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African Journal of Commercial

AJoCsOpen
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Review Paper Open Access

Budgeting, Risk Planning, Internal Control and Financial

Performance of Kenyan Manufacturing Firms
Olivia Pendo Baya *
1
Department of Accounting and Finance, Technical University of Mombasa, Kenya. E-mail: [email protected]

Abstract

Article Info

Volume 3, Issue 3, November 2023

Accepted : 5 November 2023
Published : 18 November 2023

doi: 10.59413/ajocs/v3.i3.5
Ark: ark:/69431/AJoCS.v3i3.5

© 2023 Olivia Pendo Baya This is an open access article under the CC BY license
(https://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and
reproduction in any medium, provided you give appropriate credit to the original
author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

planning alone is not sufficient, so control comes in to

1. Introduction
ensure that plans are carried out in the appropriate manner
Budgeting, planning, and control were meant to cure the and funds do not fall into misappropriation (Frank et al.,
poor financial performance of most large-scale businesses, 2008). Budgeting has been very successful in propelling the
with the promise that these measures would enable most financial performance of manufacturing companies in many
manufacturing companies to manage their resources in the developing countries, for example, Kenya, India, and
most appropriate manner (Romenska et al., 2020). Since Somalia. Since manufacturing companies in developing
money is a scarce resource for all manufacturing companies, countries are few compared to those in developed countries,
to use it effectively, planning will be required. However, the concentration of budgeting, planning, and control has
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not been put into much light in these countries. defines everything about a company and also its overall
image to potential investors. It should be done under proper
Budgeting is the process of creating a plan to spend
supervision because most times there could be a lack of
money. The spending plan is called a budget. It helps in
understanding about the objectives of the company; there
determining in advance if the money will be enough to do
could also be no constructive approach to objectives; and
the things that are supposed to be done. Budgeting is
there could be scarce resources to meet the objectives of
important to most sections of the economy (Ridwan, 2017).
planning. Giving proper attention to the plans of an
Companies must find some method to deal with future
involved organization is a good way of avoiding negative
activities that are not predictable. What a budget does is
outcomes. Other ways of making sure that the after-plan
show companies operating plans for the coming periods; it
result is good are by establishing coordination between long-
also formalizes the company's plan in a quantitative plan,
term and short-term plans to avoid confusion.
which makes it realistic and easy to understand for probably
auditors. It creates a spirit of motivation towards achieving Budgetary control means comparing actual income or
the goals of the company (Kravets, 2019). Most companies expenditure to identify whether or not corrective action is
around the world have used budgeting methods to utilize required (Palanjian, 2008). The comparison of budgeted
the money in the most appropriate manner, and it has been and actual figures will enable discrepancies to be found and
successful for them. Budgeting can be done in different remedial measures to be taken at an appropriate time. This
ways, as long as the method used is beneficial and works out process should be a continuous one to enable planning and
for a particular organization. For instance, some coordination. Control enables the elimination of waste and
organizations may prefer to do their budgets according to increases profitability; it also helps in the correction of
departments; in that case, each department prepares its own deviations from established standards. In manufacturing
budget and presents it for approval. This method can be companies where a huge amount of money is involved,
good since it reduces a lot of work that could be done by control is better since it will ensure that the discrepancies
one person. However, some organizations prefer to have one that could have been realized are solved earlier.
master budget that includes all the budgets of all Manufacturing companies experience large diseconomies of
departments. This has its advantages and disadvantages. scale, whereby misappropriation of funds is one of them,
Having one budget can be advantageous in that it saves meaning if there is proper control, there could be huge
costs, and there is also no overestimating of what they need profits, which can be beneficial to the company (Mary,
so that they can have individual benefits out of the funds of 2017). Proper supervision and coordination between long-
the budget indirectly (Gerasimova, 2020). There are also term and short-term plans are crucial for successful
types of budgets, for example, sales budgets, production planning. Budgetary control, the process of comparing
budgets, financial budgets, overhead budgets, and master actual income/expenditure with the budget, is emphasized
budgets, which were deeply explained in Chapter chapter for identifying discrepancies and taking corrective action in
two and their effects on the financial performance of a continuous manner. The text underscores the importance
manufacturing companies based in Kenya. of these financial management practices in preventing
misappropriation of funds and enhancing profitability,
The origin of budgeting was in England, where it was
especially in manufacturing companies dealing with
used as a means of controlling governmental expenditures.
significant financial stakes.
