Coping With Ambiguity through the Budget

Coping With Ambiguity through the Budget

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Over the years, there have been many concerns on the negative aspects associated with budgeting. These negative impacts include constraining innovation and learning. There has also been a perception that pressure emanating from budgeting may lead to unintended behavioral side effects. This paper seeks to criticize this perception and goes forward to examine on to what extent budgeting is positively influencing individual’s work experiences. The paper argues that budgetary targets assist managers to confront issues of uncertainty and ambiguity and thus offering a source of structure and certainty. The paper will combine reviews from different writers who recommend the use of budgets to deal with issues of uncertainty and ambiguity. The paper will also sum the opinion from these writers noting how developing budgets assist the managers cope with specific behaviors (Marginson & Ogden, 2005).

The positive effects of budgetary targets on managers’ budgeting behaviors

The potential functionality of budgets is evident in a number of recent empirical researches. This is based on the contemporary attitudes of senior managers to performance evaluation based strictly on accounting measure of performance. According to Byrne & Pierce (2007), those managers who are faced with very tight budgetary targets not only learn to accept but also they positively endorse the rigorous degree of accountability they experience. The main reason for this was the realization of the certainty that comes with budgeting that consists of clear goals and objectives and a performance evaluation system that is strictly focused on to achieve the set objectives (Salter & Niswander, 1995).

According to Macintosh (1995), budgeting helps managers to embrace their function as they are provided with a clearly defined performance target which when achieved can provide a degree of security amidst the inherent managerial role ambiguity. The presence of role of ambiguity in management is important in this case since it brings out the potential functionality of budgets at an individual level. It is clear that ambiguity causes managers to experience anxiety, and budgets can be used as a means of coping with such anxiety. A number of interviewees remarked that commitment to meet budgetary targets provided a focal point in the midst of jurisdictional and decisional ambiguities.

Kahn et al. (1964) says that Managers have resorted to pursue budgetary targets in order to create for themselves a certain degree of structure and certainty when they are faced with ambiguities and uncertainties. He notes that this has become characteristic of their situation as a result of their empowerment experience. Despite all this challenges in ambiguity, there is evidence that the pursuit of structure and certainty through budget in these situations may override other organizational factors such as organizational positions and leadership in determining attitudes. In another study by Argyris (1953) as cited by Marginson & Ogden (2005), there is a notation of how managers used budgets as “needlers’ over the subordinates: accountants were accused of hierarchical punitive reporting and achieving success through the failure of others (Lambert & Sponem, 2012).

In the new literature, management accountants through a budgetary process can motivate employees and improve attitudes amongst managers towards having a budgetary control. The reward that one gains in achieving the required budget level is vital for motivation of lower level managers and employees (Hopper & Powell, 1985; Petrović & Stefanović, 2009; and Byrne, 2010).Therefore, the approach to budgeting within an organization will be determined by the management style, culture, and one’s attitude towards employees. According to Hope and Fraser (2001), traditional budgeting ways have held companies back, restricting creativity and hindering them from responding to customers. According to Hope & Fraser (2003), concepts under beyond budgeting argue that companies in the modern world need to have more flexibility and responsiveness to deal with changes that are unpredictable, increasingly fickle customers and hyper competition (Hopper & Powell, 1985). According to Baydoun & Willett (1995), this will require effective strategic management and replacing command and control designs of most firms with more authority.

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