Behavioral view of budget management and its model?

Budget is the overall arrangement of the enterprise's future overall business planning, is an important management tool, its main function is to help managers to plan, coordinate, control and performance evaluation. Since the budget began to be used in enterprises in the 1920s of this century, with the development of management science, under the influence of different management ideas, two major budget management models have been formed, namely, the imposed budget and the participatory budget. At present, the technology of budget has tended to be mature and stereotyped, but there is little literature on the relationship between budget and enterprise and human behavior, this paper tries to study the behavioral view of budget management from the different research perspectives of the two budgetary modes, with a view to be beneficial.

I. Classical view of organizational behavior and imposed budget

1. Classical view of organizational behavior

The theoretical basis of the traditional budget management is the classical economic theory of corporate organizational behavior, mainly Terra's "scientific management" doctrine. Classical economic theory that:

(1) the goal of the enterprise is to maximize profits. The goal of profit maximization can be broken down into a number of sub-goals and given to each department. As long as each department maximizes its profits, the firm as a whole will also maximize its profits.

(2) People are economic beings whose behavior is mainly driven by economic forces. People are naturally lazy, preferring pleasure to work, unless the economy demands it. People are also rational and will act in their own interest. Only if people are convinced that they will be justly compensated for their hard work will their behavior be conducive to the interests of the firm. Therefore, the enterprise can use economic means to stimulate employees to work.

(3) The duty of the manager (mainly the top manager) is to ensure that the enterprise maximizes its profits. To this end, he must strictly control the behavior of his subordinates and curb their tendency to waste and inefficiency. The essence of managerial control is authority, and this authority comes from the manager's influence on economic rewards.

According to the above theory, the main role of management accounting and budgeting is to provide information, break down profit targets, enforce accountability, and help managers correct and control the behavior of subordinates. According to classical economic theory, the accounting system itself should be sufficiently deterministic and rational to allow for accurate measurement and comparison of responsibilities, benefits and costs of accomplishing performance across departments. Because of the objectivity of the accounting system, performance evaluations are neutral and free from personal bias.

2. Behavioral Characteristics of ImposedBudget

The classical theory of organizational behavior produces a centralized management style, which is the basis for the practice of imposed budgeting. Imposed budgets are prepared using a top-down approach. All decisions are made by top management without consulting lower level managers and employees. Based on the overall planning of the enterprise, the top management determines the total budget system and budget indicators, which are sent down from the top to the lower levels, and are realized to all levels of management and each employee. Budget indicators are highly directive, mainly reflecting the top management's evaluation of the enterprise's past operations and expectations for the future. The implementation of the budget is also rigid and mandatory.

Compatible with this, the implementation of the lower-level sub-budget is reported in a bottom-up manner, level by level, by the upper management through the comparison of the actual and the budget, the implementation of the budget is analyzed, the need to correct the budget differences prompted by the correction of corrections, and based on the completion of the budget or not the subordinates of the evaluation of the performance of the main incentives to economic incentives as the main means.

3. Advantages and limitations of imposed budget

In the imposed budget mode, the issuance of the budget and the report of the subordinate to the superior are carried out according to the hierarchy, and the way of transferring the information is a unidirectional cycle. The main advantages of this type of budget management are:

(1) the number of people involved in budgeting is small, the time is short, and the decision-making is rapid;

(2) it stands in the overall perspective of the enterprise to consider the problem, focusing on the overall interests;

(3) it is conducive to the implementation of the intentions of the top management.

(4) the advantages of centralized management can be fully realized. If the behavioral assumptions on which the imposed budget is based were completely realistic, such a budget would be efficient and successful, but this is not the case, and in many special cases does not meet its behavioral assumptions. This leads to a series of dysfunctional behaviors in the process of budgetary control and significantly weakens its effectiveness. This is mainly due to the following factors:

First of all, people are not economic beings and do not fully comply with material rewards. When people's income is getting higher and higher, the expectation of material rewards increases, and the stimulus effect of the economy will be rapidly reduced; the increase in income will also make other aspects of the need to outweigh the desire for material rewards. For enterprises, the pursuit of profit maximization is also not the only purpose, especially for joint-stock enterprises, the maximization of shareholders' value or the maximization of market value seems to be more representative of the business objectives of enterprises.

Secondly, budget targets are set by higher management, and the task of lower levels is to implement them. However, subordinates do not believe that they must be responsible for the policies and objectives of their superiors, and are prone to passivity, negativity, and resistance in the actual implementation of the budget, breeding mistrust between employees and managers and among managers at all levels.