In the early 1760s, the Chancellor of the Exchequer
presented the national budget to parliament at the
beginning of each fiscal year (“Budget Promises Almost 2. Theoretical Review
£3bn for NHS in England,” 2017). The budget was the This section explores and discuss theoretical frameworks,
chancellor’s report on national finances. After presenting providing a foundation for understanding the underlying
the budget speech, parliament considered his list of principles that guide the current study on Budgeting, Risk
estimated expenditures and, after discussion and debate, Planning, Internal Control and Financial Performance of
acted upon the proposal (Choi,Kwang, 2017). Tax levies Kenyan Manufacturing Firms.
were then put in place, and the budgeted appropriations
served as fixed limitations for the succeeding year. 2.1. Organizational theory
Planning is the process of setting a company’s goals, Under this theory, there is an institutional perspective on
strategy, and future actions with the purpose of maximizing budgeting, planning, and control. Manufacturing companies
the odds of company growth within a set timeframe adopt the budgeting process since, according to their
(Romenska et al., 2020). Planning goes hand in hand with observations, they realize that other firms have become
budgeting. For planning to be successful, there are successful. They also do plan in the process of budgeting on
procedures that need to be followed. The moment a certain how they can utilize their funds in the appropriate manner.
important step is not followed, the result of the planning They have become financially confident and successful
might not be good and may affect a whole budget. Planning (Jenkins & Delbridge, 2020). Budgeting has become popular
is an important aspect of most companies; a good plan in manufacturing companies as there has been a need for
certain groups to adopt budgeting and have a copy of the
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budget and plan. For example, stakeholders may need the 2.2. Stakeholders Theory
budget to know how the company is performing, especially Stakeholders' Theory states that a firm is a group of
in the manufacturing industry, where there could be more stakeholders working within a system of a society, which, in
people interested in the company, so a budget will be able to other words, is the host and provides necessary legal
put them in a position to know whether their activities run infrastructure for their firms’ activities. The purpose of the
in the appropriate manner. Also, employees need the budget firm is to create value for its stakeholders by converting their
to retain confidence in the company that they are able to pay stake into goods and services (Liu & Fang, 2020). According
them their salaries and allowances. They also become to this theory, in large companies, the degree of detailed
motivated to work wholeheartedly since the organization information in budgeting and planning is important, as in
involves them in some issues, like making them access the the case of manufacturing companies, which fall into the
budget (Jenkins & Delbridge, 2020). Also, the budgeting same category as large companies. It also states that for a
officer, who in most cases is an accountant or CPA, has an budget to be complete, much effort needs to be put in place
interest in the budget and other managerial positions in the for it to be a success. It consumes a large amount of
company to be able to stabilize the budget and know where monetary resources; however, wastage of resources occurs
the organization is going wrong so that they can correct any every time during planning until the annual operating
errors for the success and proper running of the company. budget is approved. That’s why most top management
Budgets are also important in an organization because usually pays little attention to budgeting and control since
they help cut certain costs, especially practical budgeting, they consider the high cost involved compared to the
which, in terms of figures, helps reduce over- or under- benefits derived from such detailed budgeting. Most
budgeting (Jenkins & Delbridge, 2020). For example, the manufacturing industries in Kenya could be facing the same
manufacturing budget for each product enables the problem, and definitely it is because in developing countries
accountant to determine the cost of the product by getting there could not be enough resources to do detailed
to outline the labor cost, material cost, transport cost, and budgeting for manufacturing companies, which is why their
other miscellaneous costs when they add them up together financial performance lags behind. When you look into
and add their profit so that they get the cost of the product. much detail, it will be difficult for them to do much detailed
This has enabled us to reduce the potential for opportunism budgeting for the success of the company and get to know
due to properly scrutinized budgets and spending limits. the loopholes they can improve. Instead, if it does not
Budgeting in an organization has over many years been given benefit the top management, they will not give it much
top priority, especially in manufacturing companies, since consideration, considering the high rate of corruption. Even
the importance of budgeting keeps increasing as the years go if they push themselves into budgeting and do not get any
by (Auerbach & Gale, 2020). For example, during reward, they will manipulate the budget to their benefit.
