Budgeting Impact on Organizational Behavior

Analysis and Discussion

Budgeting, its nature and purpose

Budgeting could be considered as the art of influencing or controlling operations (Hearn, J., et. al., 2006) by influencing management to work with targeted level of revenues and expenses and targeted levels of assets, liabilities and equity in the organization. Although the emphasis of budgeting is short-term, that is on a year to year basis, the effects on balance sheet accounts are necessarily included therein.

Since budgeted revenues and expenses are expressed via projected income statements it follows that certain level of revenues must be attained and that certain level of expenses must be kept within the budget. Budgeting may however be under fixed budgeting or flexible budget.

The positive and negative impact of budgeting on organizational behavior

The positive impacts of budgeting on organizational behavior are those that will help the company attain its corporate objectives since people particularly the managers are motivated to attain such objectives. Some of these possibilities are discussed in the following paragraphs.

Budgeting could result to more motivated managers if the goal congruence is attained in budgeting (Nutt, P. 2006). There is goal congruence if the managers are being properly led into producing according to well defined responsibilities under the budget with feature of properly rewarding managers which have performed accordingly using the budget.

A more proactive view of budgeting could use the same process to set targets to maximize long-term value (Gordon, J., 2007) and beat the competition, not the budget. Budget is in effect a way to put people guided by what management is set to attain in terms of its objectives. Budgeting could also be viewed as a strategy by devolving the strategy to front-line people while making the same continuous and not only a top-down event that should only be done annually the traditional way. By so doing, every member of the organization is a co-executor of the chief executive officer (CEO) in making sure that objectives are met. If managers are made to participate in the budgeting process, these managers would have the chance of being challenged as people to think critically and not incrementally. Since these managers would be made part of the decision making, there is greater chance that they would do their best to do their part in what roles they have been made aware in delivering the attainment of corporate objectives.

Managers when made part of budgeting would become stewards or responsible for resources on the basis of value creation over the lifetime of the investment applied by the corporation. They would have the change to see with the owners and enjoy the challenge of influencing variables that would contribute to the attainment of corporate objectives.

Budgeting when properly used may involve measuring cost on the basis of their adding value and not merely making comparison with last year. If managers are thinking in a way where it is added value that will truly count, they would have a better understanding that making decision is not only thinking how much cost would be saved but that how better it would be for the organization as a result of making decisions.

Budgeting could also provide the needed positive impacts if it would be used to show leading and lagging indicators to measure performance not just as detailed historical reports. Budgeting could also result to positive impact if rewards are given to managers based on competitive performance and not on personal financial targets and where managers a given the freedom to act. To illustrate, flexible budget could possibly address the concern of changing conditions of the market in relation to the efforts of managers. If higher demand during the year will turn out to be higher than the actual projected level of operation, budgeting should not object of prohibit the same and this could be done by setting a more optimistic budget for the year. The budget is never meant to restrain business if demand warrants. If management really believes that the coming year will be that competitive, then it could always adjust so accordingly.

The negative impacts of budgeting on organizational behavior are those that prevent the company from attaining its real corporate objectives since people particularly the managers are not motivated. Some of these possibilities are discussed in the following paragraphs.

Budgeting could be viewed as way to tell people that they are failures since they could not even meet the targets set in the budget. This kind of situation would normally happen when manager has no part in part in budget preparation or if they are given part such would be minimal and their responsibilities are given to them as if heaven has given to them nothing but to