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Budgetary Control (Pre-Requisites of Effective Budgetary Control…

- - - - Planning
        
        Make planning a continuous and inclusive process, not an annual event
      - Controls
        
        Base controls on relative key performance indicators (KPIs) and performance trends, not variances against a plan
      - Rewards
        
        Reward shared success based on relative performance, not on meeting fixed annual targets
      - Resources
        
        Make resources available as needed, not through annual budget allocations
      - Goals
        
        Set organizational goals aimed at continuous improvement, not fixed annual targets
      - Co-ordination
        
        Co-ordinate cross-company interactions dynamically, not through annual planning cycles
    - - Performance
        
        Champion success as winning in the marketplace, not on meeting internal targets
      - Freedom to Act
        
        Give teams the freedom and capability to act, don't merely require adherence to plan
      - Accountability
        
        Create a network of teams accountable for results, not centralised hierarchies
      - Governance
        
        Base governance on clear values and boundaries, not detailed rules and budgets
      - Customer
        
        Focus everyone on improving customer outcomes, not on meeting internal targets
      - Information
        
        Promote open and shared information, don't restrict it to those who 'need to know'
  - - - Continuous improvement will be the key
    - - Budgets may be hard to achieve in such circumstances
    - - Flexible targets will be responsive to change
- - - - Locus of Control
        
        For those individuals who feel they have a low degree of control over their destiny
      - Job Difficulty
        
        Where job difficulty is low
      - Work Situation
        
        In a highly programmed and technological constrained environment
      - Types of Organizational Structure
        
        In a cetralized organization
      - Personality
        
        With managers who are more highly authoritarian
    - - Where participation by itself is not adequate in ensuring commitment to standards and mangers can significantly influence the results
      - Where a process is highly programmable and clear, stable input-output relaionships
      - Where personality characteristics of the participation may limit the benefits of participation
      - Where a firm has large number of homogeneous units and operating in a stable environment
  - - - Demanding budgets are seen as more relevant than less difficult targets, but negative attitudes result if they are seen as too difficult
      - Acceptance of budgets is facilitated when good upward communication exists. The use of departmental meeting was found helpful in encouraging managers to accept budget targets
      - Up to the point where the budget is no longer accepted, the more demanding the target the better the results achieved
      - Managers' reactions to budget targets were found affected both by their own personality and by more general culture and organizational norms
      - Budgets have no motivational effect unless they are accepted by the managers involved as their own personal targets
  - - - Performance of the Cost Centre's head is linked to ability to increase the general effectiveness of his units's operations in relation to the long-term goals of the organization
    - - Accounting data plays a relatively unimportant part in the supervisor's evaluation of the cost centre head's performance
    - - The evaluation is based upon the Cost centre head's ability to continually meet the budget on short-term basis
- - - - Feedback reports should be extracted promptly
      - Feedback reports should disclose trends and relationshipsF
      - Feedback reports should disclose variations from standards
      - Feedback reports should be in standarized format
      - Feedback reports should disclose both accomplishment and responsibility
    - - Secondary
        
        Where feedback is sent to a higher level in an organization and can lead to a plan being reviewed and possibly changed
        
        For example, the revision of a budget after large variances were discovered due to price changes over time
      - Negative
        
        This could be by amending the inputs or process so that the system reverts to a steady state
        
        For example, a machine may need to be reset over time to its original settings
        
        Feedback taken to reverse a deviation from standard
      - Primary
        
        Could be reported to line management in the form of control reports, comparing actual and budgeted results
        
        If the variances are small or can be corrected easily then the information may not by feedback to anyone higher in the organization
      - Positive
        
        Taken to reinforce a deviation from standard
        
        The inputs or process would not be altered
  - - - A model of control system should be developed
      - Data on Input Variables must be regularly collected
      - The feed-forward system must be kept dynamic
      - Data on Variables must be regularly assessed
      - Careful discrimination must be applied in selecting input variables
      - Feed-forward control requires action
      - Thorough planning and analysis are required
    - - The feed-forward process is an evaluation and is concerned with the estimates of uncertain future. This problem of uncertainty is likely to limit application of the concept
      - Study of future is not well developed; neither are the tools that have potential for overcoming the problem of uncertainty