Highly achievable budget targets reduce the risk of gameplaying. The stakes asso

Question

Highly achievable budget targets reduce the risk of gameplaying. The stakes associated with budget achievement in most firms, which include bonuses, promotions, and job security, are so significant that managers who are in danger of failing to achieve their budget targets have powerful motivations to play games, either with the numbers or through foolhardy decisions.” Critically evaluate the above statement in the context of appropriate amount of a challenge in a financial performance target. Based on your evaluations, do you think Mr. Mehli Mistri and his subordinates will be involved in gameplaying activities? Explain

Explanation / Answer

Budget is a projection of expectations in the coming year. It is prepared at the start of the year. Each department has to work as per budget set for them. Modern business is run by professionals who are paid employess of the company. They have to take admiistrative decisons. They are not owner. A person owning the concern will try to maximize proft. But in most cases remmunerations of administrative managers are linked with their performance. If they can achieve the target set, or can surpass it, they are highly remmunerated. On the other hand they will suffer, if they have failed. So budget is very crucial for them.

If the budget target is very tough and difficult to achieve, then the probability of suffering from low incetive is very high. In those situations, they very often try to adopt various unfair means. Figures are windowdressed so that in paper it appears that target has been achieved. It will help them for the time being to get bonus, promotion ad job security.

But remember window dressing of actual figure has a long term adverse effect. You can conceal ineffeciency temporarily. But in the long run it will gather moss. Ultimately when they will be revealed, the impact will be unbearable.

Due to this many people think that a target will be set in the budget which is easily achievable. If it is so, then tedency of adopting unfair means will not exist. But remember setting of a easy target will ot serve the basis objective of setting budget. It will ot help in improving productivity and profitability. So it is proper to set a reasonable target which is achievable yet challenging. Also set different motivational slabs for achieving different levels of achievments, so that no one is totally deprived from the rewards.

Also it is necessary to keep a close eye on their regular achievments. Budgets will be frequently reviewed on the basis of existing situations, so that it never becomes unrealistic or easily achievable. Use latest techniques available in this connection to set the budget. Zero base budgeting is one such technique. Here budget set up process starts from zero level. The persons who are at the lowest level of the operation hierrarchy are involved first. The budget set up process begins from there. as a result employees realizes that target has been set based on their own opinions. It has not been imposed by upper level. It will induce them to work hard and achieve the target.

If all these points are properly cared, Mr Mehli Mistri and his subordinates will not be involved in gameplaying activities.

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