Behavioural Issues in the Budgetary Control System
Objectives of Budgeting
Through budgeting organisations can provide information for strategic planning and control, these are the two main objectives of the budgetary control system. Management and management accountants must work together and operate a system that achieves these objectives, they do so through a system called variance analysis. Management accountants compare the actual results against the budgets; they then send reports to the management concerning the extent to which budgets are being met. Management can then control activities by making possible steps to stop situations where the budget is being ignored or overlooked.
To meet their controlling and planning needs, management and management accountants adapt the feedback and feed-forward principles (types of controls). As well as feedback, budgetary systems consist of feed-forward controls, where expected outcomes can be compared with desired outcomes. A recent report Tayles (1998) suggests that, "...feedforward control consists of a prediction being made of anticipated future outputs.
If the expected outputs differ from what outputs are desired, control actions are implemented to minimise these differences. Control is therefore, achieved, if the control actions are effective, before any deviation from the objective output occurs". Feedback is the detection of a deviation between actual results and an objective; normally this is carried out after the event and is essentially error based. Research has shown that up to date, accurate feedback has a motivational effect, delay and inaccurate data are demotive. Most organisations adopt these controls, as they are effective and aid the pursuit of a budgetary control system.
Target setting is another objective of budgeting and may possibly have motivational benefits. Setting targets that are realistic and clearly stated will encourage employees to make more effort to achieve it than they might otherwise do. However, the motivational effect of...