of electric 753, 029.57 from the loan
and aid 402,156.43 and from the customer contribution 89793.61. There is a deviation of
1,087,719.86 between the planned and actual collation unit.
This can happen due to several reasons. When it expressed in percentage, EEPCO attained 53.37 of
the planned revenue leading to 46.63 unfavorable or inefficient collections for more clarification see
table 3 and 4.
During the 200 budget year EEPCO planned to collect 2,722, 298.4 revenue amounts from sales
electric 2,104 783.2 from loan and aid 515, 122.7 and from customer contribution 102, 292.5. Having
in this planned amount the corporation actual collected 1761 804.8 from the sales of electric 1,396
881.3 from the loan and aid 280 076.2 and from customer contribution 84,847.3
There is a deviation of 960,393.6. This can be occurring terms of percentage amount the corporation
planned to collect by 100% from this accouter collected 65% percent from the planned amount.
There is a deviation 35% when we can compute the performance of with related to the 1999 budget
year. The corporation shows increasing collection amount with in the two year. This mean that
increasing collection amount where launch from 1999 to 2000 respectively. For example the actual
collection amount in 1999 where 53.37 but for 2000 are 65% the show that the 2000 budget year lead
by 11.63 the 1999 budget year when we express in terms of monetary amount the corporation collect
almost similarly with the pervious year percentage amount for more qualification see table 3 and 5.
When we come to the 2001 budget year the EEPCO planned to collect from similar source of the
pervious budget year are 448,1601.2. The corporation was able to collect 3770078.8 birr amount from
the planned
There are 711522.4 deviations between the planned and actual collection in it when we can expressed
in terms of percentage amount the corporation planned by 100% actual it can collect 84% of the
planned amount when we compute with related to first (1999 and 2000 actual performance. The 2001
collection amount exceed both budget year 19% respectively of (1999 and 2000). This indicates that
the corporation to radically increase revenue collection amount through year to year bases for both
monitor amount and percentage unit for more information see table 3 and 6.
Finally when we can observe the 2002 budget year the corporation planned to collect 6,949,508.02
amount of many from the sales of electric power 1,999,610.22 from the loan and aid 1,427,931.3.
From the customer contribution 2,054,484.4 and finally from government 1,467.482.1
From this planned amount the corporation actual connected 4,398,045.8 from loon and aid 414,870.5
from customer contribution 1,044,482.3 and finally from government 937,145.2.
There is a deviation of 2,551, 462.22 between the planned and actual collection unit. This can be
happened due to several reasons. When we can expressed interim of percentage the corporation
planned to collected revenue by 100% from this actual collected 63.28%. There is a deviation of
36.72% when we look with due attention the four year budgeting performance the corporation
increase its collection amount decrease with in related to the 2002 budget year (1999, 2000, 2001).
This can be due to several reasons them most critical for this reason is economic instability of the
country in for more information see to table 3 and 7
Generally the reasons that make deviation between the planned and actual collection amount in
common areas follow
- Economic instabilities
- Lack of willingness from donor and contributor
- Absences of proper collection electric fee from customer
3.6 Building Power Generation Station

During the four fiscal years the corporation planned to build power generation station at different
locations of the country. The planned was done in compatible with corporation long and short run
objective. This objective is set to satisfy the customers power need both in towns and rural of the
country. When we can observe the 1999 budget planned data with related to the actual performance.
The corporation planned to build power generation station at different location by 100% actually the
corporation able - to achieve 34.15% of the planned account. During the some year the corporation
planned to spend for building of power generation station 957391.6 birr amount there is 327,001.57
deviation between the planned and actual spend unit. This indicate that the corporation spends above
its planned amount by deviation amount.
When we come to 2,000 budget year data the corporation planned to build power generation station
with in this fiscal year by 100%. Have the planned the corporation actually perfumed 58.4% this
leads or indicates that the corporation face to 41.6% deviations between the planned to spend and
actual performance. When we can interpret in terms of monetary amount the corporation planned to
spend 1,169314.1 amounts. From this the corporation actually spends 683007.25 birr.
There was 486,306.85 birr deviation between the actual and planned amount when we can compute
with 1999 fiscal year budget data the corporation does not spend above its planned amount. This
show that corporation controlled its spending amount in proper manner in the 2,000 fiscal year.
During 2001 fiscal year the Ethiopia electric power corporation planned to bulled power generation
station by 46.29% from this the corporation actually achieved or builds 37.63% of the planned
percentage. This fiscal year the planned amount where different from the first two fiscal year budget
data This can happen because of the corporation in ability to planned 100%. When we can see the
deviation between the planned and actually performance there is no significant amount can be
observed.
This indicates that the corporation actual build power generation station almost equivalent to the
planned amount with same ear the corporation planned to spend 1,992,156.4 birr to this activity (For
building power generation station).
Having the planned the corporation actual spend 1,838,546.6 birr. There is a deviation of 153,609.8
birr between the planned and actual spend amount. This indicate that the corporation properly spend a
given amount of many to build the corporation power generation station when we can compare to the
previous fiscal years budget data.
Finally when we look at the 2002 fiscal year budget data the corporation planned to build power
generation station by 100%. From this the corporation actually performed 30% from the 100%
planned amount.
This indicates that the corporation dose not build half of the planned amount. This make different
from the previous three (1999, 2000, 2001) fiscal year budget data. This mean that these the three
budget deviation no significant as 2002 budget deviation the monitory amount that the corporation
spent for this activates looks as follow.
The corporation planned to spend 3469884.98 birr but due to several reason the corporation actually
spend 1041945.47 birr deviation between the planned and actual spending unit when we can look
with due attention these the four fiscal year spending amount the corporation where increase its
spending amount year to years bases. For more information see table 2.
The over all reason for deviation of planned with the actually amount are as follow:
- Seasonal fluctuation
- Lack of financial resource timely and appropriately
-Shortage of skilled man power
- Increase in the prices of row material that used for the building (specially in 2002 fiscal
period)
Building of power generation Table 2
year planned Actual Deviation In birr amount Deviation
Planned actual
1999 100% 34% 64% 957391.6 12844930 327001.57
2000 100% 58.4% 41.6% 1166934.1 683001.25 486306.85
2001 46.29% 37.63% 8.65% 199256.4 1248546.6 743609.8
2002 100% 30% 70% 3469884.95 1041945.47 1467939.51
Revenue collection Table 3

