Budgeting Flashcards
what are the objectives of budgeting
achieve objectives,
motivate managers,
encourage goal congruence
when does goal congruence exist
when managers work in the best interests of their own division but also in harmony with the overall goals of the company
what is the difference between primary and secondary objectives (budgeting)
primary objectives - most important (profit, sales),
secondary objectives - (increase in productivity, increase in customer satisfaction
how might conflicting corporate objectives be resolved
prioritisation,
negotiation,
compromise,
satisficing
what is feedback
when results (outputs) of a system are used to control it, by adjusting the input or behaviour of the system
what is negative feedback
deviated from plan, so activities must be brought back on course
what is positive feedback
can continue on current course
what is feed forward controls
the plan needs changing, difference between forecasts and budgets
what are the functions of a budget *
planning annual operations,
coordinating activities across organisation,
communicating plans to responsibility centre managers,
motivating managers,
controlling activities (by feedback),
evaluating performance of managers
what are the behavioural implications of budgeting *
managers who set budgets, are often not responsible for achieving them,
goals of organisation may not coincide with personal aspirations of the managers (no goal congruence),
control can be applied at different stages by different people (coordination becomes very important)
what is mazlow’s hierarchy of needs from the bottom
physiological needs (hunger, thirst), safety needs (security, protection), social needs (love), esteem needs (self esteem, status, recognition), self actualisation (achieving one's full potential)
what are some negative attitudes that can arise when setting budgets *
managers complain they are too busy to spend time on budgeting,
may build slack into their budget,
managers argue the budget is too restrictive and takes away flexibility,
managers do not coordinate budgets with those of other parts of business,
may base future plans on past results
what are some negative attitudes that can arise when implementing budgets *
managers just try to achieve target rather than exceed it,
formal budget may encourage rigidity and discourage flexibility,
short term budget can take attention away from long term strategy,
can be minimal cooperation/communication between managers,
managers will often spend their whole budget allowance even if not really required
what are some negative attitudes that can arise when getting feedback (budget process) *
management accounting reports given a low priority,
managers may resent feedback (see it as fault finding),
managers may not understand the information presented,
flaws in system recording costs will lead managers dismissing reports,
managers can be held responsible for costs outside their control
what can be said about ideal standards, low standards and targets that are the same level as before (different for each one)
ideal standards can be demotivating,
low standards of efficiency can be demotivating,
targets at same level as before can be demotivating
what does an aspirations budget do
motivate staff
what are the 3 distinct styles of using budget and cost information in performance evaluation
budget-constrained style,
profit-conscious style,
non-accounting style
explain style of using budget and cost information ‘budget-constrained style’
where not achieving budget results in punishment and achievement in rewards
explain style of using budget and cost information ‘profit-conscious style’
where good reasons for budget departure can still result in rewards (ie more flexibility)
explain style of using budget and cost information ‘non-accounting style’
budget relatively unimportant
evaluation of pay as a reward for managers
depends on character of manager,
targets need to be fair (but challenging),
can lead to dysfunctional behaviour if too much vested interest (eg padding budget)
what are the three ways a budget can be set
top-down (imposed budget),
bottom-up (participatory budget),
negotiated
what is a top-down budget
senior management prepare budget with little or no input from operational staff
when is a top-down budget effective
in a newly formed organisation,
in a very small business (senior managers better informed),
if staff lack budgeting skills,
when a number of different units require precise coordination
