How Organizational Performance Is Intensifying Today 's Business Environment Around The World

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The need to enhance organisational performance is intensifying in today’s business environment around the world. Every organisation has their own management control system which is defined by Anthony (1965) as “the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organisation’s objectives.” Budgeting is considered as one of a means companies use in their management control and it is a powerful control mechanism in almost all organisation (Merchant and Van der Stede, 2007). Bierman, Dyckman and Hilton (1990) stated that budgets are used to plan for the organisation’s future activities and also to control current operations. In other words, budgets are used as a…show more content…
The question is why? Why are they still using budgeting when some claimed that it is not good enough? If it is true, then what is the best approach that fits every organisation? This essay structure starts off with the criticisms of budgeting, follows by the ways forward of budgeting for individual organisations and a simple suggestion to solve the endless debate about budgets and budgeting. Criticisms of budgeting There is a great deal of criticisms against budgets and budgeting process. “Budget-based systems reward people for lying, and for lying about their lying, and punish them for telling the truth” (Jensen, 2003, p. 380). Because budgets, which involve with accounting numbers, can easily be manipulated by managers and to give rewards or incentives for achieving those targeted budgets can cause even more motivation for managers to manipulate this data. According to agency theory which focuses on the relationship and interaction between a principal and the agent and the mechanisms through which the principal can exercise control over the agent’s behaviour. Individuals’ goal, both principal and agent, is to maximise their own self-interest, therefore, what manager (agent) will do is to attempt to do every possible way to achieve the targets even if it causes damage to the company or other people. Not only it mays lead to fraud, but also it is time consuming and too expensive. As Hope and Fraser (2003) stated that budgeting is
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