year planned Actual Deviation In birr amount Deviation
Planned actual
1999 100% 53.37% 46-63% 1332699.47 1244979.61 108,7719.86
2000 100% 65.% 35.% 2722198.4 1761804.8 960393.6
2001 100% 84% 16% 4,481,601.2 3770078.8 711522.4
2002 100% 58% 42% 6949508.02 4398045.8 2551462.22
Revenue collection 1999 Table 4

Source In percentage In birr amount Deviation
plan Actual Deviation Plan Actual
From sales of electric 100% 43.5 56.5 1731048.57 753029.57 978019
power
From loan and aid 100% 77 23 524601.13 402156.43 122444.7
Contribution from 100% 16.5 16.5 77049.77 89793.61 12,743.84
customer
Budge year 2000 Table 5

Source In percentage In amount Deviation
Revenue
From sales of electric 100% 66.37 33.63 2104783.2 1396881.3 707901.9u
power
From loan and aid 100% 54.4 45.6 515122.7 280,076.2 235046.5U
Contribution from 100% 83 17 102292.5 84,847.3 17445.2u
customer
Budget year 2001 Table 7

From sales of electric 100% 83 17 3121292.5 2582,858.4 538434.1
power
From loan and aid 100% 14 86 1183419.4 165037.4 1018382
Contribution from 100% 84 16 176889.3 148183 28706.3
customer
Budget year 2002 Table 7

Sales of electric 100% 53 47 199961022 1001547.8 945125.82
Loan and Aid 100% 24.5 75.5 1424931.3 414870.5 1010060.8
From customs 100% 51 49 2054484.4 1044482.3 1,010,002.1
contribution
From the government 100 63.86 36.14 1467482.1 937.145.2 530,336.9
CHAPTER FOUR
SUMMARY, CONCLUSION AND RECOMMENDATION