Once again, from the point of view of performance evaluation, enterprises are evaluating their performance on the basis of budgetary standards, believing that the full realization of budgetary objectives is possible and that the smaller the deviation between actual and budgeted is, the better. Measuring the behavior of subordinates by this standard will produce the following problems:

First, inconsistency of goals. Goal inconsistency is mainly reflected in the conflict of interest between employees, departments and the enterprise as a whole. Generally speaking, employees and lower-level managers are interest groups opposed to upper-level managers (on behalf of the enterprise), and they are always inclined to safeguard their personal and local interests of their departments rather than the long-term interests of the enterprise as a whole. The main purpose of the subordinates is simply to reach their personal goals with the help of the enterprise's goals, but they do not therefore consider themselves responsible for the budget issued by their superiors. When the enterprise goals and personal goals are not consistent, if they are pressured to force the implementation of the budget, it will cause aversion or even hostility, leading to the behavior of sabotaging the realization of the budget.

Second, short-term behavior. Evaluating performance by budgetary standards is likely to invite short-term behavior. Relatively speaking, the enterprise is fixed, but the personnel is mobile. Lower-level managers may seek immediate performance at the expense of the long-term interests of the organization. For example, managers will cut research and development expenditures, scale back marketing activities, and lower maintenance standards in order to stay within their expense budgets, so as to curb expenses and quickly increase current profit levels. In the long run, such behavior undermines the potential and backbone of corporate development.

Third, manipulation of information. In order to get a good performance evaluation, lower-level managers will try to produce information that is favorable to them. For example, when the actual output of production is higher than the planned output, the manager of the production department will understate the output. This builds up a "reserve" that can be used to regulate the level of reporting in future periods of low production; on the other hand, it prevents superiors from raising the standard of budgeted production in the future, in order to show good signs of year-on-year increases in production. Manipulating information avoids the risks associated with uncertainty. The tendency to manipulate information varies from person to person; if a person does not want to stay in the current business for a long period of time, the tendency to manipulate information is more pronounced. Whereas, if a person wants to pursue a long term career in the current business, he may be more likely to take a realistic approach to steadily seeking future benefits.

II. The Modern View of Organizational Behavior and Participatory Budgeting

1. The Modern View of Organizational Behavior

Modern budgetary management is predicated on a variety of theories and assumptions, primarily motivational theories and theories of leadership styles. The modern view of organizational behavior theory on business and human behavior is:

(1) Businesses are associations of multiple individuals. The enterprise itself is thoughtless and has no goals; only human beings have goals. What we usually call the goals of the enterprise are actually the goals of the dominant member of the enterprise. The goals of the enterprise are constantly changing due to changes in the goals of the dominant members, the internal relations of the enterprise, and the external environment.

Enterprise goals are diversified and can be expressed as maximizing profits, striving for a higher return on investment, maintaining a certain market share and gradually expanding market share, improving customer satisfaction, obtaining goodwill and other aspects. Profit maximization is not the only goal, relatively speaking, survival is more important to the enterprise.

(2) Individual goals and needs are also diversified. People are social, human behavior is determined by the motive, in addition to economic needs, people have psychological, spiritual, social and other needs. Needs vary from person to person and from period to period of a person's life. Individuals join an organization because they feel that such participation will help them achieve their personal goals. Individuals are not always rational due to their lack of adequate understanding of the uncertain environment they face and the limitations of their cognitive abilities. Organizational members place more emphasis on the achievement of their personal and departmental goals, and often have conflicting goals between individuals and departments, between departments, and between the local and the whole. Therefore, maximizing individual and departmental profits does not mean maximizing the profits of the whole enterprise. What the enterprise pursues is usually a satisfactory result rather than an optimal result.

(3) The function of the manager is to make decisions and to influence the behavior of those who carry out the decisions through various means of forecasting, controlling and motivating. Managers have the responsibility to create a democratic and harmonious environment, so that subordinates have a sense of belonging to the enterprise and a sense of identity, when all people work hard to achieve the enterprise's goals, but also to achieve personal goals. The realization of self-interest is still the most direct incentive, and it is necessary for managers to find a proper balance between personal contribution and incentive motivation.

According to the modern view of organizational behavior, management accounting is an information system, the budget is used to influence and motivate the staff behavior of an effective tool, it should provide managers with a variety of information in order to facilitate their decision-making, planning and implementation of the control, and act as an intermediary for the transfer of information within the enterprise. Due to the inevitable subjective preferences of accountants in the selection, processing and reporting of information, as well as the influence of the objectives of the accountants and the accounting department and the intervention of superiors, the accounting system cannot be completely objective and fair.

