Budgeting in small manufacturing firms in South Africa

Ford, J. C.; Lurie, M. Article Budgeting in small manufacturing firms in South Africa South African Journal of Business Management Provided in Cooperation with: University of Stellenbosch Business School (USB), Bellville, South Africa Suggested Citation: Ford, J. C.; Lurie, M. (1989) : Budgeting in small manufacturing firms in South Africa, South African Journal of Business Management, ISSN 2078-5976, African Online Scientific Information Systems (AOSIS), Cape Town, Vol. 20, Iss. 2, pp. 57-69, https://doi.org/10.4102/sajbm.v20i2.942 This Version is available at: https://hdl.handle.net/10419/218018 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ S.Afr.J.Bus.Mgmt.1989,20(2) Budgeting in small manufacturing firms in South Africa J.C. Ford* Graduate School of Business Administration, University of the Witwatersrand, P.O. Box 98, Wits, 2000 Republic of South Africa M. Lurie P.O. Box 31170, Braamfontein, 2017 Republic of South Africa Accepted September 1988 This paper reports on a general investigation into budgeting in small manufacturing firms in South Africa. The study was undertaken using 18 semi-formal interviews and 175 questionnaires addressed to the Chief Executive Officers (CEOs) of small manufacturing firms in six industry sectors in the greater Johannesburg region. The 63 usable ~esponses (a response r~te of 36%) were analysed using the SAS statistical package. Several results and ~nclus1ons wc!e r~ached. A wide ~ange of bu~getary processes and procedures arc used by small manufacturing firms. Budgetmg 1s short-term, mformal, simple and flexible, and is considered an essential element of managem~nt. There is room for much improvement in certain areas of budgeting. Although accounting reports are perceived to be adequate, CEOs may lack the necessary knowledge to develop more effective reporting systems. The degree of budgeting used is probably influenced by the nature of the business, and the background and training of the CEO. CEOs are completely involved in budgeting, but there is little participation by managers and staff. The major benefits of budgeting are perceived to be its use in planning and control, particularly of cash, and the major problems relate to the uncertainty of future conditions. Hierdie artikcl handel oor 'n algcmene ondersoek na die rot van begrotings in klein Suid-Afrikaanse vervaardigingsondernemings. Die ondersoek is gebaseer op 18 semi-formele ondcrhoude en 175 vraelyste wat aan die hoof uitvoerende amptenare van klein vervaardigingsondernemings in ses industriele sektorc in die Johanncsburgstreek gcstuur is. Die 63 bruikbare terugvoerings (36% van die totaal) is m.b.v. die SAS- statistiese paket ontleed en verskeie gevolgtrekkings is gemaak. Die betrokke ondernemings gebruik 'n wye verskcidenheid van begrotingsprosesse en -prosedures, en die begrotings is oor die algemeen kort-termyn, informeel, eenvoudig en aanpasbaar van aard. Alhoewel bcgrotings as 'n esscnsiele clement van bcstuur bcskou word, is daar heelwat ruimte vir verbetering. Die mate waarin begrotings gebruik word, word waarskynlik bei'nvloed deur die aard van die onderneming sowel as die agtergrond van die hoof uitvoerende amptenaar. Alhoewel die hoof uitvoercnde amptenaar volledig betrokke is by die begrotingsproses, is daar min deelname deur ander bestuurders en personeel. Die bydrae wat begrotings !ewer tot beplanning en beheer, veral van die kontantvloei, word as die grootste voordeel daarvan beskou. Die grootste probleem met begrotings hou verband met die onsekerheid oor toekomstige gebeure. *To whom correspondence should be addressed 57 Introduction Essentially, the work of management involves four broad functions : planning, organizing and directing, controlling and decision making. These functions are carried on more or less simultaneously and often under considerable stress, urgency and pressure (Garrison, 1985). Budgeting is a systematic and formalized approach to accomplishing these responsibilities of management. It assists managers, in an organized and comprehensive manner, to carry out all four of these functions. When implemented properly, budgeting becomes a vital foundation for the management of an organization. As managerial skills are one of the most important key success factors in small business (Ibrahim & Goodwin, 1986), it is essential that small firms engage in efficient and effective budgetary procedures. Effective budgeting means effective management, and effective management leads to business success. objectives, and full acceptance and