ACCOUNTING

Participation & Motivation in Budgeting

Participation & Motivation in Budgeting

Introduction

Today's highly competitive global economy leads many, if not most, enterprises to constrain their productivity by cost pressures. One of the measures significantly used by organizations is 'Budgetary Controls', since it ensures that the overall targets and aims are effectively and adequately achieved. Such control and planning measures are used to encourage managers of the firm in order to shape their attitude that can meet those goals efficiently and effectively (Reid, 2002, p.122). Budgetary control refers to a use of budget as a control method. A budget is an approximation of future requirement arranged in an orderly basis, covering certain or all of the actions of a company for a particular time period. Thus, budgeting is time bound financial plan of organizational controls. Budgetary controls include the utilization budgetary reports as well as budgets for a given period to organize, assess, and manage their day-to-day operating activities as per the pre-determined targets (Raju & Parthasarathy, 2010, p.167). Hence, budgetary controls hold an immense importance for organizational success.

However, to be fully effective in budget controls system, it is essential to provide motivation and incentives. Managers need to be motivated for participating in budgeting because if these requirements are not satisfied then managers will approach their responsibilities in a very conservative and cautious manger. Successful achievement of organizational goals does not only depend on budgetary controls, since success of budgetary control system depends on the people who operate and influenced by it (Scarlett, 2005, p.266). Thus, mangers play a crucial role in budgetary process, and thereby their motivation and participation hold an immense significance. This paper is focused on various motivational theories that a management accountant needs to consider when involved in the budgetary control process. This paper provides an in-depth analysis of different motivational theories and reasons for participation of managers in budgetary process, particularly Otley and Hopwood this in this regard. In order to do so, the paper critically evaluates the effect of participation in budget goals setting in an attempt to increase the possibility of an enterprise's targets being accomplished while considering some of the numerous theories of motivation.

Budget & Budgetary Control

Budgets have a very wide potential use, as it offers various areas in which it can be used to assist in management control and planning, such as identifying a problem, coordinating various parts of a whole, delegated authority to spend, measuring and controlling performance, and motivation. However, tensions between these utilizations of budget may subsist, like in using a budget as a means of authorization and also as a means of control. Authorized managers may be encouraged to use their full allocated budget when they believe that the budget of following year will be decreased in case 'under spending' occurs in the given period (Reid, 2002, p.122). Thus, the effectiveness of budgetary controls is highly depends on managerial participation and motivation.

Research indicates that supervisory leadership style plays a vital role in budgetary ...