Introduction to Management Accounting - Essay Example

Introduction to management accounting Contents Contents 2 Introduction 3 Theories of motivation 3 Conceptual framework of budgeting 6 Beyond budgeting and better budgeting 8 Critical analysis 9 Conclusion 10 Reference 10 Introduction Every company’s performance depends upon the performance of its employees. Therefore for every company employee performance is utmost important. The level of motivation defines the performance of the employee which can be achieved for fulfilling the targets of the company. Therefore the motivational factors are often kept in mind by the management accountants while preparing the budgets. In this project the various motivational theories have been discussed. The impact of motivation on budgets has also been discussed with the help of empirical evidences. The concept of been budgeting and beyond budgeting has also been discussed in the light of motivation and its implication on the budgeting. Theories of motivation The term motivation was derived from the word mover which is a Latin word and means to move. Motivation can also be referred to the word motive which can be described as an objective which makes a person move on a particular direction. Motivation can be defined as a process by which a person directs all his efforts persistently to attain his goal. As per Robbins motivation includes three things they are intensity, persistence and direction. Intensity signifies the level of effort given, direction channelizes that effort into organizational benefit and persistence signifies the time period through which one gives the effort continuously (Robbins, Judge and Sanghi, 2010, p.71). There are various theories of motivation among them the most important ones are mentioned below:- Maslow’s need hierarchy motivational theory: The Maslow’s hierarchy of needs motivational theory is the oldest motivational theory. As per this theory the motivation of an individual is driven by five types of needs they are physiological need, social need, safety need, esteem need and the need of self actualization. All these needs are classified as per definite hierarchy and the fulfilment of the needs motivate the person to work for the fulfilment for the next level of need. Figure 1: Maslow’s Hierarchy of Needs (Source: National Center for Transit Research, 2005) These needs can be classified again into lower order and higher order. The physiological needs and safety needs are considered as lower order needs and the need for self esteem, social and self actualization are known as higher order needs. The physiological needs include the basic needs which are required for survival like need for food, water, shelter etc. The safety need signifies the need for being protected from any type of physical or mental harm. Once these two needs are satisfied then the individual tries to satisfy the social needs. This type of need signifies the need of friendship, belongingness or being accepted by the society. This is the third need of the hierarchy. Once the social needs are satisfied the individuals strive for esteem needs which signifies the need to be respected, having recognition in the society, status etc. The last need of the hierarchy is the need for self actualization. The managers have to identify the level of need which the individual is having and then motivate the person to fulfil that need or the need beyond that level (Brooks, 2007, p.55). McGregor theory of X and Y: McGregor gave the motivational theory as the theory of X and Y. As per theory X the individual are classified as being lazy and unwilling to work on their own. These individuals are driven by the lower order need that is the needs of existence and the security needs. To make this type of individuals persons work coercion should be practiced. The theory X considers the negative trait of the individuals. On the other hand theory Y considers the positive traits of the individuals. As per theory Y individual are active and enjoys their work in the organization as any other work like their hobbies. These persons are driven by the social, self esteem and self actualization needs. Therefore these types of individuals can be motivated by recognizing their work, giving them promotion, empowering them etc (Borkowski, 2009, p.10). McClelland’s theory of needs: David McClelland’s proposed a motivational theory with his theory of needs. McClelland’s theory of needs has three types of needs they are need for achievement, need for power and need for affiliation. Individuals who are driven by the need for achievement are said to be having high n-ach. Persons who are high achiever set moderate but realistic goals because they want to achieve more by accepting challenges. High achiever persons accept challenging roles and also thrive to get quick feedback. High achievers do not indulge in gambling therefore they as assess the risk associated with the task first before accepting it. High achiever or persons having high achievement need better performers than the low achievers. The second type of need that McClelland identified for motivation is the need for power. Persons who have high need for power want to make people