involvement of line managers concerned (Campbell, 1985). The system should be easy to use, understand, and maintain, and should be flexible and cost effective (De Mong & Croll, 1981). Several key studies suggest that small firms benefit from planning activity which should be substantive, relatively informal, incorporate outsider input and be concrete in addressing objectives (Robinson, Salem, Logan & Pearce, 1986). All firms should have a basic budgeting system which can be used for planning and control. Time should be taken in advance of expenditure to decide on what and where to spend cash (De Mong & Croll, 1981). For budgeting to succeed, it requires top management involvement and support, a clear definition of long-term As with other areas of management, budgeting in small firms is different from the complicated and formalized procedures in large firms. Dewhurst (1983) points out that financial management, of which budgeting is an important part, is different for small firms in three ways: -First, the skills must generally be exercised by one person, the owner-manager. -Second, the owner-manager will usually not have any particular expertise, let alone professional qualifications in the area. -Third, if incorrect financial decisions are made, it is he or she, as the owner, who will suffer. There are a variety of approaches to budgeting. Management should use the type or types that best suit 58 their needs for planning and control purposes (Ray, 1974). Differences in budget structures and p~ocesses largely detennine the effectiveness of b,udgetl~g ~nd whether it accomplishes management s objectives (Churchill, 1984). Budgeting in small businesses The importance of the small business community is widely recognized and documented. Ibrahim & Goodwin (1986) state that the success of the small business sector is crucial to both the stability and health of the economy of the United States and Canada. They indicate that 97% of all businesses are categorized as small, that they produce 45% of the Gross National Product and create 67% of new jobs. Robinson & Pearce (1984) report that small businesses employ over 60% of the private workforce in the United States. In addition, 25% of major innovations between 1953 and 1973 came from firms with less than 100 employees. In South Africa, the President's Council : Committee for Economic Affairs (1985) has emphasized the crucial role the small business community has to play in employment creation. Recent moves by government to reduce the legal restrictions on small business, and to encourage small business development, underline the recognition of the importance of small business. Williams (1985) notes that a small business community helps to maintain a free market economy by developing markets which are too small to interest larger corporations. This paper reports on the use of budgeting in small manufacturing firms in South Africa. In particular, a number of subsidiary problems, dealing with specific areas of budgeting in small firms are highlighted: -What budgetary processes and procedures should exist in small manufacturing firms? -What budgetary processes and procedures do exist in respondent organizations? -How important is budgeting perceived to be? -Are performance and accounting reports perceived to be adequate? - Will factors such as the complexity of the business and the background and training of the CEO influence the degree of budgeting used? -Is there commitment to and participation in budgeting by the CEO and managers? -What are the benefits and problems of budgeting? -What recommendations can be made concerning budgeting in small manufacturing firms that are relevant to South African organizations? Reasons for the research The research was conducted for a number of reasons: -The vital importance of budgeting as a method of management is stressed throughout the literature. - The significance of the small business sector is such that any research which will benefit this sector is of great importance. -Very little research has been undertaken in this area in the South African context. S.