Effect of activity based budgeting on resource based Performance in universities in western Kenya

Abstract

Resource Based Performance (RBP) is an innovative construct of an organisation, encompassing strategy, formal structure, and customer to supplier relationships; including innovation and technological capabilities; on which performance is tested. Firm success is not necessarily associated with market power or industry structure, but rather the result of innovation and new technologies which are critical in influencing the dynamics of external environment and competition. In essence, the resource-based theory explores the origins of competitive advantage and superior performance. Activity based budgeting has been recognized for lending this to performance. Previous studies on ABB have focused the context of business organization whereas; it is evident that there is increased information requiring attention on Resource Based performance analysis. Effect of activity based budgeting on resource based performance in universities, although important has not been given adequate attention. Available literature show minimum effort in establishing the relationship. Despite the value of activity based budgeting and its implementation by universities, there is evidence of fluctuating performance of the universities resources. The purpose of this study was therefore to analyze the effect of activity based budgeting on resource based performance in Universities in Western Kenya. Specific objectives of the study were to; establish effect of activity based budgeting on budget goal reallocation, determine contribution of activity based budgeting on implementation timelines, determine effect of activity based budgeting on effective budget resource application and analyze effect of activity based budgeting on value of the firm. The study adopted correlation research design. The null hypotheses were that; activity based budgeting measured in terms Cost-Revenue measurement, activity time measurement and activity to activity relationship do not significantly affect resource based performance in the universities. The study was guided by goal setting theory, cognitive evaluation and the accounting tool of balance scorecard. The study was conducted in Western Kenya on 21 Universities with a target population of 36 finance management officers; comprising of Finance Officers and Senior Internal Auditors where N=32 and 4 was used for piloting. A census survey was conducted on the entire target population. Primary data consisting of respondent opinion and secondary data was collected by use of structured questionnaires and secondary data schedules. Means, standard deviation, correlation, and regression were used to analyse data. Validity test revealed respondents’ knowledge of the tools, while cronbach’s Alpha reliability coefficient was 0.7, meaning scale items were 70% reliable. The result of the study has potential of contributing knowledge to be used by scholars and researcher as reference material and it was also be useful to policy makers to lay strategies on how to reduce cost and maximize profit. Regression results reveal R2 of 0.637 to budget goal reallocation, 0.724 for implementation timelines, 0.698 to effective budget resource application and 0.627 to Value to the firm, implying that ABB account for 63.7% of budget goal reallocation, 72.4% of implementation timelines,69.8% to effective budget resource application and 62.7% of Value to the firm, all significant at p<0.05. Hence H0(1-5): r=0 are rejected and H1(1-5): r≠0 are accepted. In conclusion, the findings show that activity-based budget has effects on the resource based performance of the university as indicated by the positive coefficients of the independent variables. It is recommended that, all the universities should adopt activity-based budgeting strategy in order to prudently make use of financial resources.