work in such a way that they do in normal times. These types of persons generally want to influence others. These types of persons can be motivated by giving leadership roles in the work place. The last need has been identified as the need for affiliation. The need for affiliation can be described as the need for being accepted by the society and to be friendly with each other. High affiliation oriented persons generally have greater degree of empathy compared to the others (Koontz and Weihrich, 2008, p.298). Vroom’s Expectancy Theory: Victor Vroom propagated the expectancy motivational theory. This is the most widely accepted motivational theory and is often related with the employee performance, absenteeism, employee productivity and turnover etc. as per the expectancy motivational theory employee will be motivated to perform better if they believe that the effort they are putting in the task will generate good performance the performance will in turn make them achieve rewards and through these rewards they will be able to satisfy their personal desires or objectives. Therefore the theory of expectancy highlights on three types of relationships. These are the relationship between effort and performance, relationship between performance and effort and the third is the relationship between reward and personal objectives. If the employee is expecting that the effort will result into good performance that is there is high probability of the effort being converted into good performance then the employee will be motivated to work hard. Now if there employee believes that if he or she performs at a certain level then he or she will be rewarded then this will in turn motivate him to work hard. The rewards should coincide with the personal goals as this will motivate the employee to work as if the performance gets rewarded then his personal goal will also get fulfilled. This was explained with the help of valence, instrumentality and expectancy (Mullins, 2009, p.489). Conceptual framework of budgeting Every company prepares a budget periodically to assess the probable revenue and the future expenses and with the help of these projected figures the profit and loss of a company are projected for that period. Budgets can be explained as the forecasted figures which the company wants to achieve and is expecting to archive during that particular period. Budgets help to set targets and act as the measurement yardstick which is generally used to measure whether the actual performance is at par with the desired performance. Thus budgets help to control the business activities too. A budget should be realistic and achievable otherwise it would not be able to serve the purpose of budgeting. Generally three departments are concerned with the budgeting process they are financial department, accounting department and human resource department. The main role of financial department in budgeting is to identify the sources of fund that is they are responsible to locate the probable sources from which funds for different business operations will be generated. Apart from identifying the sources of funds, financial department is also responsible for assessing the ways in which these funds will be used. The allocation of the funds to different activities is planned by the financial department. A good financial plan helps the company to achieve the company its objectives. In order to predict the expenses and the revenues the financial departments uses the historical data of the expenses and the revenues. These data are managed by the accounting department who keeps a track of the business transactions. All data regarding the financial transactions are recorded by the accounts department. Therefore accounts department plays a vital part in budgeting. A company’s budget generally involves many items which are related to the human resource department like salaries, incentives, bonus, other employee benefits etc. therefore the human resources department is also involved while preparation of the budget by providing the forecasted data of salaries and other plans for which for which the company has to allocated resources (Kemp and Dunbar, 2003, p.4). Beyond budgeting and better budgeting As discussed in the previous section budgeting can be defined as the process of planning for future activities in numerical terms. These activities may be financial like expenses, revenues etc or non financial activities like labour hours, material required etc. these activities are generally forecasted for a particular period of time and therefore they are time bound and are strictly expressed in numerical terms. Many flaws have been found in the traditional budgeting system. To combat these flaws the idea of beyond budgeting has been established. Beyond budgeting can be defined as the guiding principles which would help the company to manage the performance of the company and will also help in decision making. This will in turn make the company less depended on traditional budgets. Beyond budgeting helps the company to adapt itself in unforeseen conditions (Michael and Technical Information Service, 2007, p.3). The idea of beyond budgeting is to abolish the traditional budgeting