-Afr.Tydskr.Bedryfsl.1989,20(2) -Personal experience of the authors has indicated the paucity of modern management techniques amongst managers of small firms in South Africa. -The increasing complexity and competitiveness of the South African business environment requires an increasingly sophisticated approach to the planning and control of small firms. The objectives of the research reported on were broad in scope, with no detailed examination of any particular aspect of budgeting in small manufacturing firms. It should be regarded as a general exploratory study providing information for further, more in depth, investigation into selected areas related to the subject. The research was also general in the sense that it covered a range of industry sectors. Hypotheses tested On the basis of an intensive literature study, the semiformal interviews conducted, and from the authors' observations of practices in small firms in South Africa, the following hypotheses were postulated: Hypothesis 1: Budgeting is perceived to be important in small manufacturing firms. Hypothesis 2: Accounting reports are perceived to be adequate in small manufacturing firms. Hypothesis 3: There is a positive correlation between the nature of the business and the degree of budgeting used. Hypothesis 4: There is a positive correlation between the background and training of the CEO in budgeting and the degree of budgeting used. Hypothesis 5: Chief Executive Officers of small manufacturing firms are committed to and participate in budgeting. Hypothesis 6: Managers and staff of small manufacturing firms are committed to and participate in budgeting. Research method A two-stage approach to the gathering of data was used. The first stage consisted of semi-formal interviews of a small sample of companies to establish and refine the major themes and issues to be investigated. The second stage consisted of a questionnaire, which was delivered to each of the companies in the population in order to save time and improve the response rate. It was decided that the questionnaires should be addressed to the CEOs, on the basis that in general they were the most suitably qualified individuals within the organizations (of this size) to complete them. Names of companies were obtained from the Bureau of Market Research, University of South Africa. The Bureau claims to have on record every company in South Africa, with certain details and statistics on each company. It was felt that the records were comprehensive, and at least were representative of South African companies. In addition, records were maintained on industry, number of employees, whether the S.Afr.J.Bus.Mgmt.1989,20(2) company was independently owned or not, and physical and postal addresses. It was decided to focus on manufacturing firms, as due to the greater complexity of that type of business, budgeting is especially appropriate (Dearden, 1963). There is no one generally accepted definition of a small business. The literature indicates that the criteria to delineate a small business include size, number of employees, sales volume, asset size, type of customers and capital requirements (Ibrahim & Goodwin, 1986). It was decided to define a small manufacturing firm as one that was independently owned, and that had between ten and one hundred employees. The bottom limit was established to eliminate the really small firms that invariably have very few budgeting practices. Six industries were chosen, to give greater generality and wider applicability to the results. The industries were clothing, wooden furniture, metal furniture, stationery, paint and varnishes, and plastic products. It was decided to limit the population to the greater Johannesburg area, to enable questionnaires to be sent to the entire population, and to improve accessability to respondent companies. There were 175 firms falling within these parameters (independently owned, ten to one hundred employees, in one of the six industries, within the greater Johannesburg area). A 10% sample (18 firms) was chosen, using systematic sampling, for the semi-formal interviews. All 175 firms in the population were then contacted by telephone, to ascertain whether or not they would be willing to complete the questionnaires. Questionnaires were delivered to each company which responded positively. The semi-formal interview/questionnaire development The semi-formal interview consisted of seven background questions and ten free response questions on budgeting. The interviews were structured to last approximately thirty minutes to one hour. The questions were generally open-ended, to encourage comprehensive. responses which would cover all aspects of budgeting in small manufacturing firms. Anonymity was necessary, as managers would not respond unless this was so. In most cases the General Manager was interviewed. The questions were compiled from a general review of the literature and from personal experience, to cover all issues in budgeting. The interviews provided an important insight into the major themes and issues in budgeting in