Relationship between budgeting and human behavior

participative budgeting

Goals are seen as a complex compromise that reflected the sometimes conflicting individual needs and personal goals of the organizations dominant constituency. Another reason is that no serious attempts are make to insure the participation and cooperation of lower-level managers and employees.

Lack of participation, or mere lip service, thereto, may result in a host of dysfunctional behavioral side effects.

4 behavioural aspects of budgeting

Thus, planning directors should be especially sensitive to human reactions to performance reports. When slack is introduced into a budget, employees may fail to maximize sales and minimize costs.

Budgeting process

These employee groups are usually formed to combat the internal conflict and the pressure that the budget creates. This can result in a natural desire to push pending transactions to future periods. This is achieved by providing detailed performance goals to those responsible for action. In business, the opportunity for gross inefficiency is kept in check by market forces, and there may not be sufficient savings to offset the cost of a serious zero-based budgeting exercise. Cost reduction must be placed on the basis of mutual effort toward a common aim. Necessary managerial actions may not be taken because of fear of penalties. Because supervisors are often unable to pass this responsibility to subordinates, they resort to various dysfunctional actions, one of which is distorting the measurement process. As a result, it is argued that it improves employee morale and job satisfaction. Such individuals bring valuable insights about all aspects of sales, production, financing, and other phases of operations. If this occurs, negative or hostile attitudes toward management may develop and it may signal coming declines in efficiency and output. To conclude, management should know and be concerned about the influence of the budgeting process on the people within the organisation and also how people in an organisation influence the budgeting process through their behaviour and perception. This may require several iterations of passing the budget back down the ladder for revision by lower units. Budgets are often viewed as bureaucratic impediments or threats to career advancement. Thus, organizations have to decide whether to include middle managers, lower-level managers, supervisors, foremen, factory workers, or office workers, in the budget-making process.

Dysfunctional Consequences of the Budget-Making Process The multiple function of the budget as a goal setting, control, and performance evaluation mechanism may trigger numerous dysfunctional consequences such as distrust, resistance, internal conflict, and other unwanted side effects.

This can be done by asking managers to justify all or some of their projections and by rewarding managers who consistently provide accurate estimates.

Further, direct, clear feedback allows the employee to adjust aspiration levels and strive to achieve desired rewards.

Behavioral implications of budgeting

A system that not only considers company objectives, but also employees skills and capacities. This is because the people who participated in the goal setting know that the goals are reasonable and achievable. Benefits From Participation One benefit of successful participation is that participants become egoinvolved and not just task-involved in their work. According to Hopwood this can lead to a dilution of original goals, as managers try and fight for power and recognition. Top management has to decide what the firms short range objectives are and what strategies will be used to attain them. Ultimately, a final budget is reached. In order to eliminate undesirable pressure, the budget goals and standards should be set which are neither too high tight nor too low loose.

Budget pressure is most acute for supervisors who are responsible for meeting particular goals.

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Budget Processes And Human Behavior