Investigating the Factors Impacting on the Implementation of the Operating Budget Regarding Activity-Based Costing in the Ministry of Economic Affairs and Finance Saeid Azimi Financial Management, Institution of Management Research & Education (IMRE), Iran alisaeedaccout@yahoo.com Abstract The aim of research is to investigate the factors impacting on the implementation of operating budget regarding activity-based costing in the Ministry of Economic Affairs and Finance. The research method is the statistical population of all managers, deputies, and experts related to budgeting in the Ministry of Economic Affairs and Finance, that deal in a way with the budget of organization. The number of statistical population (specialist staff and managers of the Ministry of Economic Affairs and Finance) is 50. As the number of statistical population is limited, we select the statistical sample in a simple random way that is the same 50 people. Having collected the questionnaires, the data has been analyzed by using EXCEL, SPSS version 18, and LISREL version 8.5 software. In this research, to evaluate the construct validity, the results of Confirmatory Factor Analysis (CFA) is used. The results of hypotheses; in the first hypothesis of research it was claimed that the required ability impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates the significant number of route between the two variables is 4.98, and since this value is greater than 1.96, so the hypothesis is confirmed. In addition, since the obtained significant number is positive, the impact is direct. In the second hypothesis it was claimed that the required authority impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates the significant number of route between the two variables is 5.17, and since this value is greater than 1.96, so the hypothesis is confirmed. In addition, since the obtained significant number is positive, the impact is direct. In the third hypothesis it was been claimed that the required acceptance impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates the significant number of route between the two variables is 5.08, and since this value is greater than 1.96, so the hypothesis is confirmed. In addition, since the obtained significant number is positive, the impact is direct. The results of Friedman test show that among the investigated components impacting on implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, ability, authority, and acceptance components have respectively the highest and lowest importance in the group. Keywords: Required Authority, Required Acceptance, Operating Budget, Activity-Based Costing. http://www.ijhcs.com/index.php/ijhcs/index Page 27
Introduction Administration of a commercial unit in today's dynamic economic conditions is a complex and difficult duty. Professional managers have already planned every stage of their unit operation carefully and by applying control procedures, ensure about their accurately and timely implementation. Budgeting is considered as the fundamental base of the process of management planning and control. Suitable budgeting system causes periodic planning, improving coordination and relationship, and provides an appropriate framework for control, measurement and evaluation of staff performance and leads the activities of unit towards the organization's goals. The created deviation can occur for numerous reasons that the existence of this deviation can ultimately become barriers to achieve the long-term goals of organization, and also creates huge challenges in the short-term and long-term planning. Now, we state the necessity and importance of performing this research as a list: 1. The exiting information in the annual budget documents lacks transparency. 2. In the stage of suggestion, it is associated with overestimating revenues, and in the implementation it is associated with non-realization of incomes. 3. The costs of government are not estimated according to the justifying reports and actual needs of the executive agencies and the clear foundations of estimation are not suggested. 4. The executive system of country is complex and lacks desirable efficiency (Kong, 2005). The performed studies are also as follows: Sarmat et al., (2011) in a research entitled as Requirements of implementing activity-based costing in operating budgeting of public organizations of East Azerbaijan province have defined operational budgeting based on the theory of Shah in three dimensions of performance evaluation, staff ability, and technical ability, and have concluded that the public organizations of province have required ability to implement activity-based costing in operating budgeting. Babajani and Rasouli (2011) in a research entitled as Identifying the existing obstacles and problems in the implementation of the operational budgeting in the executive organizations of country have concluded that three groups of behavioral, structural, and environmental factors impact on the lack of implementation of the operational budgeting, among