Behavioural Issues That May Emerge - Assignment Example

? Budgeting and Reporting Budgeting and Reporting Behavioural Issues that may emerge It isa common phenomenon for an organization to move towards implementing a systems and a set of processes that enable it to increase the overall productivity and improve the performance of the organization. In its quest for improvement Charles Ltd implemented a new budgetary system that helped it to compare its performance after a given period of time. Although the idea of implementing such a system was to benefit the overall entire organization, the director failed to take into account the behavioural issues that were associated with its implementation. One of the behavioural issues that have been noticed within the case study is that of resistance from employees. It is a common observance within an organization to have employees refuses to work with the new system or processes. In some cases employees regard the new system as redundant or unnecessary altogether (Attwood, 1996). In such cases usually employees feel threatened by the new system and feel that it challenges their methods of working and makes them feel redundant. In the case provided it was observed that the supervisor of department D Janet was extremely unhappy after viewing the performance report. This behaviour shown by Janet shows that she felt threatened by the report and refused to accept the system altogether. In some cases employees tend to agree to the new budgeting system but ignore its implementation. Employees tend to assure executives of the organization that they would commit to the processes of the system but in reality tend to hold reservations about it, causing reluctance in the implementation of its implementation (Woldring, 2010). As seen in the case out of all the directors only one of the director was interested in its implementations whereas others were uncertain about it. This caused the directors to become uninterested in its effective implementation. Another behavioural issue that can be seen the company is confusion amongst the employees. While developing a budgeting plan it is vital to communicate with employees to investigate the factors that were involved in formation of the actual budget. Since communication between the executives of the company and the employees was not clear misunderstandings are created during the formation of performance reports (Poornima & Charantimath, 2011). This in turn causes employees to disown the report claiming that information provided in the report is baseless and has little or no significance when placed under practical circumstances. Furthermore, there was no training provided to the employees prior to implementing the new financial control system. Direct implementation of the new system caused a great deal of confusion amongst employees who were taken aback on receiving their department’s performance report. Changes to be introduced in the Existing Report System In order to ensure that the current budgeting system is more easily accepted by the company’s employees it is vital that the management removes uncertainty and insecurity that the company employees have regarding it. The first and foremost step that the company could take is to initiate a training program for its employees. The main aim of the training program should be to increase the knowledge and awareness of the employees regarding budgeting and comparative analysis. The training sessions must inform employees of the exact advantages that budgeting and comparative analysis would bring about to the company. The process of training must start with the top executives of the company. Obtaining the consent and backing of the top executives would help in the implementation process (Finkelstein et al., 2008). Moreover, knowing that all the organizational executives share the same vision convincing employees at the lower level makes it a lot easier. Once the company’s executives have been briefed it is then time to convince employees working at the lower level of the organization. Convincing employees working at the lower level is much more important and challenging than convincing executives (Kotter & Schlesinger, 2009). Compared to individuals working at higher levels of the company, employees at lower level of organizational hierarchy feel threatened by the new system. To remove these misconceptions employees must be prepared beforehand and they must be informed of how a budgeting system would affect their jobs. After a mental preparation they must be provided proper training where they would be informed of the benefits of the budgeting system and would also be taught how they would perform their duties from there on end (Kotter & Schlesinger, 2009). The second step that the company could take is to implement proper communication. Communication plays a key role whenever an organization is introducing a new system or process within a company. From the information given above about the case, it is clear that there was little communication between the directors of the company and the supervisors of all departments. When communication within the organization is not efficient, it becomes extremely hard for information to travel throughout the company. This in turn results in confusion amongst employees when the system is implemented. It is important to point out, that two ways communication is necessary and that employees must be able to communicate their difficulties and any reservations that have regarding the budgeting system. As mentioned above there certain factors that result in the formation of the actual figures. It is therefore necessary that employees are able to communicate their point of view to their supervisors (Bolognese, 2012). It is therefore necessary to effectively inform every one of the benefits that the company would be able to obtain from the budgeting system implemented, the impact that the system would have on operations and the exact time duration that would take to implement the overall system (George & & Jones, 2010). Answering these queries would help in removing any misunderstandings that an employee has. Once it is ensured that everyone has been informed about the new system it is important to verify if the message that has been sent across is in fact the correct one (George & & Jones, 2010). From the case above it was seen that even though one of the directors was able to convey her message to her co-workers she was unable to convey the correct message i.e. she failed to explain to them the exact benefits that the company would obtain from implementing a budgeting system which in turn left doubt in the minds of the other directors. Finally an excellent strategy to help in the acceptance of the new budgeting system is by motivating employees into accepting it. The company could provide a certain scheme to its employees that would increase their interest in the acceptance of the system. If employees are given a stake in the system then they would work harder to understand the new system and eventually would more readily accept it. Revision