(b) If budgetary control is to be successful, attention must be paid to behavioural aspects, ie. the effect of the system on people in the organisation and vice versa. The following are some of the points which should be borne in mind.
Budget difficulty
It is generally agreed that the existence of some form of target or expected outcome is a greater motivation than no target at all. The establishment of a target, however, raises the question of the degree of difficulty or challenge of the target. If the performance standard is set too high or too low sub-optimal performance could be the result. The degree of budget difficulty is not easy to establish.
An ideal level of difficulty is to have some achievable stretch. Some people respond positively to a difficult target. Others, if challenged, tend to withdraw their commitment. The high labour turnover in Z Co suggests this may be happening
Participation
It is often suggested that participation in the budget process and discussion over how results are to be measured has benefits in terms of budget attitude and performance. Views on this point are varied however, and the personality of the individuals participating, the nature of the task (narrowly defined or flexible) and the organisation structure influence the success of participation. But a budget, when carefully and appropriately established, can extract a better performance from the budgetee than one in which these considerations are ignored.
Dan Controle imposes strict targets and should consider increasing participation in the budget process. |
