Behavioural Aspects of Budgeting

Behavioural aspects of budgeting

Contents

Key to resources 2

Introduction 3

Budgets as motivational tools 3

Summary 6

Feedback to activities 7

This learning guide is based on the following resource(s):
Textbook
Hughes, R, Minogue, D and Senaratne, G (2006) Business Budgeting and Analysis and Financial Management (3rd edn), National Core Accounting Publications, Bondi

Key to resources

Resource / Textbook
1 / 1.1 What is budgeting? pp 2–3
2 / Behavioural aspects of budgeting pp 19–34
3 / Self-test exercises 1–3 p 31

Note: Commentary on the textbook is indicated in italics.

Introduction

In this learning guide we will look at the behavioural aspects of budgeting.

Specifically you will learn to:

· describe the behavioural aspects of budgeting

· describe the purposes of the budgeting process

· explain the role of budgeting as a means of planning and control

· discuss the use of budgets in performance measurement

· discuss the use of budgets as a motivational tool.

Budgeting is a device of management to achieve its goals. The process involves communication of information from the managers to the employees about what is expected to be done, when it should be done and how it should be done. When the activity is completed, management will assess whether expectations of the project are met.

Management that focuses only on the goals without understanding the importance of human behaviour of their employees risks not meeting these goals. Failure to understand human behaviour can lead to high absenteeism, low morale, unproductive times or slow downs and high turnover of employees.

Budgeting success relies on employees who are sympathetic to the aims of the organisation, cooperative in working to fulfil those aims and conscientious in their performance. Success also relies on management’s understanding of the influence of human behaviour in the budgeting process.

/ Now go to Resource 1
The location of this and all other resources for this learning guide is found in the Key to resources at the front of Behavioural aspects of budgeting.

To read about budgeting go to your resource.

Budgets as motivational tools

The budgeting process deals with the coordination of resources such as funds, machines and humans. Humans are the most important resource that management has to deal with in the budgetary process. Each employee is unique. Each has his or her own goal to attain and their behaviour is directed towards the attainment of that goal.

/ Now go to Resource 2

To read about budgeting as a motivational tool go to your resource.

/ Now go to Resource 3

To do a self-test exercise go to your resource.

/ Activity 1

The following are statements or assumptions that describe the three models of management approaches to motivation:

(a) traditional model

(b) human relations model

Identify each statement by writing the letter that corresponds to the motivation model being described in the space provided.

1 Budgets are prepared by top management and implemented without due regard to the employees. _____

2 Employees are humans who need to be loved and accepted as people. _____

3 Most workers are wasteful and require constant supervision – as the saying goes, ‘when the cat is away the mice will play’. _____

4 Workers possess talent and information regarding the business operations which are vital to the organisation. _____

5 A worker’s attitude towards work is output equals the dollar received. _____

6 Managers should motivate workers to participate and become involved in the budgeting process. _____

7 Most workers hate work and have no initiative so the task has to be broken down into simple steps. _____

8 If workers are given responsibility and a sense of independence, it will lead to increased efficiency. _____

9 Workers respond to their mates and peers rather than to management’s controls and inducements. _____

10 People work not because of money but for satisfaction. _____

Summary

You have learnt how the budget process can motivate the employees when:

· they are asked to participate in the budgetary process

· they are well-informed of what is expected of them

· the expectations or planned activities are realistic and attainable.

When budgets are not carried out properly, it can lead to a dysfunctional organisation that includes:

· budgetary slack

· budgetary padding

· lack of goal congruence.

Feedback to activities

Activity 1

1 (a)

2 (b)

3 (a)

4 (c)

5 (a)

6 (c)

7 (a)

8 (c)

9 (b)

10 (c)

Behavioural aspects of budgeting XXX