Essay: Participation in budget making

Task (a)
A budget is a plan on a specific issue or matter within a given period of time usually a quantitative plan. It involves plans on monetary issues in a firm or organization or for individual purpose. A budget helps in planning and controlling the issues in question for the specified period (Arnold, 2015). Funds for the various variables are planned for in estimates depending on level of usage in the period. The use of funds in the period are controlled and coordinated in relation to the estimates given. The results are checked against the budgetary estimates at the end of the period to analyze performance (Arnold, 2015). Budgets are mostly used for this purpose – to ensure improved performance. How a budget is processed or set up varies from organization to organization. Individual budgets may not follow any particular format.  Budgets, like most plans, have effects on the parties involved. This paper will analyze some of these effects budgets have on human behavior.
The case study shows that the budget is set out to meet a sixty five percentage of profit on sales. The budget is based on employee performance during the time period they work per day and week. It is also dependent on the season, for instance Christmas, and site of the café. This budget system is dependent on employees and therefore much emphasis is put on their work and their level of performance. This may lead to feelings of oppression or job difficulty depending on the pressure put on them. Generally, ten hours per week for six days is quite too much. To add on to it much pressure is put on their performance (Case Study).
Feeling of oppression or pressure on employees may bring out a positive or negative result at the end of the day. The budget may seem as a form of oppression to the employees (Radu, 2011). Pressure on employees may improve sales but may eventually deteriorate their work performance. When the welfare of an employee is not checked on, they do not work to their level best. According to Elton Mayo (1933), work productivity is partly related to people’s needs. They work to impress and not with a feeling of fulfillment. The budgetary system puts more emphasis on the profit than on the welfare of the employees. Positive results may not be met in the long run hence, the low level of performance in the sites.
Participation in the budget making is very essential in taming employee behavior. When employees are involved in issues affecting them, they tend to have a positive attitude on the job (Venkatesh, 2012). According to Henry Fayol (1841-1925), employees should be encouraged to show initiative despite the chain of command. Employees will have a positive attitude despite the job pressure and or difficulty. When they participate in the budgetary system, they feel the need to participate in the improvement of performance too as they know what is required of them (Cokins, 2008).
In this case, the employees are not involved. They are required to meet the budget objectives without a say in the making of it. This is likely to make them feel left out and therefore, cannot accept the budget readily. They do not feel part of the decision making hence do not work towards improving performance. In any working environment, employees require to feel part of the decision making process. This helps them accept most of the policies implemented as they feel part of the organization (Case Study).
Another behavioral issue likely to emerge is the feeling of alienation, that is, employees do not feel a sense of belonging in their work place. The budgetary system does not involve the employees. They are only used to meet the objectives set out in the budget.  This can be perceived as oppression by the employees and hence a bad attitude. Delegation of budgetary tasks to lower level management and employees help them understand the strategies (Cokins, 2008). As mentioned above, lack of employee participation in decision making makes them feel alienated.
Alienation only leads to detachment from the group.  Most of the employees are likely to quit or resign due to the feeling of alienation. Alienation makes many people feel uncomfortable and hence cannot work to their best (Radu, 2011). Most of those who do not quit or resign do not work to their best and have a negative attitude towards their work. Negative attitude is a killer to any good work. It hinders positive performance let alone improved performance. Participation and feeling of belonging is very essential in budget making as well as work performance (Venkatesh, 2012).
Budgets as control systems can be used as motivational tools (Radu, 2011). Rewards are imposed to motivate employees meet the target. In the case of Coffee Ltd, the employees are likely to feel demotivated. They work for long hours and are used only for execution of the budgetary plan. They are no rewards given to them when they execute the plan. In the long run, they will not feel motivated or empowered to meet the high profit levels. Obtaining objective congruence may not be realized due to use of the wrong budgetary system (Drury, 2007).  Hence, involving them in the process gives them a sense of purpose. This in turn will motivate them to meet the budgetary plan. Reward will further compliment the process and motivate them more and more.
