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How To Stay in Control

Budgets play an important role in influencing people's behavior in organizations. Effective budgetary control involves participative budget setting to motivate managers and set realistic targets. It also requires timely performance evaluation and variance reporting to provide feedback and hold managers accountable. For the process to work properly, managers must understand the budgets and reports so they can use the information to make decisions without conflict arising from the system.

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Godfrey Makurumure
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56 views

How To Stay in Control

Budgets play an important role in influencing people's behavior in organizations. Effective budgetary control involves participative budget setting to motivate managers and set realistic targets. It also requires timely performance evaluation and variance reporting to provide feedback and hold managers accountable. For the process to work properly, managers must understand the budgets and reports so they can use the information to make decisions without conflict arising from the system.

Uploaded by

Godfrey Makurumure
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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the troubleshooter PQ

How to stay in control


Dr Philip E Dunn tells you all • Budget setting.
• Budgets as targets.
you need to know about the • Budgets as performance indicators.
behavioural aspects of Budget setting is usually characterised
as either ‘imposed or participative’. In
budgetary control some organisations setting budgets is the

A
sole responsibility of the senior
ll professional students management team. They communicate
preparing for assessments in their plans to their subordinates using a
management accounting need a top-down process. Often, the managers
clear awareness of how behavioural responsible for implementing the plan
patterns are often shaped by the have little or no participation in the
budgetary process and why behavioural budget setting process and this can have
aspects are more to the fore in budgetary an adverse effect on management
control than in any other management attitudes and behaviour.
accounting technique. planning managers’ objectives would be The opposite approach is one of full
A budget was once defined by CIMA unclear. A coordinated approach to participation in the process which can:
as “a plan expressed in money. It is planning enables managers to have a • Lead to more realistic and achievable
prepared and approved prior to the wider perception of the organisation as a targets.
budget period and may show income, whole. • Improve coordination and
expenditure and capital to be employed. • Authorising and delegating bestows communication across the organisation
It may be drawn up showing incremental power on people and may be interpreted as a whole.
effects on former budgeted or actual by some as permission to ‘spend the • Increase management commitment to
figures or compiled by zero-base budget’ rather than ‘spend up to the objectives.
budgeting.” budget’. Budgetary targets must be set at
Budgetary control is defined as ‘the • Communicating and motivating are vital acceptable and achievable levels so that
establishment of budgets relating the elements – an effective system of the managers are motivated to achieve
responsibilities of executives to the budgetary control will encourage and their personal objectives, thus enhancing
requirements of a policy and the develop good communications within an performance and contributing to the
continuous comparison of actual and organisation and aid management in overall achievement of corporate plans.
budgeted results, either to secure by performance enhancement. Imposed budgets often set targets that
individual action the objectives of that Budgets underpinned by sound are too difficult to achieve and managers
policy or to provide a basis for its planning technique should motivate are discouraged by these unattainable
revision.” individual managers towards achieving standards and so become de-motivated.
To quote a phrase used in Kaplan their objectives and those of the wider Performance evaluation provides
texts: “Budgets have an impact on corporate plan. feedback for ongoing managerial decision
people and people have an impact on • Evaluating performance is achieved by making. Such reporting needs to be
budgets.” timely presentation of results within the timely and to possess the attributes of:
The functions of budgetary control are: responsibility accounting framework, • Relevance.
• Planning and coordination. focusing on variance accounting. • Reliability.
• Authorising and delegating. Management performance is thus judged • Comparability.
• Communicating and motivating. on a timely and regular basis. Using • Understood by the user.
• Evaluating performance. exception techniques, managers can As providers of financial information it
• Control. control the operations for which they are is our duty to assist in this process.
This process is often seen as a source ultimately responsible. For managers to be assessed on their
of conflict and managers may have • Control simply focuses on operational performance by the budgetary control
differing perceptions of the nature and control, once defined by CIMA as “the and variance accounting process they
purpose of the technique. So how do the management of daily activities in need to understand and have the
above functions aid managers in accordance with strategic and tactical confidence in the reports they receive –
achieving their objectives? plans”. otherwise conflict will arise. PQ
• Planning provides a coordinated Researchers and writers agree there • Dr Philip E Dunn is a freelance
approach in the short term. A framework are three areas that often encounter author and technical editor for Kaplan
of responsibility is set; without this problems: and Osborne Books

PQ Magazine February 2020 21

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