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Should managers participate in setting budgetary outcomes? Explain with reference to motivation, budgetary slack and firm financial performance. Essay Example

4PARTICIPATIVE BUDGETING

Should Managers Participate in Setting Budgetary Outcomes?

Should Managers Participate in Setting Budgetary Outcomes?

A budget – a comprehensive plan summarizing organization’s financial performance for a year – affects almost every employee in the firm, including users, preparers, and those evaluated using the budgets. This implies that employee responses to the budget have substantial influence on the performance of the company. As such, it is essential for top managers to allow subordinate managers to participate in setting the outcomes of the budget (participative budgeting) rather than imposing the budgets on them.

As Langfield-Smith, Thorne, and Hilton (2009) argue, allowing subordinate managers to have a say on the budgetary outcomes serves as their source of motivation to achieve set objectives. This recognizes the fact that many people feel motivated to achieve a goal that they have actively participated in setting. For example, allowing sales managers to participate in setting of sales budget can encourage them to work hard to ensure that they achieve the sales target they have established. Consequently, they will stand in a position to improve their individual performance.

Participative budgeting ensures a sense of responsibility among the managers, fostering creativity. Their involvement in the budgetary process makes them to take their budgetary standards as personal goals, which creates congruence of the objectives. As such, enhanced responsibility and challenges within the process provide them with an encouragement that results in a higher level of individual performance. In turn, improved individual performance leads to improved organizational performance, as the managers work effortlessly and creatively to achieve the budget goals. In addition, involving them improves overall performance of the firm because the managers understand well the working environment, meaning that they will communicate budgetary objectives that will enhance the overall process of planning. However, top managers should control the participation of the subordinate managers to avoid cases of budgetary slacks, which may derail the performance of the organization (Langfield-Smith et al., 2009).

Riahi-Belkaoui (2002) argues that participative budgeting may give the subordinate managers an opportunity to pad or create slack into the budget – deliberately overestimating expenses or underestimating revenues (p.235). In either case, the managers set easily attainable goals, which not only lowers the risks that they may face during budgetary implementation, but also unreasonably holds up resources that may be applied more productively in other departments.

In conclusion, managers should be allowed to have a say on the budget outcomes because they are not only motivated to work creatively and industriously to achieve set goals, but also to improve the overall performance of the organization.

References

Langfield-Smith, K., Thorne, H., & Hilton, R.W. (2009). Management accounting: Information for managing and creating value. (5th ed.). North Ryde: McGraw-Hill Australia.

Riahi-Belkaoui, A. (2002). Behavioral management accounting. Westport, CT: Greenwood Publishing Group.