small manufacturing firms, and led to certain questions being discarded for the questionnaire, and other questions being included (both instruments are available from the writers). The questionnaire consisted of nine background questions, and 48 questions on budgeting. The questions were structured and closed-ended, developed specifically with the objectives of the study in mind. The questions appear to be unambiguous and simple. A small pilot study using colleagues indicated that the questionnaire could be completed in approximately 15 minutes, which was considered reasonable for this type 59 of study. Company and personal anonymity were assured. Questions were compiled from an intensive review of the literature, and by analysis of responses to the semi-formal interviews. Data analysis A statistical analysis of responses (ideally suited to analysing data from a large number of questionnaires consisting of several closed questions) was undertaken. The SAS statistical package on the Wits University mainframe computer was used. The SAS procedures used included PROC FREQ (which shows the distribution of a variable's value), PROC MEANS (which computes the arithmetic mean, standard deviation and other summary statistics), PROC CHART and PROC PLOT (which depict graphic representations of variables), and PROC CORR (used to measure the strength of the relationship between two variables). Unless otherwise stated, tests of the hypotheses were all carried out at the 5% significance level, one sided tests. Response rates Of 175 companies contacted by telephone, 63 agreed to participate in the research (a response rate of 36% ). Questionnaires were delivered to these companies, and respondents assisted with any queries on completing the questionnaires. This ensured that all 63 companies completed the questionnaires correctly. Thus a random sample of 63 companies is used to answer the research questions. This response rate is considered adequate to allow meaningful analysis. Table 1 Number of companies in each sector Industry sector Frequency o/o Clothing 9 14,2 Metal furniture 10 15,9 Paints and varnishes 10 15,9 Plastic products 10 15,9 Stationery 14 22,2 Wooden furniture 10 15,9 Total 63 100,0 Table 2 Age of respondent companies Age Frequency o/o 5 years or less 9 14,3 6-10 8 12,7 II - 15 16 25,4 16-20 9 14,3 21-25 14 22,2 26-30 5 7,9 31 -35 2 3,2 Total 63 100,0 60 Companies from all six industry sectors cho~en _partici- pated in the study. The number of compames m each sector are indicated in Table 1. Over half the respondents were 15 years old or less (See Table 2), indicating the more precarious position of small, independently owned manufacturing firms compared to large firms. Respondent companies are also of diverse size (see Table 3). Budgetary processes and procedures used Of the ten budgeting activities, the number of activities carried out by each is indicated in Table 4. Every company carried out at least four budgeting activities, and half carry out between four and seven activities regularly. Table 4 clearly shows that· seven activities are carried out most often, with decidedly fewer companies performing all ten, or only four, activities. The percentage of companies carrying out each of the activities is as indicated in Table 5. Thus every company plans cash paid and received, while only 7,9% of companies forecast balance sheets. Only 27 ,0% of respondent companies compile budgets for separate product lines thus indicating that most companies prepare budgets only for the firm as a whole. The average time period over which most companies carry out budgeting activities in one month is shown in Figure 1. Some companies however, budget on average only for the next one to two weeks, while other companies budget on average for the next three to six months. As regards the level of formality, all the respondent companies describe their budgets as simple and flexible. Table 3 Turnover of respondent companies Turnover Frequency % Less than R500 000 p.a. 12 19,0 R500 001 -RI 000 000 8 12,7 RI 000 001 - R3 000 000 18 28,6 R3 000 001 -R5 000 000 12 19,0 More than R5000 000 13 20,7 Total 63 100,0 Table 4 Budgeting activities effected by each company Number of budgeting activities Frequency % 4 4 6,3 5 8 12,7 6 10 15,9 7 18 28,6 8 10 15,9 9 10 15,9 10 3 4,7 Total 63 100,0 S.