which the behavioral factors play more important role, and among the behavioral factors, Lack of familiarity of managers with the benefits obtained from successful implementation of operational budgeting, and Lack of adequate trainings for managers and experts in connection with the implementation of the operational budgeting, and among the structural factors The lack of encouraging incentives for managers to implement the operational budgeting, and among the environmental factors Lack of awareness of individuals and organizations related to executive agencies about the implementation of the operational budgeting were identified as the most important deterrent factors for the implementation of the operational budgeting, and they have offered application recommendation that the mentioned experts believe that the operational budgeting have not that much success in action. Taherpour Kalantari et al. (2011) in a research entitled as Identifying the factors impacting on the implementation of operational budgeting law in the public organizations have concluded that the factors impacting on the lack of implementation of operational budgeting law in the order or priority in the public organizations are: 1. Regarding culture and leadership, 2. Commitment to perform, 3. Conditions of target group, 4. Considering the knowledge and structure, 5. http://www.ijhcs.com/index.php/ijhcs/index Page 28
Conditions of compiling law, 6. Considering the tendency of executives and the atmosphere of organization, 7. Considering the simplicity of performing the laws and technologies. Pourzamani and Naderi (2012) in a research entitled as Investigating obstacles in the implementation of operational budgeting in the commercial-industrial free zones organizations of Iran have concluded that according to Shah's model, the inability to evaluate performance, the inability of human forces, the lack of legal authority, and the lack of procedural authority, as well as the lack of acceptance incentives were identified as the obstacles in the of implementation of operational budgeting. However, factors such as technical ability, organizational authority, political acceptance and managerial acceptance were not recognized as obstacles, and this research shows the fact that the commercial-industrial free zones organization currently does not have the required ability, authority, and acceptance to implement operational budgeting. Pourali Mohammadreza, Kakowan Saiedeh (2014) in a research entitled as The requirements of implementation of operational budgeting (Case Study: Babol University of Medical Sciences and Health Services) have concluded that the findings of this research indicate the fact that Babol University of Medical Sciences and Health Services currently has the required ability (performance evaluation, human and technical forces) to implement operational budgeting, and moreover the factors of gender, education, and work experience do not impact on this ability. Fero et al. (2010) cited from Pourali, Kakowan (2014) in a research entitled as Adaptation of budget flexibility with budget control performed the role of budgeting in the uncertainty conditions and management flexibility with mentioned conditions, and in this research they dealt with the tension between the need to remove specific financial goals, and the need for management flexibility that is created by the increase of instability of market, rapid growth, and technological changes; the results indicated that the integrated budgeting method is applied to explain the ways in which an organization seeks to adapt with contradictory goals. In the integrated budgeting, various applications of budgeting with the managerial controls encourage other managers to use their discretion in the operational issues, and hence those managers are able to prioritize and review approaches in order to realize organizational goals. King et al (2010) cited from Pourali, Kakowan (2014) in a research entitled as Investigating budgeting methods and performance in small health care businesses have reached to the conclusion that compiled budgeting is related to the size and structure, and in order that the commercial institutes can use this compiled budgeting and expand it, they should consider its relationship with the structure, strategy, and perceived environmental unreliability. More improvement of proportionate tests is between possible (contingency) factors of business and the ratio of using operational budget. Research Methodology The statistical population is the managers, deputies, and experts related to budgeting in the Ministry of Economic Affairs and Finance who deal in a way with the budget of organization. The number of statistical population (specialist staff and managers of the Ministry of Economic Affairs and Finance) is 50. As the number of statistical population is limited, we select the statistical sample in a simple random way that is the same 50 people. Having collected the questionnaires, the data has been analyzed by using EXCEL, SPSS version 18, and LISREL http://www.ijhcs.com/index.php/ijhcs/index Page 29
