Behavioural Issues in Budgeting

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To : The Chief Executive
From : Management Accountant
Date : 19th January, 2012
To : The Chief Executive
From : Management Accountant
Date : 19th January, 2012
|
Behavioural issues which may limit the usefulness of budgeting:| |
Management Accounting|

|
Behavioural issues which may limit the usefulness of budgeting:| |
Management Accounting|

The university of northampton
By
Matthew Matemba
10347139
The university of northampton
By
Matthew Matemba
10347139

Table of Contents
1Part A:2
1.1Executive Summary:2
1.2Background:2
1.3Definition:2
2Purposes of Budget:2
3Budgetary Biasing Framework3
3.1Budget Slack (Bias)4
3.2Seat of Power:4
3.3Budget Gaming:4
3.4Gatekeepers:5
3.5Beating the System:5
3.6The Know-All:5
4Effects of Budgeting Slack (Bias):5
5Causes of Budget Slack:6
6Conclusion:6
7Part B:8
7.1Cash Budget:8
7.2Interpretaion of Cash Budget:9
8References:9
9Bibliography:11
10Appendices:12

Part A:
Executive Summary:
This report demonstrates behavioural issues which may limit the usefulness of budgeting in Langdale Ltd. Including in the report are origin, definition, purposes and types of budgeting. Prior to the above, the report shows different form of budgeting ‘padding’ causes of budgeting “slack” , researches and above all the control of aforementioned behaviours in organisations and three months cash budget for Duncan Distilleries plc. Background:

According to Dugdale and Lyne, the emergence of ‘Scientific Management’ in the 1920s, standard costing and public sector budgeting was established by the development of business organisations (2010, P. xi). Quickly, this development became budgetary control with a budget designed to compare estimated planning with actual result of performance in aid to identify any variance either favourable or adverse. Keuning (1997) suggested that, budgeting is associated with higher managers assigning task to different departments.

Definition:
Chartered Institute of Management Accountants (CIMA) in the UK defines a budget as ‘A plan expressed in money. It is prepared and approved prior to the budget period and may show income, expenditure and capital to be employed. May be drawn up showing incremental effects on former budgeted or actual figures or be compiled by Zero-based budgeting’ (Hannagan, 2008, p. 560).There are various types of budgets namely, Zero-Based, Incremental, Rolling and Activity Based budget.

Purposes of Budget:
The purposes of budget are planning of annual operations, co-ordinating the activities of various parts of the organisation, communicating plans to the various responsible centre managers, motivating managers to strive to achieve the organisation goals by meeting set targets. Finally, controlling activities and evaluating the performance of managers. Undoubtedly, budget plays major part in managing organisations because norms are set to compare budgeted and actual performances financially. However, research has showed that with new ‘realities’ of global competition, rapid change and modern technology the “Beyond Budgeting” movement has criticized the traditional budgeting that, it was not meeting the advance challenges in terms of technology. Therefore, Bunce and Fraser formed the “Beyond Budgeting Round Table” in the UK in 1998 and inspired by the Swedish bank, Svenska Handelsbanken (Michael, 2007). Contrary to main purpose of budgeting individual’s actions demonstrates some behavioural issue which may limit the usefulness of budgeting and this might not different from employees of Langdale Ltd. The diagram 1 below illustrates the relationship between objectives of budgeting contrary to behavioural issues of employees.

Budgetary Biasing Framework

Walker (2004)
Budget Slack (Bias)
As illustrated above, personal goals are a behaviour which may limit the usefulness of budgeting....
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