Behavioral Factors of Successful Budgeting

Review Article

Makhmudkhoja Saidkhujaev

School of Business Languages, MBA in Finance

Management Development Institute of Singapore in Tashkent

 

 Budgets are part of management control designed to promote the efficient use of resources and providing support for other critical functions. Performing budgeting activities effectively is also critical in achieving strategic goals as it allows having a clear action plan to allocate resources efficiently. The extent to which any budget is successful is very much depend on its acceptance and the attitudes of workers towards it, and such behavior is particularly the same all over the world, including Uzbekistan.

 At the same time, Budgeting Process must have the practical support of upper management. Budget planning is first prepared by responsible employees, and is approved by top management adequately. It is then coordinated with budget activities in order to establish a framework under which budget activities are performed. Employee participation is also important in budgeting, as they act as decision makers as well in choosing best budgeting options for their departments. After the certain options are chosen, budgeting framework is communicated through all responsible departments, and controlled and monitored for further development.

Practically, behavioral factors of successful budgeting include involvement of managers in budgeting process and cooperation of participants. The further paragraphs give brief explanation of the two above.

Managers’ involvement considered as an essential aspect of successful budgeting as it is an action and strategy that is frequently used in order to streamline the process of budget. On other words, it is a practice where managers of organization are involved in process of objective settlement and its transaction to effective practice.  Participation in process of objective settlement encourage managers to take part in budgeting, and make influence on the budgeted targets. It is proved by recent studies (Peterson & Fabozzi J, 2010) that participation in budgeting targets encourage managers to accept it, and motivate them to achieve it. In addition, it has been recognized that managers who are involved in a process of budget preparation have higher level of satisfaction in comparison with managers who are not consulted. 

 On other hand, the participation of managers tends to cause negative subsequences by influencing on settlement of corresponding target. As long as corresponding target is affected, the performance may become too low and objectives become too easy to achieve. Consequently, performance indicator of managers and the company increase artificially. It can be evaluated that the great budgeting process should contain limited participation of managers in order to avoid negative affect of involvement. Thus, the involvement of employees should not be eliminated.

Another behavioral factor of successful budgeting exercise is a cooperation of participants. Cooperation of participants is very important in terms of effective process of budget control and it can be described as a form of interaction that require joint action of several people to achieve common goals or objectives (Eamets Raul, et al., 2008). Moreover, studies evaluated five aspects of cooperative relations’ development that should be in successful budgeting process:

  • Trust. Successful interplay of operational management people and management controlling people strongly depends of trust levels among them. Minimum trust is required. Otherwise, trust between them tends to assist confrontation of opinions, and tends to foster cooperation among them.

 

  • Performance. Performance of an organization has the ability to influence the climate of trust among staff. In the case of good performance, managers use budgeted processes; however, in the poor performance condition managers tend to modify information sources. Therefore, the observation of operation control system in parallel to performance is the best way in terms of efficient use of resources in order to expand relations between controllers and users of system.  

 

  • Controllers. The behavior of management controller is very important in terms of relations with operational staff. As long as achievement of overall goals depends of cooperation and commitment, controller should act with diplomacy and understanding to operational staff in order to get needed staff performance. Oppositely, the satisfaction and cooperation level might drop and negatively effect on budgeted objectives. Budgeting action plan is also affected in opposite cases.

 

  • Support. “Senior management that provides support is responsible for ensuring adherence to operational control and to increase the quality of relations between officials and operational staff.

 Mentioned aspects above of cooperative relations are crucial, but it does not state that every successful organization follows them all. In a real business world, it is very difficult to take into practice even one of these aspects (Boon , et al., 2007). Therefore, it is desirable for every company to practice all aspects of cooperation of successful budgeting; however, it is not the toughest regulation for strategy of budgeting. Successful budgeting as it is mentioned several times is behavioral rather than purely systematic.

 

 

List of reference

 

  • Hope , . J. & Fraser, . R., 2003. Beyond Budgeting. Concordville, Pennsylvania: Soundview Executive Book .
  • Anon., 2016. https://www.apple.com/retail/business/financing/. [Online]
    [Accessed July 2017].
  • Anon., 2017. Decreases of the Dividend Payout Ratio. [Online]
    Available at: http://finance.zacks.com/decreases-dividend-payout-ratio-1070.html
    [Accessed 07 2017].
  • Bonner, S. E., 2008. Judgment and Decision Making in Accounting. Pearson Education Inc.
  • Boon , O. K., Arumugam , V., Safa, M. S. & Baker, N. A., 2007. HRM and TQM: association with job involvement. Personnel Review, 36(6), pp. 939-962.
  • Eamets Raul, R., Mygind , N. & Spitsa , N., 2008. The development of employee financial participation in Estonia. Baltic Journal of Management, 3(2), pp. 218-231.
  • Peterson , D. P. & Fabozzi J, F., 2010. The Basics of Finance: An Introduction to Financial Markets, Business Finance, and Portfolio Management. Hoboken, New Jersey: John Wiley and Sons Inc.