So far the emphasis has been on the technical aspects of budgeting viz. the preparation and administration of budgets. However, the behavioral context deserves mention. One of the main components of budgeting is control which is all about altering the behavior of the human resources in the organization. Consequently, there may be some staff that regard budgets as a constraint on their freedom and may try to subvert the effectiveness of the budget. How can senior management ensure that the budgeting system can be most effective?
Research findings assert that managers prefer to work towards achieving objectives which motivate them. It appears that motivation is the glue which holds the budgeting and control systems together so creating this motivation is the key. There appear to be a number of factors involved.
Budgets (targets) should be set at a level which are stringent and challenging but attainable. If set too high to be unattainable the staff may be demoralised and may not try to achieve the targets.
Departmental managers in consultation with their staff should be permitted to participate in the setting of their budgets by so doing they will have ownership of them and will strive to attain them. Participation clarifies responsibilities, increases communication throughout the organisation and can help to promote line-staff relations. However, it is well to acknowledge possible dysfunctional behaviour as a consequence of participation in budget-setting such as ‘budgetary padding’ or ‘budgetary slack’. It may serve the manager to build ‘slack into the budget ie. to have a ‘pad’ between the formal plan and the expected actual results so that they have a cushion in case unanticipated events cause their performance to decline.
Since budgets tend to be used as a management performance criteria there should be a reward system in place. Too often budgets are used as a mechanism to focus on poor performance so is it any wonder that the staff have negative feeling about them.
Overemphasis on performance/variance reports may encourage negative attitudes to budgeting. Hopwood referred to the ‘budget constrained’ style of management with performance in meeting the budget as the main criteria.
The organisation should be concerned with other management performance criteria such as concern with quality, good industrial relations, cooperation with colleagues etc.
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