CAT / FIA FMA Syllabus D. Budgeting - Motivation in performance management - Notes ^{1 / 5}

Motivation in performance management

The purpose of a budgetary control system is to assist management in planning and controlling the resources of their organisation by providing appropriate control information. 

The information will only be valuable, however, if it is interpreted correctly and used purposefully by managers and employees. 

The correct use of control information therefore depends not only on the content of the information itself, but also on the behaviour of its recipients. 

A number of behavioural problems can arise:

1. The managers who set the budget or standards are often not the managers who are then made responsible for achieving budget targets.

2. The goals of the organisation as a whole, as expressed in a budget, may not coincide with the personal aspirations of individual managers. 

   This is known as dysfunctional behaviour.

   Goal congruence refers to the situation which exists when controls motivate employees to behave in a way that is in line with the company’s goals. 

   To achieve goal congruence the managers’ personal objectives need to be in line with the company’s objectives.

3. When setting the budget, there may be budgetary slack (or bias). 

   Budget slack is a deliberate over-estimation of expenditure and/or under-estimation of revenues in the budgeting process.  

   This results in a budget that is poor for control purposes and meaningless variances.

The importance of motivation in performance management

Motivation is the drive or urge to achieve an end result.  

Hence, if employees and managers are not motivated, they will lack the drive or urge to improve their performance and to help the organization to achieve its goals and move forward.

The management accountant should therefore try to ensure that employees have positive attitudes towards setting budgets, implementing budgets and feedback of results.

Factors such as financial and non financial rewards, prestige and esteem, job security and job satisfaction may all play a part to motivate management and employees.