Budgeting Behavioral Implication

Budgeting Behavioral Implication

Budgeting Behavioral Implication

Budgeting Behavioral Implication

Introduction
A budget is a detailed plan, expressed in quantitative terms, that specifies how an
organization will acquire and use resources during a particular period of time. A budgeting
system comprises the procedures used to develop a budget. Budgeting systems have five primary
purposes: planning, facilitating communication and coordination, allocating resources, managing
financial and operational performance, and evaluating performance and providing incentives.
Role of budgeting
Budgeting helps in analyzing the performance of the organization and individual
departments. There is a strong interrelationship among the processes of policy setting through a
strategic plan, budgeting the resources needed to deliver services that helps in accomplishing the
goals of the plan, monitoring operations and reporting on performance, and assessing
performance as it relates to the strategic plan. So through this we can say that the budgeting is
one of the tools which help in evaluating and monitoring the performance of the organization.
(Jerry, 2008)
Imposed and Participative budgetary Approach
The imposed budget is the budget which has been prepared by the management without
any consent of the employees and the team. This is the budget which is mandatory and the
employees are required to perform as per the budget whereas participative budget is prepared
with the consultation and feedback of the employees, with the participative budget, the
employees are quite confident as they know the set criteria of the budgets which motivates them
to work on the budget and perform as per the set targets. With the participative budget the
employees are more effective in working as compared to imposed budget. The imposed budget if

Budgeting Behavioral Implication

not practical affects the behavior of the employees, it might create resentment in the behavior of
the employees.
Behavioral implications of budgeting
Budgeting is one of the most important aspect, which helps in setting the targets for the
organization. It is important for every department in the organization as it helps in analyzing the
effectiveness of the work in the organization. The human reactions to the budgeting process can
have considerable influence on an organization's overall effectiveness. At times, budgets are used
as the benchmark for the performance of the individuals in the organization.
Communication flow
The communication flow for the imposed budget is from top to bottom i.e. the top
management decides the budget and send across the budget to the employees whereas in the
participative budgeting the communication flow is from bottom to top, the employees prepares
the budget which is then forwarded to the top management for the approval.
Ethical issues in budgeting
The budgets are generally used as the benchmark for the performance of the organization.
These are used to evaluate the performance of the particular division or department. The
organization generally compares the actual results with the budgeted results of the particular
department or division.
This becomes the basis of analyzing the performance and appraisal given to the
employees of the particular department or division. The bonus and incentives are generally tied
with the budgets, the department in which the actual result exceeds the budgeted result; in that
case the organization gives bonus or incentives.

Budgeting Behavioral Implication

The company faces the ethical issues when the managers are rewarded in the basis of
budgets and the actual performance of the company. The managers use different means to
increase their actual performance, this includes padding up the results so as to present out
performing report which violates the ethical issues.
Conclusion
The company should have a strong focus on optimal utilization of resources which will
help in decreasing the expenses and increasing the profits of the company, the company should
also have a strong focus on the ways that will help in increasing the sales of the company which
will in-turn help in increasing the profits of the company.
Budgeting is one of the most important aspect, which helps in setting the targets for the
organization. It is important for every department in the organization as it helps in analyzing the
effectiveness of the work in the organization. The human reactions to the budgeting process can
have considerable influence on an organization's overall effectiveness. At times, budgets are used
as the benchmark for the performance of the individuals in the organization. (Ronald, 2006)
Budgeting is an aspect which helps in setting the target and goals of the organization. The
organizations should focus on building an effective budget which is dependent on the sound
organization structure of the organization. The budgets made should not be based on
assumptions. The budgets should be prepared with through analysis and research, along with the
past trends and past records of sales and expenses of the company. The company should focus on
making the budgets which are based on realistic goals of the company which will help in positive
contribution of the growth and profitability of the company. The communication flow plays a
crucial role in the behavioral implication of the employees. It is important for the organization to

Budgeting Behavioral Implication

have adequate communication with the employees for having adequate results of the budgetary
approach.
The budget needs to prepared with accuracy as it forms a tool for evaluating the
performance of the organization.

Budgeting Behavioral Implication

6
References

Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, (2008), Managerial Accounting. Tools for
Business Decision Making, Fourth Edition
Ronald W. Hilton, Michael W. Maher, Frank H. Selto, (2006), Cost Management: Strategies for
Business Decisions, 3e