pandemics like this COVID-19 season, most manufacturing And so, to control reluctance in budgeting planning and
companies have not worked well financially since it has control, Blair's view is that to provide incentives to
hindered most operations like the supply of raw materials, stakeholders like voice and ownership (Porter, 1992), they
making the organizations work with limited resources. should also be provided board representation by customers
Budgeting has become more important since, using the and suppliers, financial adverse employees, and community
limited funds and resources, they are able to plan and representatives, as well as seek long-term owners to guide
manage themselves through budgeting. Also, budgeting in them in governance. In this way, they will be able to work
the organization during the COVID-19 pandemic has properly in detail, especially within their budgets; hence, the
reduced disputes between organizational members since, financial performance of these manufacturing companies
when they see the budget, they are enlightened on how bad will improve. If stakeholders are given a say in the decisions
the company is fairing on following COVID-19, and so they of budgeting and planning, the top management will be on
are able to accept the situation and find ways of improving their toes and ensure less reluctance and mistakes in
the company’s performance (Auerbach & Gale, 2020). budgeting, hence the financial performance will improve.
Budgets are used in companies when the financial Manufacturing industries will flourish if they adopt this
situation has started deteriorating due to some issues, like in method; it may improve their financial performance by a
this case, COVID 19. Using the budget, accountants can larger percentage if there is proper planning.
manage using the limited resources and be able to pay work.
2.3. Contingency Theory
In this case, budgeting can enable the workers to retain their
jobs instead of laying them off by reducing their wages so that In this theory, it identifies two types of fit that have been
their financial performance can be regulated. A budget is a used in budgeting research: selection and interaction.
good idea since, in times of poor economic situations, Selection fit is the congruence between an organization and
employees retain their jobs by reducing their wages, which is its contingencies. Several tests of selection fit have been
better than leaving others jobless, and they are all important done; the contingency variables are organizational size and
assets to the company. technology as independent variables. For example, Bruns
and Waterhouse show that structuring activities leads to
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more participative budgeting. This can be done by a to improve their financial performance. When these
company or organization arranging its activities in such a manufacturing companies set high goals through the
manner that they can accommodate other members to have budgeting process, they were able to work extra hard, and in
a say in the budgeting process. The organizational size and the process, the challenging goals led to them being
the way it is diversified bring in the importance of recognized internationally, just like other manufacturing
budgeting, especially participative budgeting, and reports industries in developing countries that are recognized
that participative budgeting and organizational size worldwide. This measure improved the financial
interactively affect organizational performance. This is performance of these manufacturing companies based in
because it will bring out the best in the company involved Kenya, which have been faced with the problem of
since if the organization is big and has different recognition and good financial performance.
departments, in these departments there are people from Budgets were to be set in such a way that staff members
different diversities. When they come together and do felt their achievements were challenging. High budgets have
budgeting as one and ensure that every department been seen to motivate staff compared to low budgets. For
participates in the budgeting process, it will make work example, if a manufacturing company sets a budget of $5
easier for the accountant (CPA), especially in compiling to million and another sets a budget of $5 billion, the company
get the master budget. with a budget of $5 million will be reluctant to work hard
Other departments will participate by making their own compared to the company with a budget of $5 billion since
budgets and bringing them so that they can be compiled. the staff will realize they have a lot to do so that they can
Also, planning will make it easier to ensure that risks that achieve the budget. In the process, they will work to an
are to take place are controlled in different ways so as to extent that their efforts will surpass $5 billion, and in the
avoid adverse effects that might occur because of risk process, the financial performance will improve in the
planning. And since, as we all know, manufacturing process (Auerbach & Gale, 2020). underscores the
companies are highly diversified and their organizational importance of budgeting, planning, and control in
size is also large, participative budgeting will be an important manufacturing companies, drawing on various
move for them to improve their financial performance, as organizational theories to explain their impact on financial
in our case here, the manufacturing industries in Kenya. It performance and overall success.