2. Behavioral Characteristics of ParticipativeBudget

Guided by the modern theory of organizational behavior, the enterprise advocates and implements decentralized democratic participation in management, which is the basis for the practice of participative budget. Its main features are manifested in the following aspects:

(l) All levels of management and key positions of employees to participate in the preparation of the budget. Budgeting using a combination of bottom-up and top-down methods, the whole process is: first, the top management puts forward the overall objectives of the enterprise and departmental sub-objectives; the basic units accordingly formulate the unit's budget program, submitted to the sub-division; sub-division and then according to the subordinate units of the budget program, the development of the department's budget draft, submitted to the budget committee; finally, the budget committee to review the budget of the unit, the budget committee, the budget committee, the budget committee, the budget committee, the budget committee, the budget committee, the budget committee and the budget committee. Finally, the Budget Committee examines the draft budgets of the divisions, carries out a comprehensive balance, and draws up a budget programme for the whole organization; the budget programme is then sent back to the divisions for comments. After many iterations of bottom-up and top-down, the final budget is formed. After approval by the general manager or the board of directors, it becomes the official budget, which is cascaded down to each department for implementation.

(2) Grassroots and middle managers are responsible for checking and analyzing the budget execution, reporting the information to the top management, and at the same time passing it on to the relevant departments and employees. According to the principle of exception management, what is presented to the upper management is only the large difference of the actual from the budget, and the small deviation of the actual from the budget is considered to be unavoidable. Lower-level managers are required to provide explanations for budget deviations and to correct them themselves. For large deviations or regular deviations that are difficult to correct, the enterprise should re-examine the feasibility of the budget and consider making necessary adjustments to the budget. The authority to make budget adjustments rests with senior management.

(3) The evaluation and assessment of sub-budget implementation mainly rely on the budget implementers to complete by themselves. The yardstick of performance evaluation is the budget standard, and material rewards are still a major incentive.

Unlike the imposed budget, the participatory budget recognizes that the budget is related to human behavior, and believes that every step of the budget process contains the influence of human behavior, at the same time, also influences human behavior. Therefore, budget is not only a technical issue, but also a behavioral and ethical issue.

3. Advantages and limitations of participatory budgeting

Participatory budgeting has the following advantages:

Firstly, it improves the reliability of budget indicators. According to V.H. Vroom's "Expectancy Theory", human behavior is the pursuit of goals; and the motivating force of behavior depends on the value of the goal and the size of the expected probability. The success of the budget depends on the accuracy of the budget. Budget indicators formulated with top management as the main body are inevitably too subjective and detached from reality. The upper and lower levels have different views on the standard of the budget indicators, a higher level that is considered challenging indicators, but in the view of the lower level may be unrealistic, difficult to achieve, and therefore lose confidence and give up efforts; budget indicators are too low, easily achievable, and does not play a role in motivation.

Participatory budgeting takes full account of the views of budget implementers. Since the budget executors are directly involved in the enterprise activities, they are more aware of the reality, needs, development potential and future changes of the department, and the budget indexes formulated by their estimation are closer to the reality and trustworthy, and have more significance in guiding the actual work.

Secondly, it changes the budget executors' understanding of the budget. For budget executives, personal participation in the formulation of the departmental budget can be spiritually satisfying, enhance their sense of responsibility as a member of the enterprise, and help to cultivate an atmosphere of openness, democracy and trust within the enterprise to enhance the affinity of the enterprise. On the other hand, the budget executors can y understand and consciously accept the budget standards they personally formulated, so that the implementation of the budget, as their own obligations, rather than as a task imposed by their superiors. As the budget indicators based on the information provided by the budget implementers, its objectivity, controllability and realizability has been recognized by the implementers, if people can not achieve the budget, but also from their own reasons first.

Thirdly, it promotes the integration of corporate budget goals and personal goals. Participation itself is a joint decision-making process, joint decision-making can make the enterprise goals as a whole. Budget executives in the participation of the budgeting process, will be fused with personal goals and expectations, so that personal goals and budgetary goals and thus and corporate goals to achieve consistency. According to the modern theory of organizational behavior, the individual's goal in the organization is formed by the interaction of four factors: the individual's needs, personal ambition, organizational goals and other factors (such as performance reporting system and reward and punishment system), the four factors interact with each other, and the extent of their role in determining the degree of holistic corporate goals. The participation of budget executives in the budgeting process is the process of integrating corporate goals into personal goals. Goal holistic will produce intrinsic incentives, will greatly improve the efficiency of the staff.