4.1 Summaries of Findings
The major findings of the study are summary: zed as follow:
 In budget period the Ethiopia Electric power corporation plans to perform deferent physical;
work this work can be done in order to increase the power generation capacity of the
corporation and in order to enhance the generation came that from sales of electric.
 The corporation have two types of budget system this are operating budget and capital budget.
Operating budget procedure and step applies to all staff and work unit of the corporation
(EEPCO) responsible for operating and reporting of operating budget.
 All work unit of the corporation prepare their own operating budget proposal supported by
annual work program
 Capital budget prepared for long last plan and programs.
 This long last plan has under gone as project building in the regional or in the center of Addis
 The Ethiopia Electric power corporation used to measure performance is supply of eclectic
power.
 The general revenue of the corporation come from the sales of power in megawatt/ Kilowatt,
from the loan and Aid, from customer contribution and from the governments.
 Generally the corporation revenue collation make deviation between plan and actual collation
amount the common reason of this devotion is economic instabilities, lack of willingness from
donor and contributor, Absences of proper collection electric fee from customer.
4.2 Conclusion
Budget is extremely important and effective tool for managing, administrating and control the overall
activities of the corporation. However to prepare, a meaningful budget the corporation must know the
proper application rule and regulation of budget that set by international rule that describe about
budget. Once prepared, the budge must be compared to actual result on timely basis through out the
year, to insure that the board management knows where deviations are occurring. The board
managers take effective actions through strong and effective controlling system when the problems
occurred.
Budget is important instrument to control the corporation achievement in the area that resources are
adequately protected and utilized resources are acquired economically and used efficiently or cost
effectively and activities of the corporation are in compliance with applicable with law, policy, plans,
standards and procedures. While the study on the data analysis of budget indicates that, there is a
bridge between policy planed and actual performance measurement of the corporation. Budget
inessential to make the policy benchmark reality rather.
4.3. Recommendation
Based on the conclusion from the existing system of Ethiopia Electric power corporation the
following recommendation followed. Spending units and budget approved department (project
planning and programming department, planning and programming department, operating budget
department) should link the request budget with their work plan in order to justification and priority.
The corporation budgeting policy and procedure should be modified in order to utilize its resources
appropriately and effectively. For example the corporation policy determines that every year budget
proposal cannot exceed the previous year budget by 10%. This discourages the corporation working
power for highly achieving goal.
Zero- based budgeting approach is appropriate for the Ethiopia Electric power corporation rather than
master budget this method starts with base budget of zero and calculates the cost of running each
program from the scratch. Each cost associated with running a program is justified be for it included
in the budget. The advantage of this approach raised in the extensive review of each program and
reveal operating inefficiencies and weaker program.
But carrying out every year zero based budgeting covering all programs could be expensive. In The
previous year case of master budget simple copying the precious year request modification this
approach can not recover the cover the previous year weakness, because of this we can recommend to
use zero base budget for successfully achieved their goal.
The budget and planning office should analyze in detail the request budget before approved the
corporation should employee external expert for analyze the proposed budget should prepared fairly.
There should be adequate budget control and monitoring system at each stage of expenditure cycle
(commitment, verification and payment). This will be achieved by using the excision corporation
computer network system and for remove project area by sending expert timely bases.
There should be comprehensive review and analysis of budget expenditure of the past year to
improve budget efficiency of current year as well as it must be supported by plan research and
development for newly established project budget requirement. To be useful at the time budgets
being prepared plan must be sufficiently tangible to be relation financial requirement. Then budget
serve as standard against which the actual performance can be compared and measured.
Budget plan must be periodically evaluate in order to protect the over and under stinting spent
amount of the corporation research. The corporation budget system should be used to compute. It's
performance through year to year bases.
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INTERVIEW QUESTION
1. When was the corporation established?

2. What is the major objective of the corporation?
3. What kind of service can be provided to its customer?
4. The service coverage can be given to outside Ethiopia?
5. The corporation should be used formal budget rule?
6. What is the bases budget for the corporation?
7. Where is the source of budget amount?
8. How to allocate the given to each department and work unit?
9. How to evaluate the given budget it's effectiveness?
10. Do you have separate kind of budget system?
11. how do you evaluate the planned budget with actual performance?
12. Who was responsible for the preparation of performance report?
13. If there is a significant variation between the planned and actual performance who was
responsible take corrective action?
14. How may step can be proceed in order to approve budget request?
15. How do often the corporation department and work unit present performance report to
responsible sector?
16. What kind of tools they can employ when they measure performance?
17. How look like the 4 (four) year budget performance of the corporation?

Budget Administration Performance Analys

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BUDGET ADMINISTRATION PERFORMANCE ANALYSIS CASE STUDY

ON ETHIOPIAN ELECTRIC POWER CORPORATION NORTHERN

RESEARCH PAPER SUBMITED TO THE DEPARTMENT OF

The objective of Ethiopia Electric power corporation (EEPCO) on:

The specific objectives of the study are:

1.5 Scope of the Study

1.6 Data source

1.7 Methodology of study

1.8 Organization of the study

1.9 Limitation of the study

Budget Goals and Objectives

Historical Development of Modern Government Budget

2.1.3 Historical Development of Ethiopian Budget

Effects of budgets on financial performance

2.2 The power of Budgeting

Budget administration performance analysis: case study on Ethiopian electric power 28

Budget administration performance analysis: case study on Ethiopian electric power 29

Budget administration performance analysis: case study on Ethiopian electric power 30

Budget administration performance analysis: case study on Ethiopian electric power 33

Budget administration performance analysis: case study on Ethiopian electric power 34

2.4 Performance evaluation and management control

2.4.1 Performance Report and Communication

2.4.2 Adapt Performance Reports to requirements of User

2.4.3 Management Follow up Procedures

2.6 Study Expenditure

2.7 The importance of Budget classification

A. The strategic budget

B. the long range budget

D. Short Term budget

E. Ending Inventory Budget

2.8.2 Line Item budgeting ( Traditional Budget )

2.8.3 Performance Budget

2.8.5 Master Budget

2.8.1 Analyzing variances

3.1.1 Operating budget preparation

3.1.2 Capital budget preparation

3.2 Performance Measurement.

3.3 Revenue of the corporation

3.4 Master Budget

3.6 Building Power Generation Station

Revenue collection Table 3

Revenue collection 1999 Table 4

Budge year 2000 Table 5

Budget year 2001 Table 7

Budget year 2002 Table 7

SUMMARY, CONCLUSION AND RECOMMENDATION

47. Baulmer J. V. (1967). Defined criteria of performance in organizational control. Administrative

51. Cherrington, D.J.J.O Cherrington (1973).Appropriate Reinforcement contingencies in the budgeting

1. When was the corporation established?

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