will be a great idea for the manufacturing companies in
Kenya to adopt this measure of ensuring that every 3. Budgeting, Risk Planning and Internal Control
department takes part in budgeting. It will reduce the
workload, whereby one person could have done the This section describes the various principles that
budgeting for all departments. It will also be advantageous influence the financial performance of Kenyan
in this COVID-19 season to avoid a lot of contact when manufacturing firms. Some of the aspects discussed are
every department does its own budget and sends it to the budgeting, risk planning and internal controls.
accountant for preparation of the final budget. Technology 3.1. Budgeting
comes in as there are systems that are used in budgeting, and
Budgeting plays a big role in managing and controlling
a company, especially a manufacturing company, should use
the usage of funds in a company (St. Clair, 2013). It is an
a good system to get accurate results.
involving procedure that requires concentration to make it
2.4. Goal setting Theory work appropriately. There is a lot of expenditure involved
Goal-setting theory (Latham & Locke, 1990) was in the budgeting process, but at the end of the day, it
developed inductively within industrial organization becomes beneficial to the company involved (St. Clair,
psychology over a 25-year period based on laboratory and 2013). Budgeting gives financial confidence to a given
field studies. High goals lead to a higher level of task management since they are sure that their funds are utilized
performance than low-level goals. When we look at in a given manner and any wastage or overspending is
budgeting, it is a way of setting goals, planning how funds accounted for. Manufacturing companies in Kenya have a
will be allocated, and controlling their usage. When a big role to play in order to improve their financial
company budgets its money and other resources, it creates a performance. This is because financial performance plays a
spirit of motivation for the workers and employees so that key role in the running of activities in a given company. It is
they can work towards the goal, which is the budget. It also like fuel in a car; without fuel, a car cannot move. That is
keeps members active and hardworking to achieve what the how funds play a role in organizations. For that reason, they
budget says. By providing direction and standard organs have to be taken care of, and the most appropriate and
through which progress can be monitored, challenging goals effective way is through budgeting. There are procedures
enable people to refine their performance and look for ways that are normally followed during the budgeting process.
in which they can work to achieve those goals. This applies The budgeting process forces managers to access current
to the manufacturing companies in Kenya; they set high operating conditions.
budgets and were able to motivate them to work extra hard According to Tanzi (2018), there are five groups of
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budgeting principles: the first is the long-range goal enough; it should not strain funds and resources to the
principle, the second is the short-range goal principle, the extent that the company has fewer assets than liabilities.
third is the responsibly and interaction principles, and the This technique will help the manufacturing companies in
fourth is the budget follow-up principles. He explained in Kenya have a good financial performance since Kenya,
his research that his first principle is that an annual budget where there are pandemics that affect the economies of the
cannot be made unless those preparing it know the counties, Kenya being one of them. So to maintain or
requirements of the top management. The long-range goal improve the financial performance, it will be wise for these
principle states that the budget prepared, if it is long-term, companies’ top people involved in budgeting, the
must consider the future economy and how it will change; accountant being one of them, to adopt this technique of
it must be flexible enough to accommodate these changes in budgeting in accordance with the economic situation. Now
the economy. According to me, it is right, but it should take we go back to the two techniques: incremental budgeting
much consideration into the internal budget, which is most and zero-based budgeting. Incremental budgeting is a
of the time short-term since it is flexible enough when budget in which figures are based on the actual expenditures
economic situations change. For example, following the of the previous year, and an increase is added to the
COVID-19 pandemics, the economy has really changed for budgeting of the coming years (Burggräf et al., 2019). Now,
the worse, so if a budget is short-term, the accountant can zero-based budgeting means that past figures are not used as
prepare another budget to accommodate the situation at the starting point; the budgeting starts from scratch for all
hand (Ridwan, 2017). And thus, the financial performance activities for the year.