Fourth, participatory budgeting promotes interdepartmental coordination and communication, helps each department to work together for the enterprise's ****same goal, enhances the harmony of its actions and decisions with the enterprise's goals, and promotes the rational allocation and effective use of enterprise resources.

A successful budget must be understood and supported by managers at all levels, especially senior management. The essence of participatory budgeting is collective decision-making, collective supervision, before making the final decision, the upper and lower levels should be fully consulted, the superior's proposal is only the basis for discussion, not the final decision. Special attention is paid to the attitude and coordination of managers at all levels in the budget process. However, the behavior and attitude of the superiors towards the budget will have a direct impact on the seriousness of the lower levels of participation in budgeting and implementation of the budget.

Participatory budgeting can give full play to the ability of self-control and self-management of all employees, but due to the large number of people involved, the budgeting process is complicated and time-consuming, which will increase the cost of the budget. Budget executors may exaggerate or reduce the budget number in order to accomplish the budget target and get good performance evaluation, which creates the problem of budget slack.

Third, participatory budgeting, performance evaluation and budget relaxation

Budget implementers in order to successfully complete the budget, tend to formulate a more lenient budgetary standards, so that the number of resources budgeted for the completion of a task is greater than the actual number of resources required, or so that the budgeted amount of output is less than the possible amount of output, this phenomenon is budget relaxation. Budget relaxation mainly occurs in the budgeting process, manifested in the budget implementer underestimates the income, overestimates the cost, underestimates the volume of production and sales and even sales prices, exaggerates the difficulty of completing the budget, underestimates the profit, etc.; or in order to strive for new investment projects, in the project declaration to depress the expenditure budget, when the project is approved, and then constantly expand the scale of investment or piggybacking on other projects.

1. Impact of loose budget on budget management

Loose budget directly affects the effectiveness of budget management:

(1) Too loose budget, it is difficult to stimulate the potential of the enterprise, which brings a lot of ineffective costs. According to classical economic theory, since costs are not minimized, profits are not optimal.

(2) Loose budgets, budget errors, changes in the objective environment, and lack of effort can produce unfavorable budget variances. The existence of budgetary slack provides managers with elastic space to cover up mistakes, hinders the identification of the real causes of budget variances, and affects the objectivity of performance evaluation.

Budget relaxation also has a positive side, which is mainly manifested in:

(l) moderate budget relaxation can reduce the budget implementer to complete the budget pressure, help to achieve personal goals, induced to complete the corporate goals and work hard.

(2) Many budget executives build up loose budgets and adjust down profits in good years of operation, and then turn back to profits in difficult years of operation, so that the enterprise is not too good in good years and not too bad in bad years, which objectively contributes to the stability of the enterprise. This positive effect of budget unwinding is also tacitly recognized by top management to some extent.

2. Causes of Budget Loosening

First, inconsistency of goals and conflict of interest.

We have already mentioned the problem of inconsistent goals. Inconsistent goals can lead to conflict of interest between interest groups. As a matter of fact, as long as the enterprise is evaluating its performance on the basis of whether or not it meets its budgeted objectives, the problem of inconsistent objectives will arise. In an imposed budget, goal inconsistency is mainly reflected in the budget implementation process, which manifests itself as a negative confrontation or resistance. In the participatory budget, the inconsistency of objectives is mainly reflected in the process of budget preparation, manifested in the loosening of budget targets.

Second, information asymmetry.

According to agency theory, information asymmetry refers to the situation where the amount of information possessed by the principal and the agent is not equal. In budget management, information asymmetry means that the lower level possesses information related to the budget while the higher level does not, and this asymmetry is manifested both in the process of budget preparation and in the process of budget execution, and what we refer to here is the former.

The participation of subordinates in the budget gives the superiors a chance to know the real situation of each department and to get in touch with some private information of each department, but this contact is not direct. The subordinate can modify the information provided to the superior, or limit the supply of information, and the superior may get incomplete and non-original information. In this case, it is natural for the subordinate, with his or her information advantage, to take advantage of the opportunity to participate in the budget and create a looser budget. This is the problem of moral hazard and adverse selection due to information asymmetry in budget management.

With the massive use of information technology in the enterprise, the higher managers have more information, to a certain extent, will ease the contradiction of information asymmetry. However, due to the difficulty of expressing certain information, it is impossible to achieve complete information *** enjoyment between the upper and lower levels, the budget is unavoidable.

Third, to avoid the risk of uncertainty.

