Lecture 10 - Issues in budgeting

Question 1

Advantages and disadvantages of staff involvement in budgeting process

Answer 1

Benefits:
- Motivation
- Goal congruence

Disadvantages:
- Risk of slack budgets
- Fear of criticism
- Pursuit of political interests

Question 2

Examples of gaming the numbers

Answer 2

Negotiating low targets and high rewards
Not sharing knowledge with other teams
Spending the full budget
Not providing accurate forecasts
Not taking risks
Asking for more resources than needed expecting to be cut back

Question 3

Beyond budgeting philosophy

Answer 3

Create and foster a performance climate based on competitive success

Motivate people by giving challenges

Remove resource constraints

Create transparent and open information systems

Question 4

Common leadership principles

Answer 4

Clear governance framework
High performance culture
Giving teams freedom for decision making
Supporting open and ethical information systems