Budget participation is another factor that is important in evaluating and determining the firm’s performance. Sharing of information among organizational members is crucial in the budgeting process. Research has found that if the opinions of the employees are collected and reviewed in the budgeting process, then the firm will have a higher possibility of achieving the goals and targets compared to budgets which are set up by the directors. However, this is only considered effective if the employees value their membership in the committee and think of the targets of budgeting as a common desired goal. Hence, participation by individual members can improve group interaction.
Budgetary participation is expected to be a very important channel
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It is regarded as a negotiation channel linking communication between superiors and subordinates in an organization. This includes downward communication from superiors to subordinates and upward communication from subordinates to superiors. Downward communication lets subordinates obtain extra information such as their responsibilities and expected performance from superiors through budgeting process, which improves the subordinates’ effectiveness. Upward communication means that subordinates communicate their information to their respective superiors, resulting in better decision-making and budget.
Moreover, budget participation of employees can help to improve the realisation of budget goals. Thus, a firm management team should encourage employee participation in the budgeting process, a process which will involve setting goals and targets that are achievable.
Budget
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It is one of the major factors that will determine how the budgetary process is affecting the firm performance. Budget control happens when there is a difference between the actual amount incurred and the budget that was set up previously. This is known as a budget variance. There are two types of budget variance, which are favourable variances and unfavourable variances. For example, if actual revenue exceeds budgeted revenue, then it is a favourable variance. On the other hand if actual revenue is lower than budgeted revenue, then it is an unfavourable variance. Favourable budget variance is caused by effective and efficient cost management which results in greater net income. However, ineffective and inefficient cost management will results in unfavourable budget variances and thus lower the net income. The variance in budget is mainly caused by four factors. Firstly, budget variance can be resulted from inaccurate data. Besides, the changes in the costs of raw materials and production quantity can also cause budget variance. Moreover, random or unusual happenings can also give rise to variation. Over-efficient or under-efficient operations may also results in budget
One must understand that the integral core of a company rests in its accounting and financial areas. The departments’ need employees with an advanced knowledge and skill set to ensure the payment of supplies and accounting on the expenditure is correctly recorded. If the accounting desk presents inaccurate spending calculations on behalf of the company, it could result in spending more than what has actually been earned; this could lead to the company not only being unable to increase in revenue, but also experience loss. It is imperative that the management of the financial department is well informed and able to make decisions by taking into account the usage of every coin stated in the expenditures, and also to know the amount of revenue the company is making so that we can plan on better strategies to improve the revenues (Lu, Madu, Kuei & Winokur, 1994).
Fallon & McConnell explain that having employees participate in some organizational decisions because this helps to avoid potential problems (n.d.). Providing employees with opportunities for open discussion can help HR managers identify the areas that employees may need additional training and development. Furthermore, employees can give their input on daily operations of the organization that executives, managers, and supervisors may not be
Variance analysis is the quantitative investigation of the difference between actual and planned behavior. (Drury, C., 2012) It is used to maintain business control. Firstly, this essay will make an analysis that the reason of variance of sales, materials, labor and overhead separately, and the second part is the interrelationship between these variances.
Communication is the process of transmitting information or messages from one person to another. It’s a process by which individuals or groups or organizational units undertake transactions in a variety of ways and within different areas with the aim of carrying out organizational goals (Griffin,
This process reminded me of the two forms of internal communication concerning business, which were downward and upward communication. Upward communication is how information flows through a company through a hierarchy. In Dillard’s, the hierarchy would be from the employees to sales managers, to general manager, to corporate and so forth. Downward communication is the reciprocal, where
The first types of formal communication is upward this takes place every day without many of us taking it in to consideration it is when someone in a lower position talks to someone in a higher position. Much like when a team member is talking to a team leader this is known as upward communication. Downward communication is when a higher position person talks to a lower position person such as the boss talking to his employees.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
According to Hopwood, (1976, as cited in Parker and Kyj, 2006) sharing of information between superiors and subordinates are one of the main benefits of the budgeting process. Shields and Shields (1998, as cited in Parker and Kyj, 2006) argue that information sharing during the budgeting process between the superior and subordinate is of high importance because both the individual and the organization can potentially benefit from it. Survey results show (Parker and Kyj, 2006) that vertical information sharing plays a huge role in understanding the performance effects of organizational commitment and budget participation. Role ambiguity is the intervening variable between the relation organizational commitment and budget participation (Parker and Kyj, 2006). Vertical information sharing consists of upward information sharing and downward information sharing.