Budget preparation is usually carried out some time before the start of the budget period, mainly based on past performance and forecasts for the future, and the future and the past can not be exactly the same. Enterprises face a complex and changing environment, full of uncertainty, the budget implementation process, it is inevitable that certain episodic events will occur, resulting in unpredictable expenditures, hindering the successful completion of the budget. Most people are risk averse in pursuit of stability, a loose budget can leave room for the implementation of the budget to offset the impact of adverse changes in the objective environment.

Fourth, guard against layers of cuts or increases from higher levels.

Participation in the budget means that participants can "bargain" for what they want. As Anthony and Young (1984) point out, "The process of arriving at a budget is essentially a negotiation between the managers of the responsibility center and their superiors. ...... adopted budget is a bilateral agreement." "The consultative process is a two-person non-zero-sum response." Usually, after a lower level budget proposal is submitted, the higher level adjusts, coordinates and balances the budget in accordance with the objectives and resource allocation of the whole department or the whole enterprise. Lower levels will set the targets very loosely in order to guard against the layers of cuts or increases from higher levels, and higher managers will also take this into account and will inevitably take the opposite measures. This creates a vicious circle, and the consequence is the gradual institutionalization of budgetary laxity.

Budget loosening is a result of motivation and behavior, and participatory budgeting gives lower-level managers the opportunity to create looser budgets, but the relationship between participatory budgeting and budget loosening is not so simple. Since the 1960s, many accounting scholars in the United States have done a lot of theoretical analysis and empirical research on this issue, and most of them believe that participation is positively related to budgetary slack, but there are also people who hold the opposite view, for example, Onsi (1973), Camman (1976), and Merchant (1985) believe that participation reduces budgetary slack, because participation enables managers to fully exchange information , keep in touch, subordinates are less stressed and there is no need to deliberately create loose budgets.

In short, participation makes budgetary slack a reality, and managers must be careful to determine the extent and manner of subordinate participation in budgeting. Budget process to encourage the degree of subordinate participation varies from country to country and enterprise to enterprise, in Japan is not as prevalent as in the United States, small enterprises are not as prevalent as large enterprises. From the point of view of China's state-owned enterprises, there is also the phenomenon of budgetary relaxation in enterprises that practise budgetary management.

3. From the performance evaluation point of view of budget relaxation

Generally speaking, it is believed that the "participation" can encourage morale, affect the enthusiasm, improve productivity, and achieve good performance, good performance performance for the realization of budgetary objectives, which in turn leads to active participation. Therefore, enterprises that have established a budget system often take the realization of the budget or the degree of realization as the standard for evaluating the performance of managers. Loose budgets undoubtedly increase the probability that managers will be rewarded for their work and their personal goals will be achieved. From this point of view, the root cause of participatory budgeting leading to loose budgets is not "participation" per se, but the enterprise's performance appraisal system. Performance evaluation system is part of the enterprise internal control system, we do not discuss here, only on the enterprise performance evaluation based on budget standards should pay attention to a few points:

(1) budget indicators should be controllable. Only controllable indicators can make budget implementers feel that their actions can affect the results, with such indicators to assess the subordinates, in order to truly reflect their work performance, the subordinates will have a sense of fairness.

(2) the actual comparison with the budget for the purpose of performance evaluation, one is to carry out information feedback, to correct the behavior of deviation from the target; the second is to reward and punish the budget implementer, to guide the behavior of the budget implementer. Therefore, should not be blamed for not completing the budget implementer.

(3) Performance evaluation indicators should reflect the collaborative relationship between the responsible units, for the budget differences involving several departments, should be separated from the reasons for coordination to avoid destructive conflicts.

(4) Performance evaluation should be subordinate to the overall objectives of the enterprise rather than the budget objectives. Managers are responsible for the budget, and their behavior will be subject to the constraints of the budget. However, changes in the environment may require budget executives to break out of the departmental budget. Such budget variances should still be rewarded. From an overall perspective, the realization of budgetary goals is not an end in itself, the budget is only a means to achieve the overall goal of the enterprise, the budget objectives are subject to the corporate objectives.

(5) assessment of budget targets to distinguish between the nature of the department and business. For standard cost centers, the actual cost is lower than the budget is usually favorable differences, but for unrestricted cost centers, the actual cost is lower than the budget may not be favorable. In view of this, once the budget criteria have been established, there is no need to pressure subordinates for favorable budget variances, much less to give excessive weight to favorable variances in evaluating performance.

(6) In the course of business, due to the existence of uncertainty, the enterprise will appropriately delegate authority to subordinates, so that they can make the most favorable decisions for the enterprise in the face of uncertainty, and share certain risks. Based on this, performance evaluation should be considered appropriate to mediate the uncontrollable factors, expanding the scope of control of the evaluation criteria.

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