system in order to improve the management and control by assessing every time on the ways by which the company can be managed better. The different tools which are generally used for implementing the beyond budgeting techniques are balance score card, customer relationship management, benchmarking , rolling forecast etc. but, still budgets are considered to be important for every organization. Many organizations have started improving their budgeting process in order to practice a better budgeting method for controlling and management. In a research conducted on the companies of south England it was found that in those organizations where budgeting was done in a better way the employees were more satisfied than the organizations where budgeting was not done efficiently (Chartered Institute Of Management Accountants and Faculty Of Finance And Management, ICAEW, 2004, p.14). There the companies should practice the better budgeting by including the tools of beyond budgeting for managing and controlling the activities of the organization. Critical analysis In the earlier sections it has been discussed that in the survey which was made on the employees of south England it was found that the companies who prepared a better budget have more satisfaction among the employees compared to the other employee of other companies. This shows that there is a direct relationship between the budgets and the motivation level of the employees. The budgets presents the picture of the rewards which the employees’ desire and these reward in turn raises the motivation of the employees. Professor Ronen and Professor Livingstone in their research paper have discussed the relation of the expectancy motivational theory with the budgets. Budgets perform three different functions that are planning, motivation and control. Planning is done to forecast and assess the future events; controlling is the feedback process and in the motivational function budgets provides the employees the information regarding the expectation of the superiors in terms of the level of performance which will be regarded as successful and will be awarded by the organization. These budgets can be imposed on the employees as well as can be made through their participation (Ronen and Livingstone, 1975, p.671). Brownell and McInnes tried to establish the relationship of motivation with the budget participation with the help of expectancy model. In the research it was found that budgets form the basis of performance evaluation and rewards (Brownell and McInnes, 1983, p.14). It was also found that more the employees participate in the budgeting process higher will be the motivation and so will be the level of performance (Brownell and McInnes, 1983, p.18). Conclusion Budgets have an impact on the motivation of the employees which in turn has an effect on the performance of the company. The researches done on the various motivational theories like the one done on the expectancy theory, gives mixed reactions. The relation of the reward and performance with that of the effort does have an impact on the budget. From the point of view of beyond budgeting non financial parameters like employee satisfaction are also very important. Therefore the management accountant should consider the motivation in terms of employee’s expectation while preparing a budget. In this regard the most relevant theory which the management accountant should consider is expectancy theory. Reference Robbins, S. P. Judge, T. A. and Sanghi, S. (2010). Essentials of Organizational Behavior 10th ed. India: Pearson Education India. Brooks. I. (2007). Organisational Behaviour. India: Pearson Education India. Borkowski, N. (2009). Organizational behavior, theory, and design in health care. USA: Jones & Bartlett Learning. Koontz, H. and Weihrich, H. (2008). Essentials of Management 7th ed. India: Tata McGraw-Hill Education. Mullins, L. J. (2009). Management and Organizational Behaviour 7th ed. India: Pearson Education India. Kemp, S. and Dunbar, E. (2003). Budgeting for managers. USA: McGraw-Hill Professional. National Center for Transit Research. (2005). Assessing Hierarchy of Needs in Levels of Service. [Pdf]. Available at: http://www.nctr.usf.edu/pdf/527-08.pdf. [Assessed on: September 19, 2011]. Michael, A. and Technical Information Service. (2007). Beyond Budgeting. [Pdf]. Available at: http://www.cimaglobal.com/Documents/ImportedDocuments/cid_tg_beyond_budgeting_oct07.pdf. [Assessed on: September 20, 2011]. Chartered Institute Of Management Accountants And Faculty Of Finance And Management, ICAEW. (2004). Better Budgeting. [Pdf]. Available at: http://www.cimaglobal.com/Documents/ImportedDocuments/betterbudgeting_techrpt_2004.pdf. [Assessed on: September 20, 2011]. Ronen, J. and Livingstone, J. L. (1975). An expectancy theory approach to the motivational impacts of the budgets. [Online]. Available at: http://www.jstor.org/pss/245233. [Assessed on: September 20, 2011]. Brownell, P. and McInnes, J. M. (1983). Budgetary Participation, Motivation and Managerial Performance. [Pdf]. Available at: http://dspace.mit.edu/bitstream/handle/1721.1/46923/budgetarypartici00brow.pdf?sequence=1. [Assessed on: September 20, 2011]. Read More