Behavioural Issues Within Budgeting Essay

Objectives of BudgetingThrough budgeting establishments depose provide information for strategic planning and rig, these atomic number 18 the two main quarrys of the budgetary control system. caution and counsel accountants must give together and operate a system that achieves these objectives, they do so finished a system called variance analysis. Management accountants comp argon the unfeigned results against the budgets they then send reports to the c atomic number 18 concerning the uttermost to which budgets are being met. Management net then control activities by making possible step to s surpass situations where the budget is being ignored or overlooked.To meet their controlling and planning needs, management and management accountants adapt the feedback and feed-forward principles (types of controls). As well as feedback, budgetary systems consist of feed-forward controls, where pass judgment discovercomes can be compared with coveted outcomes. A recent report Tayles (1998) suggests that, feedforward control consists of a prediction being made of anticipated upcoming outputs. If the expected outputs differ from what outputs are desired, control actions are implemented to minimise these differences. Control is at that placefore, achieved, if the control actions are effective, before any deviation from the objective output occurs. Feedback is the detection of a deviation between actual results and an objective normally this is carried out after the event and is essentially error based. Research has sh deliver that up to date, holy feedback has a motivational effect, delay and inaccurate data are demotive. Most organisations adopt these controls, as they are effective and aid the pursuit of a budgetary control system.Target setting is another objective of budgeting and may possibly deem motivational benefits. Setting targets that are realistic and clearly stated ordain encourage employees to make more effort to achieve it than they mig ht otherwise do. However, the motivational effect of budgetary control is far from clear, as we shall see later in this report. In addition, in that respect is no phase in having targets and controls if they are kept a secret. Through dialogue, organisations can enhance the aim of information that flows from top management to employees (subordinates).These are just some of the arguments for budgeting. The rest of this report will concentrate on the behavioral issues in a budgetary control system.behavioural ConsiderationsWhen drafting and planning a budgeting system there are behavioural issues to consider as budgets can confirm implications for serviceman behaviour and, budgeting can have harmful side effects on performance. There is a jeopardy that employees will concentrate just on the objectives set by the budget, regardless of whether or not it is organizationally loveable. This means that individuals would set out to exploit the rules of the budgetary control system t o boost their individual performance, ignoring other areas not monitored by the control system. Drury (2000, p.600) found that actual behaviour may be modified so that desired results appear to be obtained, although they may have been achieved in an undesirable manner which is detrimental to the firm. In addition, budgets may overstep management a means of judging the performance of their teams. Its assumed that, the setting of performance measures should backup the setting of naked strategies and objectives and the implementation of action plans for the organisation. However, that adherence to the budget alone cannot measure all aspects of a managers performance. thus, it is weighty that managers achieve their targets frequently enough to give positive feedback in their efforts. some other behavioural aspect to consider when introducing a budgetary control system is the controls set by the new system, as these may cause negative attitudes. A potential cause of negative attitud es is the way a control is applied, if targets are considered unachievable and applied too rigorously, they may cause negative attitudes. This may likewise lead to harmful side effects such as the lack of close congruence and organisational performance. However, if compassionate is taken in designing the control system negative attitudes may be avoided. Drury (2000, p.601) makes a exchangeable argument, The way thata control system is applied can be just as Copernican as the design issues in determining the success of a control system.Importance of Behavioural Considerations in the Budgetary Process intimacyInteraction of managers and employees or budgetees to the targets that are incorporated in their budgets is cognize as partitioningicipation. Tayles (1998) suggests that, participation in the budget process and discussion over how results are to be heedful has benefits in terms of budget attitude and performance of the budgetee. This would be of an advantage to an organi sation as employees would be more receptive of the targets and more committed to achieving them. In addition, the levels of staff morale would be greater than before. Participation can also improve intercourses and