-Afr.Tydskr.Bedryfsl.1989,20(2) Table 5 Analysis of companies carrying out each activity Budgeting activity 1. Plan cash paid and received 2. Forecast sales 3. Plan units of production 4. Plan raw materials 5. Forecast income statement 6. Plan labour expenses 7. Plan overhead expenses 8. Plan capital expenditure 9. Plan sales and admin expenses 10. Forecast balance sheet % of companies performing that activity 100,0 96,8 96,8 96,8 93,7 74,6 60,3 47,6 27,0 7,9 Table 6 Number of budgeting activities carried out in writing Number of activities written Frequency % 0 5 7,9 4 6,3 2 9 14,3 3 7 11,2 4 13 20,6 5 8 12,7 6 7 11,2 7 5 7,9 8 4 6,3 9 1,6 Total 63 100,0 Most ( 66, 7%) draw up budgets in a regular, standardized manner. The level of formality of budgeting can be gauged from the number of budgeting activities each firm carries out in writing (see Table 6). Sixty per cent of the companies carry out four or less budgeting activities in writing. This tends to confirm a high degree of informality in budgeting. The starting point of the budgeting process is the development of goals and strategies. Only 7 ,9% of companies have clear, written, specific objectives for the business. However, 54,0% believe they have a clear, consistent strategy. Most companies see their budget goals as loose and attainable (61,9%), and most CEOs believe that budget goals should be easy to attain (65,1%). While 52,4% of companies run their accounting systems on computer, only 25,4% use a computer in budgeting. In addition, only 46% of those who use computers feel that introducing a computer led to a major improvement in accounting reports and budgets. There is varied use of the different budgeting techniques; 34,9% of companies perform a rolling budgetary process. Only 14,3% carry out some form of zero base S.Afr,J.Bus.Mgmt. t~zs~,.lU\.lJ 61 Frequency bar chart Frequency 30 25 20 15 10 5 ••••• ••••• 1,2 ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ***** ***** • •••• • •••• • •••• • •••• 1,8 2,4 ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• • •••• ***** ••••• • •••• ***** ••••• • •••• • •••• • •••• • •••• ***** ***** ••••• 3,0 3,6 4,2 Average time midpoint Figure 1 Average budget periods - 1 = one week; 2 = two weeks; 3 = one month; 4 = three months budgeting. However, all companies use flexible budgets. In addition, no companies use mathematical techniques to help forecast future sales. Budgeting is used almost equally for planning and for control; 54,0% of companies budget mainly in order to plan for the future, while 46,0% budget mainly in order to control the business. Perceived importance of budgeting When the frequencies of the various measures of importance are totalled, the overall results are as per Table 7. Hypothesis 1 proposes that budgeting is perceived to be important in small manufacturing firms. To test this hypothesis, the frequency that 'Very important' is mentioned must be compared with the frequencies that other measures are mentioned. If it can be shown that the hypothesis holds for the most frequently mentioned group (in this case 'Activity not carried out'), then the hypothesis must be valid for the other groups as well. With a 5% significance level, the decision rule is: Reject Ho if Z < 1,64; otherwise do not reject Ho, Table 7 Totalled frequencies of the various measures of importance Total no of times Measure of importance mentioned % Very important 350 55,6 Average importance 64 10,2 Not very important 28 4,4 Activity not carried out 188 29,8 Total 630 100,0 Berenson and Levine (1983) state the formula for Z for a large sample as: (Veryimp % - Not done% • (n) 112 Z=-------------- (Notdone % • (1 -Notdone % )) 1/2 Where n = 63 is the sample size. Substituting values into the above formula gives Z = 4,477. Therefore the null hypothesis is accepted. Since Notdone % was the 62 largest proportion compared with Veryimp %, the hypothesis can be accepted for all groups. Five other questions in the questionnaire relate to the perceived importance of budgeting. Respondents indicate a perception of budgeting as important if they answer that they: 1. Really do run the business through the budgeting system. 2. Feel it is important for motivation that managers and staff get feedback on their performance compared to goals. 3. Feel it is important to set clear goals and objectives in order to motivate managers and staff. 4. Feel that a budgeting system is very important. 