Professional Documents
Culture Documents
– Motivational contracts
• To define the links between results and various organizational
incentives
Planning and budgeting
• Produce written plans that specify:
– Where the organization wishes to go
– How it intends to get there
– What results should be expected
Strategic
about the missions, goals, and strategies
and involving all organizational levels
Planning
• Normally a top-management process
1.
3. Negotiation
Iss
2.
ua
In
nc
itia
e
Budget
lB
of
ud
Department
Gu
ge
ide
tP
lin
ro
es
po
4. Approval
sa
l
Bottom-Up
Business Managers
Information asymmetry
• Internally / externally-derived
– Target costing
– Benchmarking
• Fixed / Flexible
– Should managers be held accountable for achieving their
plans regardless of the business conditions they face?
– Relative performance targets
Budget participation
Target Performance
Budget target difficulty (continued)
In practice (field research)
Targets are about 80–90% achievable
Probability
Target Performance
Budget target difficulty (continued)
Effective vs. ineffective management teams
Probability
Target Performance
Budget target difficulty (continued)
Low vs. high uncertainty
Probability
Target Performance
Challenging but achievable ...
u To minimize dysfunctional management actions
» Myopic behavior, data manipulation
• Motivation
u Conservative
• Planning
• Cost control
u Optimistic
• Evaluation
Target should be after-the-fact assessment of what could
have been accomplished, not any of the three choices listed
Planning and Budgeting Practices and
criticisms“Beyond Budgeting”?
u Some “principles”
– Goals
» Set relative goals for continuous improvement; not fixed performance contracts
– Rewards
» Reward success based on relative performance; not on meeting fixed targets
– Planning
» Make planning a continuous and inclusive process; not a top-down annual event
– Coordination
» Coordinate interactions dynamically; not through annual planning cycles
– Resources
» Make resources available as needed; not through annual budget allocations
– Controls
» Base controls on relative indicators and trends; not on variances against plan