Dysfunctional Performance Measurement Because Of Budgetary Slack Report Examples
The City and State
Poor budgeting has a number of implications of conventional performance. Arguably, several ideologies imply that poor budgeting has a critical effect on budgeting in organizations. Evidently, one of the key problematic areas in most contemporary business is the adoption of traditional budgets. The annual budget has a critical impact on performance as compared to strategic performance-based budgeting systems. As such, it is evident that most of the organizations that indicate poor budget implementation, commonly known as budgeting slack can largely impact organizations in a negative manner. The analysis of the impacts of poor budgeting in organizations has prompted organizations to perform badly.
One of the key areas of concern associated with organizations is the poor implementation of budgets and the fact that it slows down multiple organizations within any given institution. Evidently, one of the key areas that have been affected majorly by poor budgeting is the HR performance. It is crucial for organizations to manage their budgets efficiently for the organizations to perform as well as intended. Additionally, dysfunctional HR performance is attributed to budgetary constraints which result in poor planning or poor budgeting in organizations. Evidently, performance-based budgets have a better impact on the performance of most organizations with the intention of altering performance and allocating capital to business units based on their performances.
Réka, Stefan and Daniel (2014, p. 575), propose that introducing accurate accounting principles results in an improvement in budgeting. Traditional annual budgets do not account for multiple miscellaneous costs such as inflation, changes in currency value, demand patterns and changes in costs of production due to unforeseen challenges. Traditional budgets make annual predictions whose overall efficiency is doubtful. Planning for a company’s cost of operation in December, as early as January, is bound to cause much slack in the budget. As such, the issue can be mitigated by altering all budgeting practices that a company holds dearly.
Fonseka et al. (2014, p. 58) proposes the use of performance measurements on budgets. Allocating capital is the simplest part of developing a functional budget for an organization. Evidently, it is crucial for the finance or accounting department to analyze the use of capital allocated. Additionally, Fonseka et al. (2014 p. 60) proposes the emphasis on recurrent internal budget auditing as a strategy to monitor the performance and efficiency of budgets. According to the article, slack in resource allocation not only affects the timelines of project completions, but is also responsible for the deterioration in motivation levels of the employees, hence directly affecting their performance.
According to Laslo and Gurevich (2014, p. 55) slack resources not only affect motivation by delaying project commencement or leading to project stagnation, but also affect compensation rates for employees. A company that manages its budget well has a higher productivity due to the stability of the internal financial environment. Most managers fail to understand the importance of monetary incentives to employees. Mizutani and Nakamura (2014) assess the impacts of resource slack in Japanese organizations indicating that unfinished projects are logical metaphors for "sleeping profit" (p. 247). As such, managing the organization’s budget and its performance, as well as aligning the budget using a performance-based system – allocating more capital to the most productive business units can help boost the performance of an organization’s human resources. Arguably, it would lead to a quicker realization of profits that can be used to reward and incentivize high productivity in the organization. While much emphasis is given to performance management – of the human resources, very few organizations understand the importance of budget management and implementation.
Jimenez (2014, p. 497) outlines other problems associated with budget slack, indicating that smart-cuts need to be introduced to most organizations. The creation of a surplus budget is very rare, whereas the development of deficit budgets in organizations is the order of the day. Very few organizations thrive using the set budgetary constraints without necessarily demanding external capital output. As such, it is evident that organizations need to introduce smart budgetary cuts to reduce resource slack and delayed projects. Some of the propositions that Jimenez (2014, p. 500) offers includes recycling, eliminating redundant employees and promoting lean budgets by avoiding unnecessary expenses such as branding and purchasing expensive office equipment that could be obtained at much affordable prices and serve a similar purpose.
As indicated, the budget is a crucial component of an organization and a key determinant of overall organization productivity and human resource performance. Motivation levels rely heavily on the budget’s efficiency and appropriate implementation. Additionally, another area affected by the budget is the completion of projects. Budget slack not only affects a company’s ability to allocate capital, but also determines the efficiency realized when implementing projects covered by the budget. However, the recommendations offered by scholars are admissible in any real life situation in an organization. Lean budgets, performance-based budgets, budget performance management, strategic budgets (to replace annual traditional budgets), recurrent internal audits on budgets and smart cuts are some recommendations that can be applied in contemporary organization to improve the performance of the workforce and simultaneously promote organizational productivity. The budget affects both the motivation levels of employees – limiting their performance – and project completion resulting in unrealized profits. The aforementioned recommendations would provide a better chance for profitability in organizations facing budget slack challenges.
Fonseka, M, Tian, G, Yang, X, & Rajapakse, R. 2014, 'The interactions between different types of financial and human resource slacks on firm performance: Evidence from a developing country', South African Journal of Business Management, 45, 3, pp. 57-66.
Jimenez, B. S. 2014, 'Smart cuts: strategic planning, performance management and budget cutting in U.S. cities during the great recession', Journal of Public Budgeting, Accounting & Financial Management, 26, 3, pp. 494-525.
Laslo, Z, & Gurevich, G. 2014, 'Enhancing Project on Time Within Budget Performance by Implementing Proper Control Routines', Management (1820-0222), 72, pp. 53-69
Mizutani, F, & Nakamura, E 2014, 'Managerial incentive, organizational slack, and performance: empirical analysis of Japanese firms' behavior', Journal Of Management & Governance, 18, 1, pp. 245-284.
Réka, C, Stefan, P, & Daniel, C 2014, 'Traditional Budgeting Versus Beyond Budgeting: A Literature Review', Annals Of The University Of Oradea, Economic Science Series, 23, 1, pp. 573-581.
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