Extracti ve Share Special Issue 2 version 8.5 software. In this research, to evaluate the construct validity, the results of Confirmatory Factor Analysis (CFA) are used. Research Hypotheses First hypothesis of research: required ability impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance. Second hypothesis of research: required authority impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance. Third hypothesis of research: required acceptance impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance. Findings: Exploratory Factor Analysis of the Questions of Questionnaire Table 1: Matrix of Rotated Factors by Principal Component Analysis Method and Varimax Rotation Method with Kaiser Normalization Questions First Second Third Questions Factor Factor Factor Ability Authority Acceptance Question1 Question2 Question3 Question4 Question5 Question6 Question7 Question8 Question9 0.761 0.865 0.623 0.213 0.260 0.599 0.340 0.182 0.117 0.321 0.206 0.170 0.769 0.888 0.601 0.131 0.316 0.322 0.270 0.231 0.429 0.308 0.188-0.006 0.785 0.734 0.689 0.754 0.844 0.601 0.731 0.891 0.720 0.748 0.672 0.592 With regard to table 1, the value of extractive share for all questions is more than 0.5, and it is not required to put any of the questions of questionnaire aside. Considering the table, three factors have been extracted with the special value higher than one, that all questions related to this variable have been located in these three factors. Also, regarding factor loadings of questions, each one of the questions has the highest factor loading in the same predetermined factor. Thus, each question measures exactly the same factor which has been designed for; therefore the questions of questionnaire have the required validity. http://www.ijhcs.com/index.php/ijhcs/index Page 30
Investigating the Normality of Variables Distribution Before testing the relationship between variables, it is necessary to investigate the normality of variables. One of the methods of investigating the claim of normality of the distribution of variable is to use Kolmogorov-Smirnov test. The results of this test have been presented in the following table. Do the designed variables have normal distribution? Hypothesis Zero: research variables have normal distribution. Hypothesis One: research variables do not have normal distribution. Table 2: Normal Distribution of Variables Cronbach's Value of Kolmogorov- Components alpha (0.829) significance Smirnov 0.782 0.564 0.788 Ability 0.746 0.266 1.003 Authority 0.757 0.199 1.074 Acceptance Test Distribution is Normal The results of this test show that the level of significance of research variables is more than 0.05, and it should also be mentioned that SPSS software according to the central limit theorem has recognized the results of this questionnaire normal, thus hypothesis zero, namely the normality of variables, is confirmed. Goodness of Fit Model Tests by Using Fitness Indices In inferential analysis, the construct validity should be tested by using Confirmatory Factor Analysis test. Fitness test in confirmatory analysis and route, the Root Mean Square Error of Approximation (RMSEA) index, or the square root of the variance estimation of the approximation error is less than eight percent of the index,less than three, and GFH, CFL, IFI, NNFI are higher than 90%. Provided that the T-Value of significance coefficients of each variable is also greater than 1.96 and less than -1.96, the model has a good fitness, another words, it has a reasonable approximation of the population. Since in this section, the output of software has been brought unchanged, before observing the output of software, in order to identify the abbreviations of latent and observed variables, the following table is presented. Table 3: Identification Guide of the Abbreviations of Variables of Model Index Question Abbreviation Ability 1 to 3 Ability Authority 4 to 6 Authority Acceptance 7 to 9 Acceptance Having identified measurement models, in order to evaluate research conceptual model, and also to ensure about the existence or lack of the causal relationship between research variables, and to investigate the proportion of observed data with the research conceptual model, the research http://www.ijhcs.com/index.php/ijhcs/index Page 31
hypotheses were also tested by using Structural Equation Modeling. The results of testing hypotheses have been reflected in the diagram. Diagram 1: Measuring Overall Model and the Results of Hypotheses in Standard Mode http://www.ijhcs.com/index.php/ijhcs/index Page 32