is going to be maintained or even improved since the budget Budgeting has also experienced some problems. One of
will have been prepared to accommodate the current them is that there could be undue pressure due to high
economic situation, and therefore it will work appropriately budgets that may have been posed. This pressure reduces
in accordance with the situation at hand. In reference to the motivation to work since most energy will be drained by
Anderson, he explains that short-range targets and goals the pressure they are experiencing. According to Limb
form the basis for the organization’s operating budget for (2014), budgets are developed around existing
the year. Thirdly, budgeting success or failure is determined organizational structures, which may be inappropriate for
by how well the human aspects of the process are handled underlying economic conditions. As I have explained above,
from top to bottom by all the appropriate people who must the existence of well-documented budgets may cause a lack
take part in the budgeting process, and the fourth is that of flexibility in adapting to change. Another problem is that
since the process consists of many predictions, there should the budgets planned should be standard and attainable.
be follow-up to check whether the targets have been There are various factors to be considered, including the
achieved or not (Tanzi, 2018). aspiration level of individuals, pressure groups, and the
For the financial performance to improve, proper extent of participation and past performances (Limb, 2014).
budgeting should be done, especially in manufacturing Firms are required to assess their cost of capital and
companies since they are big and involved. For them to contemplate measures to reduce it, such as enhancing
thrive well financially, there should be a properly outlined creditworthiness or examining alternative means of
procedure on how they will use their funds for various financing (Ochoki et al., 2023). The process of budgeting
purposes and how they will minimize costs and improve and overseeing costs necessitates the implementation of risk
profits. For manufacturing companies based in Kenya to planning.
benefit from budgeting, they should first set quantitative
goals and establish operating targets. In practice, most 3.2. Risk planning
manufacturing companies in Kenya use period budgets as Risk planning is the process of learning how to carry out
their budgetary control. They follow several accounting the activities of risk management. Risks are uncertain future
tools, and these are cost behaviour patterns, use of cost, and events that may be positive or negative. They may affect
volume profit analysis (Heda & Maslak, 2009). different sectors of an enterprise or company. Therefore, in
There are also several techniques used in budgeting: order to avoid adverse effects from risks that may occur, it is
incremental budgeting and zero-based budgeting. Apart wise for a company to plan for these risks. Since they are
from these techniques, there are other techniques that these uncertain, it is difficult to know what kind of risk is coming
companies based in Kenya can use to improve their financial up next. So that to effectively ensure they are planned, the
performance. Before I explain zero-based and incremental management can use assumptions about the upcoming
budgeting, I will explain the other techniques they will use. events or they can compare the previous happenings in a
One of them is budgeting, which is done in accordance with company and assume that the next event that might cause
the economic situation. For example, in this case of the risk is close to or equal to the previous one.
