Information for Business Decision

ASSIGNMENT : BUDGET AND BALANCED SCORECARDS

1 Behavioural Problems associated with budgets in this firm

Although we can comment upon this firm 's budget-related problems based on the Production Manager 's view of the process alone , three things are immediately clear

The firm 's budgetary process is traditional and hierarchical , with departments having separate sub-budgets . In addition , the performance management system appears to be linked to individual performance based on meeting budgetary criteria

There is a significant degree of internal dissatisfaction both about the management accounting system as well as the performance

reward criteria .There is also a lack of co-ordination between workers at different levels when it comes to planning their workflow based on the budget at hand - budgeting here is solely a management control system , without any active co-operation from those further down the hierarchy

The behavioural problems associates with budgets in this firm therefore are

1 . Lack of a 'fixed ' nature producing poor motivation : French (1965 stated that the existence of a fixed budget motivates performance , as workers have a defined goal to work towards . In this firm , the budget of the production department is constantly shifting as a result of changes in the operational goals of its related departments . The production manager is understandably quite upset and de-motivated as he believes his own performance can never be judged on his own , as it is largely dependant on goals set by others . As a result of sales going beyond the projected budget for the company , production budgets are also necessarily shifted , which paradoxically means he is 'overspending ' and hence 'underperforming . Drucker (1954 ) also was an advocate of setting clear , tangible , verifiable , measurable goals in to motivate , rather than to control , people . In this firm , clearly budget is more of a controlling tool , which is responsible for the poor motivation levels

One of the most popular theories of motivation according to Reid (2002 ) that is relevant to this firm is the expectancy theory , where a worker 's motivation to work is affected by a wide range of both independent and interdependent variables (satisfaction associated with the job itself satisfaction associated with the achievement of objectives satisfaction with extrinsic rewards associated with the meeting of targets and the individual 's perceived expectancy of linked reward . Clearly , for our production manager the situation is not conducive at all for staying motivated

Stedry (1960 ) has however argued for different budgets within an organization , for different purposes . While having different budgets for planning and another for motivation can reduce some of the dissatisfaction in this situation , it has generally been criticized as a bad practice for sending out 'mixed signals ' to the workers . Given that this was promulgated long before the era of 'open ' participative management , such a solution is inappropriate for all firms at present Another solution is necessary

2 . Poor participation and pseudo-participation in the budgetary process : The level of participation appears to be extremely poor in this firm too 'Participation , as defined by Drury (1992 ) is the extent to...