Budgeting

Question 1

Human misbehaviour

Answer 1

The weakest link in the budget process

Question 2

Budget slack

Answer 2

Process of artificially inflating needs

Inefficient and goes against the best interest of the employing firm

Question 3

How does budget slack occur?

Answer 3

When a manager is able to force through a budget which is over-generous
Often found where a manager has a weak incompetent or disinterested superior who simply waves the budget through

Question 4

What happens as a result of budget slack?

Answer 4

The manager achieves striking performance and can guarantee a pay rise, promotion or both with a couple of impressive performances against the budget

Question 5

Budget driven organisation

Answer 5

If managers know they will be assessed on their budget performance, they will put all their effort into ensuring that they perform well against the budget
This may not be in the company’s interests at all and is a very short term approach
Less successful than profit driven organisations

Question 6

A common dysfunction with budgeting

Answer 6

Spending to the budget
When a manager will want to spend their full budget allocation by the end of the budget period to ensure they get their full budget amount for next year