HumanAspects in Budgeting
Forone to comprehend and appreciate the distinctive tools on a budget,one needs to understand what the term budget means. A budget is asummary of the short-term operational activities of the firm. It is aplan that has abasisin established facts, events that are ongoingcurrently as well as actions that may be designed today forimplementation in future. Budgets exist in each and every aspect orsphere of life. Since the onset of trade or commerce as it is today,budgets became an integral part of everyday life. If one needs to buya car then, they need to plan as per their income. That brings aboutthe necessity of a budget since they will need to allocate thelimited resource which is their income so as to fulfill all theirneeds including buying a car.
Budgetsare not only domestic. They are part of management control designedto promote efficiency in resource utilization as well as efficiencyin controlling other functions of the organization. It is anundeniable fact that budgets do not set themselves. The budgets areset and determined by individuals. The involvement of people in thebudgeting process brings about the human aspect of the budgetingsystem as well as the participation of workers in the budgetingprocess (Jain 1989).
Thebudget that is set by an entity may be a success or a failure, andthat is dependent on some of the factors. The success of anyparticular budget is dependent on its acceptance by the workers andtheir feelings towards the budget. Budgeting has a bearing on thehuman behavior such as motivation and dysfunctional behavior (Shields& Shields 1998). The budget used by a firm will determine theattitude of the employees towards the budget and the organization asa whole. The success or failure of any particular organization isdependent on its budget and budgeting system. These two factors arecrucial in identifying goals, achieving goals, collection ofresponsibilities and the execution of institutional objectives andfunctions
Thebudgeting process involves strategic objectives and goals so as toforecast revenue, costs, production, and cash flows. A budget is aprediction of what the future will most likely look like if somefactors were to be held constant. The human aspect of any budgetfocuses on the ability of an entity to achieve the technical side ofthe budgeting with the use of people (Searfoss 1976). That impliesthat the workers are an important part of the budgeting system. Foran organization to operate efficiently, the employee mannerisms needto be in line with the budget as well as the goals of theorganization.
Thecharacteristics exhibited by employees, however are not independentof the budget, the two are tightly knit. Employees are most likely toreact according to their perception on the budget at hand and theirinvolvement in the budgeting cycle. The success of an entity isdependent on how they exercise organizational control by encouraginginterpersonal relationships between workers who may be at differenthierarchical positions in the organization. The encouragement of therelationships leads to motivation in the employees and their responseto the organizational objectives (Peduska 1992).
Thereare reasons why a budget is important to the organization. Budgetsare used for systematic planning in all organizations. The plan helpsthe organization in achieving the goals it set out to achieve(Samuelson 1986). The program will naturally incorporate the workerssince they are part of the team, and the policies of the organizationare only achievable through their help. Budgets are important in thecoordination and the communication processes in the firm. The budgetsare not only estimates and forecasts, but also serve as modes ofcommunicating the goals of the company to the workers, as well as theoutsiders. The budget helps in setting up structures that will helpthe organization achieve its objectives (Lazenby 2013). The workersare at the center of all this hence their involvement is crucial forthe budgeting process to be successful.
Budgetsare important tools in the quantification process as well as the costawareness part of the entity. The resources help the organization toknow and estimate the costs that it may incur in the future inquantifiable terms. That may help it set strategies counter highcosts or make the operational costs even lower (Samuelson 1986). Theworkers are directly affected by this since an upsurge in costs meansadjusting the budget in a manner that may affect the employeesnegatively.
Budgetsare also necessary tools in matters pertaining to control andevaluate. They help the organization to identify the specific areasthat are not operating according to plan, hence the management cantake corrective action. The budget also serves as an evaluation toolsince the management compares budgets for successive years todetermine whether the organization is profitable or if it’s makinglosses. The evaluations are then communicated to the workers, andcorrective action is taken when need be (Otey 1977).