If employees are held accountable for not meeting plans that they have no control of, they feel aggrieved. This is a behavioral issue likely to emerge at the Coffee Ltd sites if the employees are held accountable. Employees have no control on the profits made within a certain period. They may do all that is required of them and may not meet the profit goal. It is out of their scope of ability and control. Holding them accountable only makes them feel aggrieved especially when the working conditions are not favourable. This also makes them resent their jobs. The end result is poor performance due to the negative energy in the employees and management too. The management is posed with the task of distinguishing controllable and uncontrollable variables in their budget. By doing this, they are able to hold employees and themselves for only that which can be controlled (Radu, 2011).
Autonomy is the feeling of freedom in an individual. Where one is given room for initiative, they enjoy some level of freedom no matter how small (Henry Fayol). In cases where particular plans have to be met to the latter, people do not enjoy autonomy. They feel pressed to follow the plan and cannot implement favourable plans. Their thoughts and initiatives on the plan are put down just because the plan is constrained to the budget. This is likely to emerge at Coffee Ltd because the plan to meet the 65% profit on sales is constrained to the budget. This means that the plan is not open for suggestions even though they may be very useful. Budget constrained approach puts off many other plans that may be more effective. The management as well as the employees does not enjoy the feeling of autonomy. They feel constrained by the budget hence do not have a say in the plan. This stifles the level of performance of the firm; therefore the constrained plan may not even be met in the long run (Radu, 2011).
More emphasis on financial goal without checking on financial goal is likely to lead the company to detriment. Financial goals are key objectives but need to be complimented with non-financial ones. For instance, emphasis on profit without improving working conditions would only lead to low performance. At the Coffee People Ltd, the management is likely to face this issue due to their high emphasis on profits. Other nonfinancial goals like the welfare of employees that are very essential are put aside. The level of emphasis on financial goals without complimentary non-financial goals may not meet the emphasized financial goals. Behavioral issues due to this kind of emphasis are likely to emerge in the company (Radu, 2011). Over emphasis on short term objectives may also lead to the emergence of some behavioral issues relating to the budget.
Supervisors and managers are likely to become narrow minded due to their high focus on their departments. Their lack of autonomy in the business and undivided focus on their departments may lead to serious losses in the firm. Their focus on their sites without collaborating with other sites may not meet the 65% focus. This may lead to very many dysfunctional behaviors among the managers and employers. Unhealthy competition may be revealed in most of the sites. Such competition may not be motivational to the employees. It may create rivalry and resentment among employees. This may have very negative effects to the organization. In the long run, the budgetary objectives may not be met (Decoaster, Autumn 68).
Budget and human behavior is a very serious relationship. Most firms do not put much emphasis on this and end up not meeting their goals. This should be done to ensure that dysfunctional behaviors are tamed. Behavioral issues revealed in a firm depend on the budgetary reporting system used. The choice of system is very essential to the organization. Much emphasis has to be put in making the right choice of budgetary system.
 
Task (b)
BRIEFING NOTE FOR THE REGIONAL MANAGER
SUBJECT: POOR PERFORMANCE AND COMPLAINTS ON SERVICE
ISSUE
In the past six months, the thirty sites I am put in charge have not met the budgeted profit target of 65%. The consumers have also posed numerous complaints about the services rendered in the cafes. This has posed negative impact on the daily sales within the six months. The complaints have led to much difficulty in meeting the target profit to sales.
BACKGROUND
Our thirty sites were among the best cafes in town in the recent past. We made sales of 10,000 pounds per week on average in every outlet. This has dropped to 8,500pounds per week average sales. This started since we put up the new budgetary reporting system. It started off well but after a month, negative results were revealed. We did a market analysis at the time to report on the poor performance but we did not find reliable information. This was especially because the problem was internal not external. Sales continued to decrease as the months progressed. Three months into the problem, customers started complaining more about our cafes (Case Study).