Diagram 2: Measuring Overall Model and the Results of Hypotheses in Significant Mode As we proved in the previous section, since our distribution was recognized as normal, (Kolmogorov-Smirnov test results), by using LISREL software the correlation of variables has been tested. In order to investigate the casual relationship between independent and dependent variables, and confirming overall model, the route analysis method has been used. The route analysis in this research has been performed by using LISREL 8.5 software. With regard to table 4 in which the fitness indices of model have been presented, the values of all fitness indices indicate acceptable and appropriate situation of model and data, and have acceptable fitness. In this respect, in order to evaluate the designed model, LISREL software version 8.5 was used, based on which indices of X 2 of the degree of freedom, Goodness of Fit Index (GFI), Adjusted Goodness of Fit Index (AGFI), Root Mean square Residual (RMR), Normed Fit Index (NFI), Non-Normed Fit Index (NNFI), Incremental Fit Index (IFI), Comparative Fit Index (CFI), and the very important index of Root Mean Square Error of Approximation (RMSEA) have been used. http://www.ijhcs.com/index.php/ijhcs/index Page 33
Table 4: Indices Values of the Fitness of Model and the Results of Fitness Model Desired Value Value Fitness Index 1.33 <3.00 χ 2 /df 0.94 >0.90 GFI(Goodness of Fit Index) 0.99 >0.90 AGFI(Adjusted Goodness of Fit Index) 0.015 <0.05 RMR(Root Mean square Residual) 0.93 >0.90 NFI (Normed Fit Index) 0.97 >0.90 NNFI (Non-Normed Fit Index) 0.97 >0.90 IFI(Incremental Fit Index) 0.92 >0.90 CFI (Comparative Fit Index) 0.064 <0.08 RMSEA(Root Mean Square Error of Approximation) The ratio of Chi-X 2 of the degrees of freedom is highly dependent on the sample size, and the large sample increases chi-square quantity over what could be attributed to the wrongness of model; the ideal is that the value of chi-square ratio to the degree of freedom is less than number 3, and regarding the value reported for this value in tables 4-7, the obtained results of this section can be known as valid and in respect of statistics as analyzable, because the value of chi-square ratio to the degree of freedom for this model is reported 1.33. The indices of GFI and AGFI proposed by Jarzkag and Sorbom (1989) indicate a measure of the relative value of variance and covariance that is explained by the model. This criterion varies from zero to one, that the closer to the number one, the model's Goodness of Fit with the observed data is more. The value of GFI and AGFI reported for this model are higher than 0.9, confirming the results of chi-square test. The Root Mean square Residual (RMR), namely the difference between the elements of matrix observed in the sample group and the elements of matrix of estimate or predicted, is with the assumption of correctness of desired model, that the closer this index for the desired model is to zero, the mentioned model has a better fitness. The value of RMR in this research (0.015) indicates proper explanation of covariance. In order to investigate the point that one particular model compared with other possible models to what extent acts well in respect of explaining the observed data, Normed Fit Index (NFI), Non-Normed Fit Index (NNFI), Incremental Fit Index (IFI), and Comparative Fit Index (CFI) were used that according to Brown and Kodek (1992) the values higher than 0.9 of these indices indicate a very proper fitness of the designed model compared with other possible models. Ultimately, to investigate how to combine the fitness and the saving of relevant model, the very powerful index of Root Mean Square Error of Approximation (RMSEA) has been used. The value of this index for proper models is less than 0.08. The model in which this index is 0.10 or more has a weak fitness (Homan, 2005). The value of this index in this model is 0.064 that for the designed model in this research indicates proper fitness of collected data and their excellent fitness. http://www.ijhcs.com/index.php/ijhcs/index Page 34
Testing Research Hypotheses As we proved in the previous section, since our distribution was diagnosed normal (results of Kolmogorov-Smirnov test) by using LISREL software, the correlation of variables has been tested. To investigate the causal relationship between independent and dependent variables and confirming the overall model, the route analysis method has been used. The route analysis in this research has been performed by using LISREL 8.5 software. The results obtained from outputs of LISREL show that the chi-square ratio to the degree of freedom is less than the three and other fitness indices confirm the fitness of model. The following table shows the significance coefficients and the results of proposed hypotheses briefly. Table 5: Results of Hypotheses Hypotheses Standard Significance Result Required ability impacts on the performance of implementing the operating budget regarding the 0.87 4.98 Confirmed activity-based costing in the Ministry of Economic Affairs and Finance. Required authority impacts on the performance of implementing the operating budget regarding the 0.85 5.17 Confirmed activity-based costing in the Ministry of Economic Affairs and Finance. required acceptance impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance. 0.87 5.08 Confirmed 1. In the first hypothesis it is claimed that the required ability impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates that the route significance number between two variables is 4.98, and since this value is higher than 1.96, hence this hypothesis is confirmed. Moreover, since the obtained significance number is positive, this impact is direct. 