COVID-19, the budget used or made should consider how Manufacturing companies are big organizations, and when
the economy is fairing and the amount of funds and certain risks occur and affect the organization's financial
resources that are available (Heda & Maslak, 2009). In other performance negatively, the effects are adverse, thus
words, the budget should be realistic and achievable bringing up the need for risk planning, which is controlling
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the risks so that they do not affect the company at a large the company. And if the reports show a true and fair view
range, rendering the company to lose (Darr, 1998). Kariuki of the affairs of the company, it means that internal control
and Kamau (2013) posited that the adoption of SMA among is working well to ensure that the company’s financial
manufacturing firms in Kenya is significantly influenced by performance is good. During this COVID-19 period,
both industry competition and the utilization of advanced internal control plays a major role in ensuring that the
manufacturing technology. The presence of competition activities of the company run in the right manner, even
and the incorporation of technological advancements though there are economic challenges here and there. It has
necessitate enhanced strategic planning. to ensure that financial statements are prepared in the right
Hence, manufacturing companies in Kenya have been manner. Here, the internal auditors have to work extra hard
affected by these risks, thus affecting their financial to ensure no funds or resources are misused or stolen
performance. There has been a drastic increase in the need because the means of getting capital itself has become a
for risk planning so that they can save these companies. major problem. The study of internal control aims at
They can do this by determining risk response plans. There attracting other concepts that may be important
are some responses to risk events, and these are avoidance, (Serebryakova, 2020). Kamau et al (2023) posited that the
which can be done by eliminating the threat by changing the incorporation of internal audit into an organization's
objectives that the risk event is threatening (Kyläheiko et al., operations is an essential component of its internal control
2017). Another way to respond to a risk is by transferring framework. This assertion maintains that internal audit, as
the risk to a third party, for example, insurance, ensuring a strategic function, plays a crucial role in ensuring the
that the company is insured against some adverse events. effectiveness and efficiency of an organization's internal
Manufacturing companies in Kenya can take insurance control measures. The researchers argue that internal audit
cover to ensure that, in case of any risk, they are indemnified serves as a mechanism through which an organization can
and their funds are brought back to their same position and monitor and evaluate the adequacy of its control systems,
financial performance before the risk (Kyläheiko et al., thereby contributing to the achievement of its overall
2017). They can also moderate this by reducing the impact objectives.
of risk events. For example, manufacturing companies in Seven months ago, KRA (Kenya Revenue Authority)
Kenya can cover their working areas so that they can prevent raided Africa Gas and Oil Company in Kenya for over $200
any damages from occurring to workers, passersby, and also million in tax evasion. The people involved were arraigned
to the company’s operations themselves, reducing the effect in court for questioning (Migot & Paul, 2019). The persons
of risk in the future. Another way is for the company to that were to be questioned for the unfortunate happening
accept the risk as part of the company and move on with were mostly the accountants and management, and to some
other activities since they have no other option. They can extent the internal auditors since they did not exercise
use it as a mark for the company to motivate them not to proper internal control. The activities that were running
repeat the same mistake again. Risk planning and were not legal and did not provide a true and fair view of
management is a series of steps whose objectives are to the affairs of the company. The internal control was not
identify, address, and eliminate risk items before they strong enough to ensure that taxes were being paid on time
become either threats to successful operation or a major instead of them exercising tax evasion. They did not check
source of expensive work (Kyläheiko et al., 2017). the financial statements to see whether taxes were being
avoided; this greatly affected their financial performance,
3.3. Internal control which was before and after they started the practice of tax
Internal control is a process for ensuring an evasion. In this case, it showed that internal control is an
organization's objectives in terms of operational important sector in ensuring that the financial performance
effectiveness and efficiency, reliable financial reporting, and of these companies is good enough (Migot & Paul, 2019).
the law (Serebryakova, 2020). The behavior patterns of
So internal control is effective if it is stressed on the
businesses have led to the need for internal control, since
manufacturing companies in Kenya so that their financial
most of the time they are not predictable. Internal control
performance thrives. Most of the companies do not give
works closely with auditing. Internal control has become
much consideration to this issue, which raises a point of
important since most stakeholders have an interest in what
concern and raises questions about why the manufacturing
is going on in a firm or a company, bringing the role of
companies do not have good financial performance. From a
internal control; it is proper internal control that will make
local Swedish perspective, broad research into internal
most investors more interested in a particular company than
control is important, but there is a lack of research on
the others. This means internal control has a direct effect
internal control from an international perspective (Aslan,
on the financial performance of a firm. In our survey, we
2018). This shows that internal control should be taken into
found manufacturing companies in Kenya (Serebryakova,
much consideration since it affects not only manufacturing
2020). Internal control means that the activities of the
industries in Kenya but also other countries internationally.