5. Believe that small manufacturing firms that budget effectively are more profitable than those that do not budget. To test hypothesis 1, the proportion of responses indicating a perception of budgeting as important must be compared with the proportion indicating a perception of budgeting as not important. Thus the null hypothesis is H0 : Yes % > No % and the alternative hypothesis is H2 : Yes % :!::: No % For a 5% significance level, the decision rule is: Reject Ho if Z < 1,64; otherwise accept H0• The formula for Z for a large sample is: (Yes% - No) * (n) 11 2 Z=---------------- (No % * (1 -No % )) 1/2 where n = 63 is the sample size. For the 5 questions, the proportion of Yes and No answers, and the Z values are as indicated in Table 8. Thus the hypothesis is valid for four of the questions. The 100% positive response to 'A budgeting system is very important' indicates that the hypothesis may be accepted with a very high degree of confidence that it is correct. Perceived adequacy of accounting reports Figure 2 shows that 52,4% of companies receive two accounting reports regularly, and the other 47 ,6% receive three accounting reports regularly. The two reports that all companies receive are an income statement and balance sheet. Figure 3 shows that most companies receive accounting reports monthly. Half the companies ( 49 ,25) have accounting reports that compare actual results with budgets. Only 12,7% however, give Table 8 Perception of importance of budgeting Question Yes% No% z 1. Run business through budgeting system 60,3 39,7 3,342 2. Feedback compared to goals 68,3 31,7 6,243 3. Set clear goals for motivation 47,6 52,4 -0,763 4. Budgeting very important 100,0 0 5. Firms are more profitable with budgeting 74,6 25,4 8,971 S. -Afr. Tydskr. Bedryfsl .1989 ,20(2) Frequency bar chart Frequenc~ 30 25 20 15 10 5 ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** 2 Amtrep Rgure 2 Number of accounting reports ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** 3 accounting reports to each manager relevant to his or her area of responsibility. In addition, only 38,1 % have accounting reports tailored to fit the needs of the budgeting system. Three questions relate to the perceived adequacy of accounting reports. Respondents indicate a perception of accounting reports as adequate if they answer that: 1. Accounting reports are received within a few days of the end of the period. 2. Accounting reports provide the information needed to make effective decisions. 3. Action is taken in response to the information provided in accounting reports. Hypothesis 2 proposes that accounting reports are perceived to be adequate in small manufacturing firms. To test this hypothesis, the proportion of responses indicating a perception of accounting reports as adequate must be compared with the proportion indicating a perception of accounting reports as inadequate. S.Afr.J.Bus.Mgmt.1989,20(2) 63 Frequency Frequency bar chart 35 30 25 20 15 10 5 ***** ••••• ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ***** ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ••••• ***** ***** • •••• ••••• ***** ***** ***** ***** ••••• • •••• ••••• • •••• ***** ***** ••••• ••••• ***** • •••• ••••• • •••• ***** ***** ***** • •••• ***** ••••• • •••• • •••• 1,333333 2,000000 3,333333 3,500000 4,333333 5,000000 Avreptm Figure 3 Average period of accounting reports- I aaa one week; 2 aaa one month; 3 aaa three months; 4 aaa six months; 5 aaa one year The null hypothesis is Ho : Yes % > No % and the alternative hypothesis is H2 : Yes% <No%. For the three questions, the proportion of Yes and No answers, and the Z values, are as indicated in Table 9. Thus the hypothesis is valid for all three questions. The large Z values indicate that the hypothesis may be accepted with a very high degree of confidence that it is correct. Correlation between nature of the business and degree of budgeting used Hypothesis 3 proposes that there is a positive correlation between the nature of the business and the degree of Table 9 Analysis of perceived adequacy of accounting reports Question Yes% No% z 1. Reports received within a few days 77,8 22,2 10,62 2. Reports provide needed information 85,7 14,3 16,189 3. Action is taken in response to reports n.s 22,2 10,62 budgeting used. The criteria were defined which, based on the literature review and semi-formal interviews, would seem to influence the degree of budgeting used. The criteria are as follows: 1. Turnover greater than average turnover 2. Number of customers greater than average 64 3. Number of monthly orders greater than average 4. Number of products greater than average 5. Number of employees greater than average 6. Lead time on raw material greater than average 7. Industry defined as stable 8. Use of foreign exchange 9. Normally make-for-stock not, make-to-order 10. Normally make regular products, not specials. Average is defined as the sample average. It is proposed that the more criteria a firm complies