Budget Part3

ACCA F5 - Performance Management 

Budget and management styles:

Capital and labor management is interrelated. Change in budget influence behaviour and performance of employees and in other hand change in behaviour and performance absorbs/releases extra capital.

Hopwood budget style, performance evaluation and behavioural aspect:

Budget style	Performance evaluation	Behavioural aspects E.g.
Budget constrained	Ability to stay in line with budget	Padding the budget
Profit conscious	Ability to reduce cost or increase revenue Often focus in long term profit however	at times it may result myopic behaviour
Non-accounting	Ability to focus on qualitative aspects	Less focus on financial info

Setting budget difficulty level:

"019 Absorption Costing"	Operating condition	"043 Standard Costing Part1"
Ø  Theoretical capacity Ø  Practical capacity Ø  Normal capacity Ø  Master budget capacity utilization	Ø  perfect Ø  efficient Ø  normal Ø  current	Ø  Ideal Ø  Attainable Ø  Basic Ø  Current

Expectation budget is based on current operating condition and therefore gives accurate forecasts for resource planning, control and performance evaluation.

Aspiration budget is based on efficient operating condition and therefore needs careful assessment to motivate managers and workers to achieve the set standard. Aspiration budget is often used to set target, however the budget itself is not the target. Targets are where company want to be in certain period. Budget directs and control organisations' resources to achieve the target.

Quick review of Article - "C28 Budget Part1" paragraph 2

The "SMART" budget objectives:  Specific, Measurable, Agreed, Relevant and Timely

Budget conflicts:

Conflict	Example	Resolution
Company vs. Division	Company profit vs. Divisional profit	Prioritization
Division vs. Division	Division competing for limited resources	Negotiation and Compromise
Short termism	NPV positive project with initial low cash inflows	Compromise for short period by linking bonus to long term
Individualism	Participative budget	Satisfy with greater scrutiny

Resolving conflicts:

Prioritization: Ranking one issue on top over another

Negotiation: Between parties involved to reach to a conclusion without sacrifice of any interests

Compromise: Parties involved sacrifice some interests to reach to a conclusion

Satisfy: Some parties interests are fulfilled, while others interests are lag behind

ACCA Article: Behavioural aspects of budget