company are effective or not, and the financial statements
are reliable enough for the auditors to give good reports to
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stages of the budget cycle, not only because they can

Risk
contribute valuable skills to the process but also because
Budgeting planning Internal
they have connections with the community that enable
control
them to bring critical information about the public’s needs
and priorities to the budget debates. The study findings
Financial revealed that there is a strong effect of budgets on the
Performance financial performance of manufacturing companies as
measured by return on assets. It also revealed that
Fig 1: Relationship between variables
manufacturing companies need to establish a strong link
between the budgeting process and the budget process,
which I will consider in my study and go deeper into. He
Figure 1 emphasizes the pivotal role of manufacturing
used both secondary and primary data.
companies in national economies, underlining the
interconnected strategies of budgeting, internal control, and There are things that Powell and Evans Obara Onduso
risk planning. It provides a holistic perspective on the did not shed some light on that I am going to look into,
symbiotic relationship between manufacturing enterprises namely, risk planning and internal control and their effect
and national economies, showcasing how these strategies on the financial performance of manufacturing companies
fortify financial standing and contribute to broader in relation to budgeting. I am sure it will be beneficial to
economic vitality. manufacturing companies and improve their financial
performance (Gerpott, 2016).
4. Empirical Review of Literature Budgets were too time-consuming to make, and the
Gerpott (2016) studied institutional perspectives on amount of time needed to prepare these budgets is not
budgets, which fall under organizational theory for profitable for any business. More importantly, a lot of
budgeting in organizations. It examined how budgets have budgets were updated only annually, so the assumptions
become popular and the high pressures to adopt budgeting. that stem from these budgets are no longer up-to-date. There
The research highlighted the benefits that an organization was more focus on cost reductions than value creation. This
could bring to various groups of people after adopting is not to say that cost reduction is a bad thing, just that
budgeting in various organizations. This research also oftentimes it can hinder the achievement of strategic goals.
showed how philanthropic organizations will scrutinize the Further, a budget can exclusively focus on financial
budgets of charitable organizations to ensure that future performance, giving very little focus to other non-financial
contributions are spent wisely (Gerpott, 2016). The study goals of the organization (Gerpott, 2016).
looked mostly at the importance of budgeting, even for Lin (2018) states that the effectiveness of internal
employees and accountants. The study ought to give an control impacts the quality of financing reporting, auditor
overall picture of the budgeting of manufacturing reactions, insider trading, and capital market consequences.
companies in Kenya, since, out of the benefits he came up More internal control studies combine with capital markets
with of budgeting, it will be beneficial for them to adopt this and provide evidence that is not always effective. Overall,
model for the improvement of financial performance so that these findings contribute to the profession by suggesting
they can work well. The study adopted a cross-sectional that disclosures of internal control deficiencies generally
survey approach in its research design. The population convey incremental information on the quality of financial
included different groups of people who have direct or reporting to investors.
indirect interest in an organization, i.e., accountants,
customers employees, and shareholders, and how budgeting
will affect them. It also included various companies. The 5. Summary and Conclusion
study used both primary and secondary data (Gerpott, Manufacturing companies play a major role in the
2016). The findings showed a strong relationship between country’s economy. Therefore, they should be taken care of
budgeting and the financial performance of the involved in the most appropriate manner so that their financial
organization and its general importance. performance can thrive. They export most of their products,
Evans Obara Onduso (2013) sought to establish the which is a result of proper budgeting, risk planning, and
contribution of budgets to the financial performance of internal control. The country then earns foreign exchange,
manufacturing companies in Nairobi County. The study thus improving the country’s economy. All these were
found that in a budget cycle, the budget is more than just a blended in well, and they worked, so there was a good
single document; it is a yearlong cycle whose different financial performance. In the case of internal control (Lin,
phases offer civil society varying access points to influence 2018), they discussed the development of corporate
how public resources are raised and spent and ultimately the governance codes of conduct and therefore touched upon
budget’s desired outcomes. According to his research, it is internal control from a regulatory perspective. Internal
important for civil society organizations to engage in all control can also be the regulation of the laws that govern a
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particular code of conduct in a company for the proper and is their export-oriented model, propelled by astute
uniform running of its activities in the right manner. This budgeting, meticulous risk planning, and robust internal
includes everything from the activities to the financial controls. Through these measures, these companies bolster
statement and position of the company. national economies by augmenting foreign exchange
In the case of budgeting, it is important for any company reserves, thereby fortifying the economic landscape. Delving
to have a budget for how it utilizes its funds. This is into the realm of internal control, inspired by Lin's discourse
important since it enables them to utilize their funds well to on corporate governance codes (2018), this article elucidates
avoid overspending or spending less, for example, on low- the regulatory facets governing a company's operational
quality equipment to perform certain tasks, enabling proper conduct. It encompasses a comprehensive regulatory
budgeting. The Kenyan Constitution itself has a properly framework governing activities, financial statements, and
outlined budgeting process that is to be followed so that overall organizational positioning.