with, the greater the degree of budgeting used. The degree of budgeting used is measured by the number of budgeting activities the firm carries out. To test the hypothesis, the nature of the business (number of criteria applicable) was correlated with the number of budgeting activities carried out. The Pearson correlation coefficient is 0,86629, and the probability that the correlation coefficient is zero is 0,0001. This is a fairly good correlation, with a very low probability of no correlation. Thus the hypothesis that there is a positive correlation between the nature of the business and the degree of budgeting used can probably be accepted. Correlation between background and training of CEO and degree of budgeting used Hypothesis 4 proposes that there is a positive correlation between the background and training of the CEO in budgeting and the degree of budgeting used. CEOs were asked whether 1. Prior to attaining their present position, they had experience in budgeting. 2. They had formal training or qualifications in accounting and budgeting. To test the hypothesis, the number of positive responses to these questions was correlated with the number of budgeting activities carried out. The Pearson correlation coefficient is 0,58232, and the probability that the correlation coefficient is zero is 0,0001. Again, this is a fairly good correlation, with a very low probability of no correlation. Thus the hypothesis that there is a positive correlation between the background and training of the CEO and the degree of budgeting used can probably be accepted. CEOs commitment to and participation in budgeting Three questions relate to the commitment and participation of CEOs in budgeting. Respondents indicate a commitment to and participation in budgeting by CEOs if they answer that: 1. The CEO is responsible for budgeting. 2. The CEO is fully comitted to budgeting systems. 3. The CEO plays an active role in drawing up and using budgets. Hypothesis 5 proposes that CEOs of small manufacturing firms are committed to and participate in budgeting. To test this hypothesis, the proportion of responses indicating a commitment to and participation S.-Afr. Tydskr.Bedryfsl.1989,20(2) Table 10 Analysis of commitment and participation Question Yes% No% z 1. CEO responsible for budgeting 93,7 6,3 28,552 2. CEO fully committed to budgeting 60,3 39,7 3,342 3. CEO actively involved in budgeting 100,0 0 (x) in budgeting by CEOs must be compared with the proportion indicating a lack of commitment and participation. For the three questions, the proportion of Yes and No answers, and the Z values, are as indicated in Table 10. Thus the hypothesis is valid for all three questions. The 100% positive response to 'CEO plays an active role in drawing up and using budgets' indicates that the hypothesis may be accepted with a high degree of confidence that it is correct. Manager and staff commitment to and participation in budgeting Six questions relate to the commitment and participation of managers and staff in budgeting. Respondents indicate a commitment to and participation in budgeting by managers and staff if they answer that: 1. Managers and staff participate in setting budget goals. 2. Managers are committed to and involved in the budgeting system. 3. Budgets are perceived by managers and staff as a goal to achieve, to be rewarded. 4. It is important for motivation and commitment that managers and staff participate in drawing up budgets. 5. Participation in the budgeting process leads to improved performance by managers and staff. 6. The business is decentralized, and managers have a lot of responsibility. Hypothesis 6 proposes that managers and staff of small manufacturing firms are committed to and participate in budgeting. To test this hypothesis, the proportion of responses indicating a commitment to and participation in budgeting by managers and staff must be compared with the proportion indicating a lack of this commitment and participation. For the six questions, the proportion of Yes and No answers, the Z values, are as indicated in Table 11. As the hypothesis is only valid for one of the six questions, the hypothesis cannot be accepted. Table 11 Commitment and participation by staff Question Yes% No% z 1. Managers and staff participate 39,7 60,3 -3,342 2. Managers are committed and involved 52,4 47,6 0,763 3. Budgets are perceived as a goal to achieve 47,6 52,4 -0,763 4. Participation is important for motivation 55,6 44,4 1,789 5. Participation leads to improved performance 42,9 57,l -2,277 6. Business is decentralized 27,0 73,0 -8,224