Important are the behavioural aspect in a budgetary control system

The most important problem is organising men to work to-gether through applied patience, understanding and good-will. Due to quantification of budgets, the measurement of performance becomes more objective in nature thus eliminating biases that might be introduced due to subjective evaluations.

May result in short-term decision making at the expense of long-term gain. Requires significant and stringent monitoring of performance against budget.

Budgets help managers in integrating personnel efforts within the organization towards a common goal. Budgets act as controlling devices to correct any deviations.

For example, a manager will be prepared to exceed the budgetary limit in the short term if this will result in an increase in long-term profit. These controls are designed to encourage mutual monitoring i. Early Accounting Contributions Lee D.

Peirce and The Human Relationship Over 20 years later, but still in advance of even the s, James Peirce12 argued that the budget rested on principles that had more in common with concepts of human relationship than with rules of accounting.

Thus budgets can be highly useful and functional. They let these managers know how their operations relate to other units or departments within the organization. Budgets facilitate communications throughout the organization. Theiss5 pointed to the overemphasis on the negative idea of restricting expenditures through budgeting, while Hawkins6 and Bunge7 expressed concern about the propensity for the budget to be used in a rigid and arbitrary fashion by higher management.

For accounting purposes, responsibility centres are classified as cost centres, profit centres, investment centres or revenue centres. In his view blame-placing and censure of subordinates for budget results produced frustration, concealment of actual results, and padding of budget estimates.

The Behavioural Impact of Budgets: This improved communication reduces the risk of failure due to any miss-understanding. Some of the functional benefits of preparing and using budgets as control techniques are given by D.

Their work was essentially normative, as was the custom of their times. With respect to target setting, Dent argued that salesmen should be encouraged to set their own quotas and that such quotas should not simply be handed down to them by senior management.

As an alternative approach to budgeting, Peirce required the budget to be continually adjusted to the needs and capacities of organisational personnel.

Budgets help in the just measurement of performance. Manager will be criticised for poor results. By properly appropriating adequate budgets to different activities within the organization, all activities can be synchronized and all efforts can be coordinated to achieve the organizational objectives.

7 Benefits of Budgetary Control– Explained!

Unlike most of his accounting colleagues, Dent considered the most important factor in budgetary control to be the human factor. Better working relations with colleagues. The top managers will also have to set a budget that will achieve some of the needs of the majority of stakeholders both internal and external.

Very few authors considered what positive actions could be taken in administering budgets in order to diminish observed behavioural problems.

Control and Controls Control — the corrective action that is taken to ensure the firms activities conform to its plan and that its objectives are achieved.

Peirce indulged in a more detailed treatment of the subject than his contemporaries and even then went beyond their limited recognitions of behavioural problems in budgeting to consider potential solutions. These are as follows: Similarly, top managers attitudes towards adverse variances will also affect behaviour.

The Role of Management Ultimate responsibility for budgets lies with top management as they see the budget as a means of achieving their longer-term objectives. Controllability Principle This is effectively responsibility accounting, and thus suggests that managers should be held responsible for only those costs that they can control or influence.

Setting the budget too high can in fact have the reverse effect and demotivate managers. The process involves; Defining the performance dimensions. Budgets help new people and lower-level managers see where the organization is going and where they fit in the organization.

This short paper pays due recognition to the insights offered by ac-counting writers in earlier decades. Some targets can be counter-productive — targets that are unachievable will demotivate managers and result in a lower level of performance.CHAPTER 9 • BEHAVIOURAL ASPECTS OF BUDGETING 1 9 Behavioural aspects of budgeting Objectives By the end of this chapter you will be able to: Page 1 Describe the purpose of budgeting systems xxx 2 Explain the role of budgeting as a means of planning and control xxx 3 Discuss the use of budgets in.

Another behavioural aspect to consider when introducing a budgetary control system is the controls set by the new system, as these may cause negative attitudes.

A potential cause of negative attitudes is the way a control is applied, if targets are considered unachievable and applied too rigorously, they may cause negative attitudes.

Accounting Information

Aug 08,  · Behavioural Aspects of Control. Therefore, the link between top management and lower-level management is very important. Behavioural aspects: Budget-constrained style: Manager evaluated on ability to achieve budget in the short mi-centre.comr will be criticised for poor results.

For example, if spending exceeds the. MANAGERIAL IMPLICATIONS AND BEHAVIOURAL ASPECTS OF BUDGETARY CONTROLeffective implementation of budgetary control is an important guarantee for the effective implementation of budget in the organization.

Every budgeting system must be tailor-made and its success should be measured by the extent to which it. Understanding the behavioural aspects of costing systems in public health organisations. of budgetary control and both draw on their mutual understanding of their organisation as a public free.

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Important are the behavioural aspect in a budgetary control system
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