budgeting can be completed. There are stages in the budget- Budgeting emerges as a cornerstone for effective resource
making process in Kenya: integrated development planning allocation, epitomized by the structured budgeting process
process, planning and determination of financial and outlined in the Kenyan Constitution. The delineated stages
economic policies and priorities at the national level over the encompass integrated development planning, policy
medium term, Preparation of overall estimates in the form determination, parliamentary approval, enactment,
of the budget policy statement of national government implementation, and periodic evaluation, fostering fiscal
revenue and expenditures, Adoption of budget policy by prudence within manufacturing entities. The imperative of
parliament as a basis for future deliberations, submission of risk planning is underscored as a proactive shield against
the estimates to the national assembly for approval, potential pitfalls within the manufacturing sector.
enactment of the appropriation bill and any other bills, Emphasizing Lin's insights (2018), strategic risk planning
Implementation of the approved budget, Evaluation and safeguards against catastrophic losses, mitigates adverse
accounting for the national government’s budgeted revenues impacts, and discerns opportunities within the risk
and expenditures, Reviewing and reporting on those landscape, acknowledging the dual facets of probability and
budgeted revenues and expenditures every three months impact. This article endeavors to provide a comprehensive
(Lin, 2018). and all-encompassing viewpoint on the interdependent and
Risk planning is also another objective that I have mutually beneficial connection that exists between
discussed. Following the manufacturing industries where manufacturing enterprises and the national economies in
they are situated, it raises the demand for risk planning so which they operate. This symbiotic relationship is fostered
that proper financial performance can be achieved. It through the harmonization and synchronization of various
prevents huge losses from occurring and saves manufacturing critical organizational functions, including but not limited to
companies from the negative impacts of risks that may occur budgeting, internal control mechanisms, and risk planning.
(Lin, 2018). As well, there are other risks that can be taken By effectively aligning these fundamental aspects,
that can be beneficial to a company. Generally, risk has two manufacturing companies are not only able to bolster and
components, which are probability and impact. strengthen their own financial standing, but they also make
substantial and noteworthy contributions to the overall
The pivotal role of manufacturing companies in a
economic well-being and prosperity of their respective
nation's economic tapestry necessitates a nuanced approach
countries. This holistic approach ensures that these
to fostering their financial well-being. This article delineates
enterprises are not only focused on their individual success
the interconnected strategies of budgeting, internal control,
and progress, but also on the greater good and vitality of the
and risk planning that underscore the success of these
broader national economy.
enterprises.
Central to the financial prowess of manufacturing firms

Acknowledgment
We would like to express our gratitude to the journal editor and the anonymous reviewers for their valuable
commentsand suggestions that significantly improved the quality of this manuscript.

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Cite this article as: Olivia Pendo Baya (2023). Budgeting, Risk Planning, Internal Control and
Financial Performance of Kenyan Manufacturing Firms. African Journal of Commercial Studies.
3(3),181-190. doi: 10.59413/ajocs/v3.i3.5