2. In the first hypothesis it is claimed that the required authority impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates that the route significance number between two variables is 5.17, and since this value is higher than 1.96, hence this hypothesis is confirmed. Moreover, since the obtained significance number is positive, this impact is direct. 3. In the first hypothesis it is claimed that the required acceptance impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates that the route significance number between two variables is 5.08, and since http://www.ijhcs.com/index.php/ijhcs/index Page 35
this value is higher than 1.96, hence this hypothesis is confirmed. Moreover, since the obtained significance number is positive, this impact is direct. Ranking Variables by Using Friedman test In order to investigate the importance and ranking the effectiveness of key components impacting on the implementation of operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, Friedman test has been used, the results of which have been mentioned in table 6. Rank 1 2 3 Table 6: Results of Friedman Test 50 Number 19.892 Chi-Square 2 Degree of Freedom 0.000 Significance Mean of Rank Indices 2.31 Ability 2.15 Authority 1.54 Acceptance The results of Friedman test indicate that among the investigated components impacting on the implementation of operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, the components of ability, authority, and acceptance have respectively the highest and lowest importance in the group. Conclusion The results of hypotheses are as follows: In the first hypothesis it has been claims that the required ability impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates that the route significance number between the two variables is 4.98, and since this value is higher than 1.96, hence this hypothesis is confirmed. Moreover, since the obtained significance number is positive, this impact is direct. In the second hypothesis it has been claimed that the required authority impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates that the route significance number between two variables is 5.17, and since this value is higher than 1.96, hence this hypothesis is confirmed. Moreover, since the obtained significance number is positive, this impact is direct. In the third hypothesis it has been claimed that the required acceptance impacts on the performance of implementing the operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, that the statistical analysis between these two indicates that the route significance number between two variables is 5.08, and since this value is higher than 1.96, hence this hypothesis is confirmed. Moreover, since the obtained significance number is positive, this impact is direct. The results of Friedman test indicated that http://www.ijhcs.com/index.php/ijhcs/index Page 36
among the investigated components impacting on the implementation of operating budget regarding the activity-based costing in the Ministry of Economic Affairs and Finance, ability, authority, and acceptance components have respectively the highest and lowest importance in the group. http://www.ijhcs.com/index.php/ijhcs/index Page 37
References Babajani and Rasouli (2011) in a research entitled as Identifying Obstacles and Problems in the Implementation of the Operational Budgeting System in the Executive Organizations of Country, Journal of Empirical Research in Financial Accounting, Year 1, No. 1. Flexibility With Budgetary Control, Accounting Organization and Society, Vol. 35, No. 4, pp.444-461. Frow, N. & D. Marginson, O. Stuart, (2010), Continuos Budgeting: Reconciling Budget. Kong Dosun,(2005), Performance Based Budgeting: the U.S. Experience, Public Organization Review: A Global Journal. Pourali Mohammadreza, Kakowan Saiedeh (2014), The Requirements of the Implementation of Operational Budgeting (Case Study: Babol University of Medical Sciences and Health Services), Knowledge of Auditing, Year 14, No.5. Pourzamani and Naderi (2012) in a research entitled as Investigating Obstacles in the Implementation of Operational Budgeting in the Commercial-Industrial Free Zones Organizations of Iran, Journal of Accounting Health, Year 1, No. 1. Sarmast et al. (2011) in a research entitled as Requirements of Implementing Activity- Based Costing in Operating Budgeting of Public Organizations of East Azerbaijan province Knowledge Audit Quarterly, Year 11, No. 5. Taherpour Kalantari et al. (2011) in a research entitled as Identifying the Factors Impacting on the Implementation of Operational Budgeting Law in the Public Organizations, Scientific and Research Journal of Planning and Budget, Year 16, No. 1. http://www.ijhcs.com/index.php/ijhcs/index Page 38