Human Factors in Budgeting:
The success of a budget program also depends on:
- The degree to which
top management accepts the budget program as a vital part of the
company's activities.
- The way in which top management uses
budgeted data.
If a budget program is to be successful, it must
have the complete acceptance and support of the persons who occupy key
management positions. If lower or middle management personnel sense that
top management is lukewarm about budgeting, or if they sense that top
management simply tolerates budgeting as a necessary evil, then their own
attitude will reflect a similar lack of enthusiasm. Budgeting is hard work, and
if top management is not enthusiastic about and committed to the budget program,
then it is unlikely that anyone else in the organization will be either.
In administering the budget program, it is
particularly important that top management not use budget as a club to pressure
employees or as a way to find someone to blame if something goes wrong. Using
budgets in such negative ways will breed hostility, tension, and mistrust rather
than greater cooperation and productivity. Unfortunately, the budget is too
often used as a pressure device and great emphasis is placed on "meeting the
budget" under all circumstances.
Rather than being used a weapon, the budget
should be used as a positive instrument to assist in establishing goals, in
measuring operating results, and in isolating areas that are indeed of extra
effort or attention. Any misgivings that employees have about a budget program
can be overcome by meaningful involvement at all levels and by proper use of the
program over time. Administration of a budget program requires a great deal of
insight and sensitivity on the part of management. The budget program should be
designed to be a positive aid in achieving both individual and company goals.
Management must keep clearly in mind that the
human aspect of budgeting is of key importance. It is easy to become preoccupied
with the technical aspect of the budget to the exclusion of the human aspects.
Indeed, the use of budget data in a rigid and inflexible manner is often the
greatest single complaint of persons whose performance is evaluated using
budgets. Management should remember that the purposes of the budget are to
motivate employees and to coordinate efforts. Preoccupation with the dollars and
cents in the budget, or being rigid and inflexible, can only lead to frustration
of these purposes.
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In Business
| Who Cares About Budgets?
Towers Perrin, a consulting firm, reports
that the bonuses of more than two out of three corporate managers are
based on meeting targets set in annual budgets." Under this arrangement,
managers at the beginning of a year all too often argue that their
targets should be lowered because of tough business conditions, when in
fact conditions are are better than projected. If their arguments are
successful, they can easily surpass the targets."
Source: Ronald Fink and Towers Perrin,
"Riding the Bull: The 2000 compensation survey, " CFO, June 2000, pp.
45-60. |
In establishing a budget, how challenging should
budget targets be? In practice, companies typically set their budgets either at
a "stretch" level or a "highly achievable" level.
A stretch level budget is one that has
only a small chance of being met and in fact may be met less than half the time
by even the most capable managers. A highly achievable budget is one that is
challenging, but which can be met through hard work. Managers usually prefer
highly achievable budgets. Such budgets are generally coupled with bonuses that
are given when budget targets are met, along with added bonuses when these
targets are exceeded. Highly achievable budgets are believed to build a
manager's confidence and to generate commitment to the budget program.
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