of the Departmental Performance Report The revision of the departmental performance report requires a careful consideration of the concerns noted by Janet, the supervisor of Department D. As noted in her response to the performance report, the supervisor showed her displeasure with the contents of the report and denied the fairness and accuracy of the contents. Also, Janet also stated that she has limited time and therefore it is not possible for her to undertake such time consuming paperwork. Keeping in view these concerns, there are various adjustments which are required to be made. First of all, for authenticating the information provided in the report, there are various steps which are required to be taken. The report includes information pertaining to actual performance and budgeted performance. The budgeted performance or estimates as provided in the report can be authenticated by referring the budgeted figures to the sources from which they have been derived (Bamber et al., 2008; Balakrishnan et al., 2009). Secondly, the underlying assumptions and basis on which information has been included in the budgeted performance portion of the report shall be stated expressly so as to convince the reader as to how figures provided in the report have been reached (Jiambalvo, 2010; Noreen et al., 2011; Balakrishnan et al., 2009). In this regard, the report can include information regarding how budgeted figures and estimates have been reached. As for instance, in most of the cases, budgeting is carried out by taking into consideration performance related information in the past, e.g. average value of sales revenues generated by a department in the past 12 months, if monthly budget is to be prepared, or in the past 4 quarters, if quarterly budget report is to be prepared (Bamber et al., 2008; Balakrishnan et al., 2009). Lastly, clear and detailed explanations of what caused the deviations in actual performance as against the budgeted performance. In this regard, the outcomes from the standard costing and variance analysis can be included and incorporated in the report provided to each of the Departmental supervisors (Balakrishnan et al., 2009; Noreen et al., 2011). Before providing a comparative analysis of actual performance with the budgeted plans, it is important that supervisors of each Department are provided with budgeted plans at the beginning of the period to which they relate. These initial budget reports shall be presented in the following manner: Item Budgeted Units / Hours Basis of Assumption Units produced 95,000 Average Units Produced during the past 4 quarters Machine hours 28,500 Average Machine Hours used during the past 4 quarters Budgeted Amount Basis of Assumption Sales ? 950,000.00 Average Sales during the past 4 quarters Raw materials ? 133,000.00 Average Raw Material consumed during the past 4 quarters Direct labour ? 152,000.00 Average Direct Labour expense during the past 4 quarters Variable production overheads ? 100,700.00 Average Variable Production Overheads during the past 4 quarters Fixed production overheads ? 125,400.00 Average Fixed Production Overheads during the past 4 quarters In this way, following additions or changes will have to be made in the report to make it more convenient for Departmental supervisors to understand: Providing enough information which satisfies the reader about authenticity of the budgeted plan and the information on which it is based. Inclusion of basis of estimations and forecasting in budgeted figures. Introduction of per unit variance analysis in the final report, which enables determining whether the variance resulting in the actual performance in comparison with the budgets is favourable or unfavourable. Keeping in view these points, the revised performance report would take the following form: Item Actual Budgeted Units / Hours Basis of Assumption Per Unit Actual Hours Per Unit Budgeted Hours Total Variance Per Unit Variance Nature of Variance Units produced 90,000 95,000 Average Units Produced during the past 4 quarters 5,000 Unfavourable 1 Machine hours 27,200 28,500 Average Machine Hours used during the past 4 quarters 0.30222 0.30000 1,300 0.0022 Unfavourable Item Actual Budgeted Amount Basis of Assumption Per Unit Actual Hours Per Unit Budgeted Hours Total Variance Per Unit Variance Nature of Variance Sales 922,500 ? 950,000.00 Average Sales during the past 4 quarters ? 10.25 ? 10.00 27,500 ? 0.25 Unfavourable 1 Raw materials 130,500 ? 133,000.00 Average Raw Material consumed during the past 4 quarters ? 1.45 ? 1.40 2,500 ? 0.05 Unfavourable Direct labour 153,000 ? 152,000.00 Average Direct Labour expense during the past 4 quarters ? 1.70 ? 1.60 1,000 ? 0.10 Unfavourable 2 Variable production overheads 96,300 ? 100,700.00 Average Variable Production Overheads during the past 4 quarters ? 1.07 ? 1.06 4,400 ? 0.01 Unfavourable Fixed production overheads 115,300 ? 125,400.00 Average Fixed Production Overheads during the past 4 quarters ? 1.28 ? 1.32 10,100 - ? 0.04 Favourable 3 Note 1: Considerable inefficiency; action should be taken to increase production and sales revenue. Note 2: Considerable inefficiency; action should be taken to improve cost control in this department. Note 3: Standard costing is used and fixed production overheads are absorbed on a machine hour basis. In addition to the details being added in the above table, it is also pertinent to include the reasons justifying why variations from the budgeted figures have been considered as unfavourable and favourable (Jiambalvo, 2010; Balakrishnan et al., 2009; Bamber et al., 2008). Apart from the information given in the table, performance analysts can also integrate a comprehensive variance analysis in the report which is based on standard costing. List of References Attwood, D.A., 1996. The Office Relocation Sourcebook. New York: John Wiley & Sons. Balakrishnan, R., Sivaramakrishnan, K. & Sprinkle, G., 2009. Managerial Accounting. Hoboken: John Wiley & Sons, Inc. Bamber, L.S., Braun, K.W. & Harrison, W.T., 2008. Managerial Accounting. New Delhi: Prentice Hall. Bolognese, A.F., 2012. Employee Resistance to Organizational Change. [Online] Available at: http://www.newfoundations.com/OrgTheory/Bolognese721.html [Accessed 2 January 2014]. Finkelstein, S., Hambrick, D.C. & Cannella, A.A., 2008. Strategic Leadership: Theory and Research on Executives. Oxford: Oxford University Press. George, J. & & Jones, G., 2010. Understanding and Managing Organizational Behavior. Boston: Pearson Custom Publishing. Jiambalvo, J., 2010. Managerial Accounting. Hoboken: John Wiley & Sons, Inc. Kotter, J.P. & Schlesinger, L., 2009. Strategies: Addressing Resistance to Change. Research. Providence: Brown University Brown University. Noreen, E.W., Brewer, P.B. & Garrison, R.H., 2011. Managerial Accounting for Managers. New York: McGraw Hill. Poornima, C. & Charantimath, P.M., 2011. Total Quality Management. New Dehli: Pearson Education India. Woldring, R., 2010. A Manager's Short Primer on Resistance to Change in Organizations. Research. 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