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TOPIC 3: Management control system (MCs) and Budgeting, Budgeting games:…

- - - - Planning
      - budgeting
      - Management
      - Accounting
      - Auditng
  - - - effectiveness
      - compatibility of strategy and plan
      - Accountability
      - Integrity and ethical behavior
    - - risk
      - waste
      - fraud
- - - - managers need to tie incentive and compensation to the budget
      - Important because budget form an important part of performance evaluation
      - Since it involve human in the process, it will deal with human behaviors which suggests that participants in the budget process are going to try "breathing rooms" for themselves:
        
        Overestimating expenses
        
        Underestimating sales
    - - 3 common method used
        
        2) Participative or bottom-up budgeting process - involve the lower-level employees in the budget development process
        
        How?
        
        3) Mid-level executives - Grouped the individual budget and regrouped to form divisional budget
        
        4) Top management and budget committee - receive the overall plan
        
        2) Lower-level units - drive the development of budgets for their units
        
        5) The budget committee - review the budget components for consistency and coordination
        
        1) Top management - initiate the budget by provide the general budget guidelines
        
        6) Lower-level units - do the revision on the alterations of budget
        
        Advantages
        
        Improves the employee morale and job satisfaction
        
        fosters the "team-based" management philosophy that has proven to be very effective for modern operations
        
        allow a more accurate budget
        
        prepared by the best knowledge of their own specific areas of operation
        
        Disadvantages
        
        More time consuming and expensive to develop and administer
        
        because of the repetitious process needed for its development and coordination
        
        Giving more room for mistakes and inefficiency
        
        the fact that some managers "pad" (menambahkan) their budget
        
        3) Consultation
        
        manager ask the subordinates to discuss their ideas about the budget but determine the final budget alone
        
        It is easy for the budget developer to miss important items
        
        key personnel who have the responsibility for areas of operation of the organization will identify problems relatively quickly.
        
        sometimes need a feedback because not many people good at figures
        
        1) Authoritarian or top-down mandated budget process
        
        How?
        
        Mid-level executive - unite the budget process by refining the leadership directives as the budget information is passed down through the organization
        
        lower level units - doing the basic budget calculations consistent with the directives.
        
        Upper level management - establish parameters (general or specific) under which the budget is to be prepared
        
        Advantages
        
        can set a tone (quality) for the organization
        
        They signal expected sales and production activity that the organization is supposed to reach
        
        Disadvantages
        
        lower-level managers may view the budget as dictatorial (undemocratic) standard
        
        provide ethical challenge - lower level managers find themselves put ij a position of ever-reaching to attain unrealistic targets for their units
  - - - Consumes too much time and too many management resources
        
        due to spreedsheets
        
        Prone (terdedah) to data entry errors
        
        Version control issues
        
        Difficulty in devising (merangka) accurate formulations
    - - the annual budget make the budget obsolete soon after it has been created.
      - Reviews are not conducted regularly enough to take change into account
      - not many companies investigate the details of their budget in real times
      - This means, budget reviews often take longer than needed, which defeats the purpose of change adaption
    - - The fraud normally happened because of overly optimistic budget and forecast
        
        Lead to an environment of "cooking the books" to unrealistic goals
      - this events usually small because they expect that time will make up for a temporary problems
      - But, it is the initial of this harmless act will lead to ever-escalating (berterusan) pattern of deception that ultimately lead to collapse.
      - The senior-level managers need to be careful to provide realistic budget directives.
    - - to act in their company's interest as:
        
        Strengthens bureaucracy and vertical control, making people feel undervalued
        
        Reinforce (mengukuhkan) department barriers instead of enabling knowledge sharing
        
        encourages "gaming" and unprofessional attitudes in budget costs centre managers
    - - Traditional budgeting process focuses on cost reduction rather than value creation, which means strategic initiatives are unjustly lower priorities