Essay on Behavioural Issues in Budgeting

2250 Words Jan 9th, 2012 9 Pages
To : The Chief Executive
From : Management Accountant
Date : 19th January, 2012
To : The Chief Executive
From : Management Accountant
Date : 19th January, 2012 | Behavioural issues which may limit the usefulness of budgeting: | | Management Accounting |

| Behavioural issues which may limit the usefulness of budgeting: | | Management Accounting |

The university of northampton
By
Matthew Matemba
10347139
The university of northampton
By
Matthew Matemba
10347139

Table of Contents 1 Part A: 2 1.1 Executive Summary: 2 1.2 Background: 2 1.3 Definition: 2 2 Purposes of Budget: 2 3 Budgetary Biasing Framework 3 3.1 Budget Slack (Bias) 4 3.2 Seat of Power: 4 3.3 Budget
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These actions from managers reduce the ability of management to control variances. Research has revealed that, the inclusion of budget Slack or ‘Padding’ is common in various companies. For example, Dugdale & Lyne (2010 cited in Onsi 1973 p.26) found that 80% of managers interviewed were preparing to admit they bargained for Slack.
Though, budget slack are seen as unfortunate and dysfunctional, there are some indications that some slack can be desirable providing some flexibility to operating managers Dugdale & Lyne (2010). This is known as manipulating of figures. However, reports show that due to complex inter-relationships between the various departments degree of manipulating of budgeting is difficult.
Contemporary literature has reinforced the idea that slack can be desirable as well as dysfunctional. For example, “Nohria and Gulati (1996) noted that slack could act as a buffer that was necessary for organisation adaptation Tan, J. and Peng, M.W. (2003) See Appendix B. Dugdale & Lyne (2010 cited in Van der Stede 2002 p.26) found that slack could facilitate strategy in business units pursuing differentiation” in such circumstance ends up with surplus assets such as plant, equipment and buildings.
Seat of Power:
Additionally, from diagram 1 shows a power factor which is another behavioural issue which is a limitation to budgeting. This affects budgeting process when individual managers have influence over the

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