Behavioural Issues Within Budgeting

1538 Words Dec 26th, 2003 7 Pages
Behavioural Issues in the Budgetary Control System

Objectives of Budgeting

Through budgeting organisations can provide information for strategic planning and control, these are the two main objectives of the budgetary control system. Management and management accountants must work together and operate a system that achieves these objectives, they do so through a system called variance analysis. Management accountants compare the actual results against the budgets; they then send reports to the management concerning the extent to which budgets are being met. Management can then control activities by making possible steps to stop situations where the budget is being ignored or overlooked.

To meet their controlling and planning needs,
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This may also lead to harmful side effects such as the lack of goal congruence and organisational performance. However, if care is taken in designing the control system negative attitudes may be avoided. Drury (2000, p.601) makes a similar argument, "The way that a control system is applied can be just as important as the design issues in determining the success of a control system".

Importance of Behavioural Considerations in the Budgetary Process

Participation

Interaction of managers and employees or budgetees to the targets that are incorporated in their budgets is known as participation. Tayles (1998) suggests that, "...participation in the budget process and discussion over how results are to be measured has benefits in terms of budget attitude and performance of the budgetee". This would be of an advantage to an organisation 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 communications and tends to improve the degree to which budgets are met. For example, participation creates a common understanding of the organisations objectives and makes achieving goals more likely.

Communication

Communication is a necessary activity in all factors of management and can be broadly defined as an exchange of information to bring about a mutual understanding between two parties. Welsch (1988)

Defining or clarifying the
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