Introduction
Budgetary control as mentioned by Buckley and McKenna (1972) comprises of planning, controlling, coordinating and motivation through money value and departments within an organisation. It is a plan but in quantitative terms that lasts about 1 year. It plays an important role in organisation control and mainly shows concern for the control of performance. Using budgetary control in performance management as a more integrative control program for organizations is becoming increasingly important. Thus, this essay will show the advantages and limitations of budgetary control in the performance management and also the techniques used between the Economic Value Added and Balanced Scorecard.
Budget and its advantages
The use of a …show more content…
It is where the evaluation of managers is based primarily on the basis of being able to achieve their budget (Van der Stede, 2000). This process interferes with the overall performance of an organisation. The purpose of evaluating the performance of managers using such tools is to encourage them to be cautious when implementing of goals for the organization. The managers become alert when they cannot meet the expected goals as they face severe consequences such as being fired from their job (Van der Stede, 2000). Secondly, Budgetary slack would be the second disadvantage of budgetary control. It means “resources and effort towards activities cannot be justified easily in terms of their immediate contribution to Organisational goals” (March, 1988). In other words, it is the practice of underestimating budgeted revenues or overestimating budgeted costs in order to make budgeted targets more achievable (Bhimani et al., 2012). Budgetary slack happens when managers misuse their superior knowledge about business possibilities to gain performance targets that are lower than there best guess forecast about the future. (Lukka, 1988). For example, a sales manager for a company that sells agricultural products produces 2,000 tons of fertilizer but it produces only 1,500 that particular year. Therefore, there is a slack of 500 tons of fertilizer. Thirdly, the budgetary control system leads to having departmental conflicts because of the competition for resource allocation. This results in departments blaming each other when the expected targets are not met. Fourthly, when there is tension, resentment and fear in an organization among the employees it will affect the achievement of the long run performance goals. Fifthly, Budgetary system control can be very time consuming and expensive. To have an effective budgeting, you need to put in considerable time and effort.
Budgetary control as mentioned by Buckley and McKenna (1972) comprises of planning, controlling, coordinating and motivation through money value and departments within an organisation. It is a plan but in quantitative terms that lasts about 1 year. It plays an important role in organisation control and mainly shows concern for the control of performance. Using budgetary control in performance management as a more integrative control program for organizations is becoming increasingly important. Thus, this essay will show the advantages and limitations of budgetary control in the performance management and also the techniques used between the Economic Value Added and Balanced Scorecard.
Budget and its advantages
The use of a …show more content…
It is where the evaluation of managers is based primarily on the basis of being able to achieve their budget (Van der Stede, 2000). This process interferes with the overall performance of an organisation. The purpose of evaluating the performance of managers using such tools is to encourage them to be cautious when implementing of goals for the organization. The managers become alert when they cannot meet the expected goals as they face severe consequences such as being fired from their job (Van der Stede, 2000). Secondly, Budgetary slack would be the second disadvantage of budgetary control. It means “resources and effort towards activities cannot be justified easily in terms of their immediate contribution to Organisational goals” (March, 1988). In other words, it is the practice of underestimating budgeted revenues or overestimating budgeted costs in order to make budgeted targets more achievable (Bhimani et al., 2012). Budgetary slack happens when managers misuse their superior knowledge about business possibilities to gain performance targets that are lower than there best guess forecast about the future. (Lukka, 1988). For example, a sales manager for a company that sells agricultural products produces 2,000 tons of fertilizer but it produces only 1,500 that particular year. Therefore, there is a slack of 500 tons of fertilizer. Thirdly, the budgetary control system leads to having departmental conflicts because of the competition for resource allocation. This results in departments blaming each other when the expected targets are not met. Fourthly, when there is tension, resentment and fear in an organization among the employees it will affect the achievement of the long run performance goals. Fifthly, Budgetary system control can be very time consuming and expensive. To have an effective budgeting, you need to put in considerable time and effort.