tends to improve the degree to which budgets are met. For example, participation creates a customary understanding of the organisations objectives and makes achieving goals more likely.CommunicationCommunication is a necessary activity in all factors of management and can be broadly delimit as an exchange of information to bring about a mutual understanding between two parties. Welsch (1988)Defining or clarifying the lines of communication within an organisation can be a powerful aid in the construction of the budget. Communication can have an cardinal part to play in the budgets objectives, targets and responsibilities throughout the organisation. Carried out properly, this can have considerable benefits in promoting co-operation at all levels. Therefore, in order fo r an organisation to wok effectively there must be lines of communication so that all parts can de kept fully informed of the part they are expected to play in achieving the budget. This aspect can have important behavioural implications throughout an organisation as the attitude of the person who receives the communication may be affected.MotivationBy setting challenging further realistic targets, well-designed budgets can play a significant part in motivating managers and employees to perform in line with the organisational objectives. The targets must be clear and achievable, and the manager should participate in setting his or her own budget, as it is more likely to be acknowledged. Generally, its believed for budgets to motivate, higher objectives should be set. The levels of expected performance that are set influence the motivation of managers responsible for target achievement.If levels are set too high, then there is a strong disincentive to management involvement in the b udgetary process, and a low level of motivation. It levels are set too low, then managers can achieve targets easily despite inefficiencies. This is known as budgetary slack. Setting appropriate levels of attainment in budgets is a complex and difficult activity with an important behavioural dimension. Therefore, it can be said that motivation is a process of arousing and sustaining goal-directed behaviour induce by the expectation of satisfying individual needs. terminal CongruenceGoal congruence means that as people work to achieve their own goals, they also work to achieve the goals of the organisation. Nevertheless, there is a danger that employees will concentrate only on what is been monitored, leading to a lack of goal congruence. Focused on preventing this undesirable behaviour and encouraging goal congruence is controls, for example, action or behavioural controls.Action or behavioural controls involves managers watching employees as they go about there work and if the mana gers know what actions are desirable (or undesirable) the desired outcomes will come about. Performance measures may be used as a soundly indicator of what is desirable to achieve an organisations goals and some measure may encourage goal congruence or organisationally desirable behaviour. For this to be effective management must also ensurethat desired actions are taken.Goal DefinitionA further use of budgets is as a basis for setting performance standards and rewards, for example, bonus, billet or enhanced promotion prospects are often linked to budget attainment. This may be defined as a process theory of motivation that focuses on the process of setting goals, Emmanual (1992). It is argued that the natural human preference to set and strive for these goals is useful only if the individual both understands and accepts a particular goal.Therefore fundamental to goal attainment is*an understanding and acceptance of a particular goal (goal congruence)*skills to achieve the goal*co nfidence that they have the skills to achieve the goal*a reasonable expectation of achieving that goalPeople work more efficiently when they have goals and targets. Therefore, if the targets are agreed and accepted by individuals, they should achieve goal congruence and motivation.ConclusionIt will be apparent from this report that budgets serve various purposes and in some cases, these purposes can be in conflict and have a consequent effect on management and employee behaviour. Nevertheless, if controls are put in place that focuses on preventing undesirable behaviour, employees of an organisation would be discouraged from taking part in such actions.Budgets serve as a means of forecasting, planning, control and a channel ofcommunication and motivation. But, a good budgetary system should be designed to*meet the objectives regarded as most important by senior management*provide information which is useful in meeting those objectives*Reduce the run a risk of unintended and undesir able behaviours.REFERENCESDrury, C. (2000) Management & Cost Accounting, 5th edition, Thomson LearningEmmanual, C. Otley, D. Merchant, K. (1992) Readings in Accounting for Management Control, Chapman & anteroomTayles, M. (01 Dec 1998) budgetary control the organisational aspectsAvailable at www.acca.comAccessed 7 April 2002Welsch, G.A. Hilton, R.W. Gordon, P.N. (1988) Budgeting Profit Planning and Control, 5th edition, learner Hall