Budget Behavior Discussion Forum

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I believe that a number of diverse things within the organization can determine whether the budget process will be effective or not. Past research on the budgeting process has shown that budget estimates are rarely achieved for two principal reasons: imperfect forecasting models and divergence between individual and organizational goals (Otley, 1987). In other words, these problems lead to distorted, or biased, information input to the accounting system therefore the budget process. So, it’s imperative that the leaders understand budgetary biasing behavior because I understand that reliance on biased information may contribute to poor decision-making. Consequently, in order for leaders to properly utilize budgetary information leaders must understand the circumstances under which budgets may become biased. Communication is fundamental in the budgeting process and in the organization where I work the budgeting process involves simultaneous efforts of the top management and subordinates. Here a few factors I believe may affect the magnitude of budget estimates. First, the estimation method used by employees; second, what will be communicated to the top management; and third, top management must combine the estimates of employees while considering the information at hand and their own likelihood estimates of possible outcomes. Thus, the budget will be viewed as one of two possibilities: flexible, to allow for unexpected events or a best point estimate of what is likely to occur. Consequently, as with most things in managing an organization; budgeting process needs to be driven by the vision of the organization and a very effective communication of the strategic plan. I truly believe that if my organizations stay focused on strategy plan we will know exactly where we want to spend our resources and have a plan to help keep us from spending in areas that do not line up with the vision. Finally, I would like to mention that our organization is a customer related...
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