Kroger’s formal communication structure or flow utilized within the chain of command defined by the organizations CEO uses the three formal channels and types of information that is conveyed in a downward, upward, and horizontal communication style. This is used by the top CEO, Rodney McMullen, in a downward style through the numerous chains of command, finally reaching all the way to the various store brands and store level management. Downward communication, comes from the top CEO level and is communicated down through the chains of command. An example of how culture has influenced Kroger’s downward communication can be seen in the use of videos posted by Kroger’s CEO. Upward communication is when messages come from the subordinate levels to higher in the organization’s management pyramid (Daft, 2012, p.579-580). An example of an upward and downward communication tool can also be seen on Kroger’s intranet in the form of a company blog.
Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal findings on the consequences and effects of participative budgeting (Lindquist 1995). Participative budgeting certainly has various advantages, these include the transferral of information from subordinate to superior increased job satisfaction for the subordinate, budgetary responsibility and goal congruence. Its disadvantages include budgetary slack and negative motivation, however it is the conditions in which participative budgeting takes place determines whether the budgeting process is successful. The conditions are dependent on various factors such as the level of participation, level of subordinate influence, the extent to which budgetary slack takes place, volatility, job related information, and the complexity of the budget.
In this case, the downward communication is a communication that flows from one of level a group or organization to a lower level is downward communication. When we think of managers communicating with employees, the downward pattern is the one we are usually thinking of. The most common forms of downward communication are job description, memos and e-mails from the CEO, policy statements, hiring and operating procedures, manuals and company publication. It is used by group leaders and managers to assign goals, provide job instructions, inform employees of policies and procedures, point out problem that need attention and offer feedback about performance. In many organizations, downward communication is often incomplete, inadequate, and inaccurate, as evidenced in the often-heard statement among organization members that “we ...
(Covey) In my organization we are fast paced and deadline driven, each of us has to train and depend on our employees decision making process. I know which of my employees can handle which tasks and set goals for each according to their abilities. I usually get them together in a group to discuss what our immediate objectives are. I encourage input from every level, including our part time employees, so everyone feels included and when we achieve goals, everyone wins. We monitor our progress, and meet frequently if a problem arises, and are very quick to praise each other when we have moved closer to our goals. I feel including everyone in this process gives everyone a sense of ownership in the organization. My employees want to contribute, they take great pride in helping in the decision making process, their sense of meaning and worth are just as great a reward as any paycheck could be.
I learned a few things about my school and myself in regards to this area of leadership by participating in this activity. I learned that my school asks for very little participation from the teachers and community in regards to the budgeting process. But it could be an excellent venue to review prior year accomplishments as well as decide on future objectives with these stakeholders. If I were an administrator, involving the community and faculty would not only help in maintaining awareness, but I could also use this as a way to help those who may not be directly vested in my school, but who are helping fund it through their taxes, recognize effective administration in our efforts to reduce costs and provide needed resources to the various programs. I also feel that budget decisions cannot be solely programmatic or solely monetary. There needs
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support
When working at Borders Books as an assistant manager I experienced a lot of downward communication. The president, vice president, top-level managers, etc. would communicate a decision to my general manager. My general manager would then communicate that decision to the assistant managers, which I am one of. Our job would be to install this communicated decision to all of the employees. If the decision was communicated well, this form of communication worked well, if not it did not.