Although participation in budgeting may enforce the managerial performance, it has constrains and can cause some problems as well. This article analyses the possible advantages and limitations of the role of participation in budget setting. In the next section, the possible merits of budgetary participation are demonstrated. This is followed by a section that explains the equivocation existing in the relationship between budgetary participation and performance. Then, in the following section, some negative effects on the application of participation in budgeting progress are illustrated. The final section is the conclusion of the study.
The Possible Advantages of Budgetary Participation
According to the definition of budgeting, it is the ¡®estimation of all income and expenses for an accounting period or financial forecasting, planning, and controlling¡¯. (http://www.yourwebassistant.net/glossary/b11.htm#budgeting) Comparing the budget with the real achievement of the company, it is possible to improve the decision-making process for the future development of the enterprise. So budgeting takes a crucial role in management accounting. Therefore, studying how to make budget setting more effective is important for the benefit of the enterprise. Participation in budgeting is one of the useful approaches. It bears some possible advantages, which may enhance manager¡¯s commitment to budget objectives. The following discussion (adapted from Lecture notes by Professor S. G. Ogden, 2004) bears the assumption that there is positive relationship between participation and performance. The contradictions will be discussed later in the following sections. First of all, participation in budget setting can inspire the enthusiasm of the managers. Then they will intend to input more energy and time into the work to meet the budget targets. Because if they are involved in the process of budget setting, they will link it with their own knowledge, experience, and so on to make the judgment. This linkage renders the target of the company to be the participator¡¯s personal target. Secondly, participation may encourage the creation of the participators. Creation is the characteristic of human beings. However, not everybody at any time has the motivation to create. When the budget is settled, and what the managers and employees have to do is just to meet the budget, they will not care about how to improve the budget, but just focus on how to achieve the seemly pleasing result. Thirdly, participation in budgeting could improve the communication between the budgetary setters and the participators. In fact, no matter to what extent employees involved into participation, there should be somebody to make the last decision. Then what is the meaning of participation? The answer is better communication. Application of budgetary participation could make the thoughts of the employees and junior managers upward to the budget setters, and at the same time, the aim of the budgeting is passed to the participators. The involvement makes the participators understand more about the holistic blueprint of the company, not just the plan for oneself, and at the same time, renders the budget setters realize the difficulties for the participators to accomplish the budget objectives. It is good for the harmonious development among different departments, associates and subsidiaries of the whole company. Otherwise, the unbalanced growth is not beneficial for the enterprise in the long run. Fourthly, budgetary participation will make the budget more appropriate, namely, achievable. Sometimes, the budget is disappointing for employees and managers, as they are too hard to accomplish. This can cause negative effects on the performance. If people think that it is impossible to achieve the budget on time, they will either reduce the quality of the work to just meet the...