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Participative budgeting and managers' propensity to create budgetary slack : an explanatory framework

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Large, Janelle (1997) Participative budgeting and managers' propensity to create budgetary slack : an explanatory framework. Coursework Master thesis, University of Tasmania.

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Abstract

Budgeting is an important aspect of organizational life. Lowe and Shaw (1968, p.304)
refer to the annual budgeting procedure as probably the most important single decision
and control routine of a firm from both the organizational and economic management
viewpoints. Budgets provide a focus on planning, both short-term and strategic, on
coordination of organizational activities, on control of organizational resources and on
organizational performance. Budgets are also used for behavioral purposes: for
motivating managers' both in commitment and performance, as a means of control over
managers' activities and as a benchmark against which to measure managers'
performance.
As stated by Kamin and Ronen (1981, p.471), the budget is the skeleton of the control
system and as such reflects the organization's goals and is therefore used as both a
yardstick for future planning and a performance standard against which to measure actual
performance. Schiff and Lewin (1968, p.51) refer to the budget in its final form as an
explicit elaboration of organizational commitments for the year that reflects the resolution
of demands for resources made by the various subunits of the firm.
Implementation of budgets have behavioral effects other than those intended by higher
level management. Milani (1975, p.274) points out that a budgeting system designed to
assist management may become an instrument which is related to functional and/or
dysfunctional behavioral consequences. Schiff and Lewin (1968) refer to 'unintended'
behavioral results, such as lower level management circumventing the budget and
allocating resources to what they perceive asjustifiable purposes. Swieringa and Moncur
(1972, p. 194) summarize the relationship between budgets and those who are involved in
the budgeting process as follows: ".. .human behavior has implications for budgeting and.. .budgeting has
implications for human behavior".
Cherrington and Cherrington (1973) state that it is not budgets per se, that have an effect
on people, but the positive and negative reinforcing consequences associated with
budgets. That is, it is not the numbers that form the budget that have behavioral effects on participants, but rather the intentions behind the numbers, the intentions that are read
into the numbers by participants, personalities of parties involved, organizational
structure and so on.
Research on both 'intended' and 'unintended' effects stemming from the budgeting
process has been extensive and diverse and has examined many of the possible influences
noted above (Lowe & Shaw, 1968; Schiff & Lewin, 1968; Cherrington & Cherrington,
1973; Onsi, 1973; Kenis, 1979; Kamin & Ronen, 1981; Brownell, 1982; Merchant, 1985;
Chenhall & Brownell, 1988; Lukka, 1988; Chow et al, 1988; Murray, 1990; Dunk, 1991;
Lai & Smith, 1992). The main focus of this research has been on the relationship
between participation and performance. This paper will focus on an important aspect of
this relationship - the propensity of managers' to create budgetary slack.
The propensity to create budgetary slack refers to a manager's tendency or inclination to
incorporate a 'buffer' into budgets. The propensity to create budgetary slack (PCBS) is
most commonly characterized as the inclination of managers' to set expense budgets
higher than the level of costs reasonably expected, so as to obtain a favorable variance
result. The same concept applies to revenue budgets, where the inclination is to propose
an inflow that is lower than the estimated inflow, so as again to obtain a favorable actual
to budget result.
The purpose of this study is to develop and empirically test an explanatory framework of
managers' PCBS. This framework will incorporate both situational and personality
variables in attempting to explain what motivates managers' to want to incorporate slack
into budgets. The impact of the PCBS on the relationship between participation and performance will
be discussed in the following section, highlighting the motivation for studying the PCBS
concept. The development of an explanatory framework for the PCBS will then follow,
leading to the proposition of seven empirically testable hypotheses. The next section
details the research method followed by presentation of results. Finally, implications of
results in light of the limitations of this study are discussed.

Item Type: Thesis (Coursework Master)
Keywords: Budget in business
Copyright Holders: The Author
Copyright Information:

Copyright 1997 the Author - The University is continuing to endeavour to trace the copyright
owner(s) and in the meantime this item has been reproduced here in good faith. We
would be pleased to hear from the copyright owner(s).

Additional Information:

Thesis (M.Comm.)--University of Tasmania, 1998. Includes bibliographical references

Date Deposited: 19 Dec 2014 02:38
Last Modified: 11 Mar 2016 05:55
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