Thereare mainly three approaches to budgeting. There is the imposedbudget, the participative budget as well as the negotiated budget.The imposed budget is a top-down budget for the top management setsit and then communicated down to the functional managers who pass isit down to the workers in the functional areas (Bosgnes 2009). Theworkers are not an active party in the budgeting process, but areessential in the implementation process. Here most employees feelthat they do not own the budget, hence there exists some form ofdetachment from the budget.
The participative budget is a bottom-up budget. Each functional areaof the firm has a chance to contribute towards the budgeting process.The budgets proposed by each of the areas are brought together so asto come up with a master budget. The master budget is acceptable andowned by the workers since they feel that they contributed to itsformulation. The negotiated budget is a combination of both theparticipative as well as the imposed budget (Jain 1989). Theparticipative budget is more efficient the human aspect is takeninto account in coming up with the budget.In the figure below, theupward movement represents the participative budgeting style whilethe downward movement shows the imposed budgeting form.
Organizationaltheories try to understand the influence of the budget on thebehavior of employees. The classical theory is mainly concerned withthe organizational structures as well as the determination of tasks.The theory is concerned with the human relations approach whichstresses the importance of people as opposed to structures. It alsoemphasizes their motives and behaviors rather than their activities.It asserts the crucial factors which are the individual’sneeds andwants. However, modern theories of organizational behavior claim thatemployees who participate are more likely to internalize goals or theobjectives hence resulting in higher response levels (Jain 1989).
Thestaff has a role to play in the budget system. They are participantsin the system since they have to feel like part of the system. Theyhelp in the formulation of the budget for the organization. Theworkers also assist in the communication process. They contribute tocommunicating the strategies of the firm towards its goals andobjectives. The workers are part of the goal setting process, hencethe need to be conversant with the budgets of the entity. The budgetalso spells out the relationship that ought to exist between thedifferent functions of the firm (Samuelson 1986). The budgets do notexplain the relationship in words, but the monetary allocationsdictate how the functions relate.
Thereexist a direct link between the level of employee satisfaction andtheir level of involvement in the budgeting cycle. A graphrepresenting the relationship between the two variables is visiblebelow.
Thegraph shows that the more the workers involved in the budget system,then, the more likely to be satisfied with the organization. The datais hypothetical and based on the observation and study by variousscholars such as Brownell and McInnes (1983).
Oncethe budget has been set and accepted by the whole organization, ithas to cater for the needs of the workers. The workers have a varietyof requirements. According to Maslow, individuals have needs that canbe classified into five broad categories, and each of the needs isrelated to the budget of the firm. The safety and security needs arean excellent example of requirements that are catered for by thebudget (Baker 1998). The cash flow of the firm determines its powerto provide for its employees financial needs. Employees who tend tobe paid relatively well end up feeling more secure in theirworkplaces as compared to those with low-paying jobs.
Thebudget making process also takes into account the love and belongingneeds of the workers. Once the workers are involved in formulatingthe budgets, they feel like part of the entity (Lazenby 2013). Thatgives them a sense of appreciation and the gesture that they are partof the organization. They tend to own the budget, and they tend towork towards the realization of the goals set out in the budget.
Thetop most need in Maslow’s hierarchy is the self-actualization need.The workers do not certainly want to work for an organization thatdoes not appreciate their worth. They would like to grow theircareers, and the budget will most likely reflect the organizations’desire to improve the employee’s current status at work. The budgetis, therefore, a critical tool when it comes to making sure that theneeds of the employees are catered for (Shields & Shields 1998).
Thebudget also needs to be evaluated so as to find out if the budget isin line with the goals of the entity. In assessing the budget, theorganization looks at the ability of the workers as opposed to theirtraits. The attributes are not allowed to supersede the personalcapabilities of the workers. One is also evaluated on the basis ofself-versus others. The performance of one area of the organizationis in comparison relative to others, and the budget is set by thiscomparison (Otey 1977). The budget is an integral part of anyorganization that hopes to succeed, hence the human input in theprocess is very crucial.
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