We had to do an extensive market analysis to get a hold on the problem. This time, we did an internal analysis on our cafes too. This helped us realize the cause of the reduced sales. Most employees complained on the new budgetary system and the new policies incumbent. The market analysis also gave some reliable information. We realized that the services were poor because of our employees. They felt out of place and uninvolved in the matters of the cafes. They were also disoriented due to the harsh budget and harsh working conditions. The reduced sales are due to the dysfunctional behavior of the employees while at work.
This has evolved drastically leading to throw away of food due to reduced sales up to 15%. A number of employees have left while a few others have served notice of leaving their work. We have also noticed that the quality of food is also poor. Our cafes were well known for tasty food but this is the contrary. Most complaints we have received relate to the bad relations and food we are offering. As at now, sales have reduced to 8000pounds in the last week. Two more notices of employment termination have been served.  The performance of mot employees is very low and most of them look so disoriented (Case Study).
CONSIDERATIONS
I recently carried out a research on what should be done and came up with a number of remedies. Our main cause being the budget system, we need to change it to a more convenient system. The participative budget is very essential to curb our problem. The participative budget is very effective because it ensures that employees are part of the decision making in the budget making (Heinle, 2014). Democracy is highly supported by this budget. This will help employees feel a sense of belonging and freedom due to the provision of democracy. They will also participate in the achievement of the budget plans because they are allowed to make decisions. This will raise the cost factor but in the long run employee performance will improve drastically. In turn, our level of sales will also improve (Zamfir, 2015).
Beyond Budgeting is a new theory that argues on how firms need to be flexible and responsive to the dynamic and unpredictable world. Its principles relating to budgeting are very essential and effective in business. They include; governance, performance responsibility, delegation, structure, coordination, leadership, goal setting, strategy process, anticipatory and resource management, measurement and control and motivation and rewards. This technique ensures that budgeting is participatory and behavioral issues relating to a particular budget system are done away with. For instance, the goal of the budget is to beat competitors not the budget, responsibility is delegated to ensure freedom and initiative among the players of the budget. It also puts emphasis on motivation and reward to the players of the budget to ensure the targets are met (Réka, 2014).
Variance analysis refers to the extensive check on the difference between the budgeted and actual variable behavior. It helps management realize the cause of the difference and the possible remedies that can be implemented (Krzywinski, 2014). The analysis can be done on various variables in an organization. They include; purchase, labor rate, variable and fixed overhead spending, material yield, labor efficiency and selling price overhead (Strawser, 2014). These variances can help meet various budgetary goals as they ensure that the cause and remedy of the variance is realized. The analysis can also cause behavioral problems if not compensated. This would encourage more spending that can be very detrimental.
OPTION
Participative budget ensures that all players are involved in the budget making process. They can make decisions and provide possible implementations (Heinle, 2014). This can be very effective to ensure that most of the employee related behavioral issues are scrapped off. The Beyond Budgeting technique is very effective in ensuring that a firm moves beyond just budgeting (Hansen, 2011). The firm is able to be at per with the economic changes. It is also effective in curbing most budgetary related problems.
CONCLUSION
Budgetary problems can be very serious because they relate to all the plans a firm has. Budgets should not be plan oriented but should be flexible enough to factor in other related issues (Shim, 2012). Management should ensure that the welfare of their employees is not compromised by budget plans. Employees’ welfare is very essential and should be looked at always. The management should acknowledge progress made despite not meeting plans. Variance calculation and planning is essential in meeting the plans in a given period.
RECOMMENDATION
Participative budget is very essential and effective. Implementing it would do away with most of the problems Coffee People Ltd is facing. Employees will start to feel as part of the company and will feel initiated in the issues of the company. Beyond Budgeting is also a very profitable technique that compliments with the participative budget to ensure that emerging issues are curbed. The variance analysis will help check on the difference between the actual and budgeted plan. It will help realize the cause and possible remedies.