Budgeting and Motivation Levels - Term Paper Example

Budgeting and Motivation Levels A budget is a specified target in terms of the amount of cost or revenue that a firm or organization intends to achieve during a period of time. Generally a budget is planned by taking into account the past trends of the company, the market variables and making a fair prediction of its future growth or consumption. Typically in a firm, the budgeting department modifies the previous period’s budget plan according to the new year and continues with it. In plain terms it uses the previous year’s budget as a base to build on and use for the future years budgets. A variation of budgeting is called the Zero budgeting where the budget is created from scratch every year and does not involve just the modification of the past year’s budgets. A budget is planned to satisfy many purposes and requirements of the organization. It basically helps planning for the future growth of the business and you can always monitor the growth or progresses made and try to fit in your needs within the budget. Also it helps to communicate the goals within the organization and budgets help to motivate the staffs and mainly they help to establish the priorities of the business. On the other hand a budget may also have a few restrictions and may compromise on some important aspects of the running of an organization. Most budgets are inflexible and do not allow for change hence they become quite inaccurate in their predictions. Budgets do not have any control over the market factors and generally a tight budget leads to demotivation of staff. Budgets can be compared and contrasted using various statistical tools. The most common method being the measurement of variance. If the variance causes a disadvantage to the company then it is called an adverse variance and if it is advantageous to the company it is called favorable variance. Budget Management Budget management deals with formation of the budget policies and ideas and also deals with how best a budget can support the institutional goals and demands. Taking into account the recent trends in this area of study, the basic task of a good budget management service is to promote steps to ensure the flow of cash in the business transactions and also to make sure that the businesses develop a reasonably manageable budget so that cash crunch situations do not arise. This kind of effective budget management requires a thorough understanding of the various elements of a budget, the importance of continuous evaluation and analysis of these components and also the importance of external factors like motivation and reward systems that exist in the company. A good idea of the desirable level of cash flows and also a plan to deal with cash crunch situations is also a must in a good budget management program. A budget may motivate or demotivate the employees working in the company according to the freedom and flexibility it offers and the importance it gives to functionalities in place. The effect of a budget on the motivation levels of employees A budget is directly associated with a host of factors which include adequate institutional support, good salary and maintenance of regular facilities. These factors go a long way in ensuring that employees remain motivated to put in their best performance. According to the Herzberg’s motivation-hygiene theory employees do not look at basic fundamental needs once they have been fulfilled and look for intangible needs. Applying the same theory in organizations, we can see that employees would get motivated by intangible needs like achievement, enjoyment of work and the recognition and responsibility that comes along with. All these are intangibles arise only when the basic needs like good salaries and infrastructure needs are met. If an employee needs to be motivated these basic needs along with the intangible needs need to be satisfied. Generally in a company once the financial needs of the employees have been more or less satisfactorily met they start looking for institutional support as in infrastructural needs and recognition for work done. Let us assume that the there is a budget cut and examine the consequences that arise out of that. Once a budget cut is made the infrastructure goes down and the physical facilities are poorly maintained. The tracking of every penny spent slowly gives rise to frustration to the employees and they start feeling that, inspite of the work they put in their work and spending is monitored. The satisfaction levels go down as a result of this. According to the Hertzberg theory ‘no satisfaction’ and ‘dissatisfaction’ have two different meanings. An employee can be demotivated even though he is not dissatisfied. For example take High Pay as a new factor in the system. This would not create satisfaction simply because it did not exist in the system before the factor was introduced, whereas an extremely low pay can result in dissatisfaction. Thus employees can easily be demotivated because of their perceptions of factors like insufficient pay or poor maintenance of buildings and equipments or poor institutional support which are all associated with a poor budget. A poor budget necessarily means lesser pay packets, poor maintenance and hence higher levels of dissatisfaction. A high level of dissatisfaction leads to demotivation of the employee because he has sacrificed a need which he believes he deserved since he has availed it all these days before the budget cut. Another important finding is that the morale levels of managers are generally associated with the way they perceive their work environment and work value and respect. The work environment and the value attached are tied closely to a good budget. According to a recent study they have found that work life and work environment contribute 18% of the morale and morale is a main factor in high motivation levels. Thus the lack of money or a low budget or an unreasonable budget would impede satisfaction levels and morale of the work force. Another study has also found that, Motivation and satisfaction levels not only decline considerably in the absence of institutional support, but continued cuts in budgets and resources can lead to the presence of high dissatisfaction. Thus the continuous effects of budget cuts and cash crunches can irreparably damage the morale and the satisfaction levels of the employees. A demotivated employee is what an organization would create if the company follows this strategy. A main by product of bad budgets is the emergence of in-group politics. Since budgets are low there is a crunch for resources and separate sub-groups emerge as an way to deal with the scarce resources. Also the company tends to stress on frugality when it gives a strict budget and hence there is a tracking and monitoring of all the money spent and this leads to an increase in the number of rules and regulations. Rules are strongly associated with frustration and an increase in rules would only increase frustration of the employees leading to dissatisfaction and hence loss of motivation. Apart from the question of demotivation, the absence of mandatory resources will negatively affect the employees and will be a barrier to them for performing their jobs. Even if the motivation levels are high the lack of resources will definitely affect the job. For example as cited in a research paper, a professor who does not have a student coordinator will have to actually have to spend his time in doing the grading work which eats into the time he spends for class preparation and research. A similar comparison when it comes to organizations would be the absence of an office hand who does the Xerox work or takes printouts and helps you manage your files. Assuming that because of a tight budget you have to dispense with all your office helpers then you would have to sacrifice your working time for doing all these jobs you would have got done through the helper. So this downsizing of jobs which happen when an impossible budget is put in place results in job insecurity, anger, decreased loyalty, lower motivation and lower productivity. Thus by analyzing all these factors and also having looked at some examples from the industry we can see that a Budgets and motivation levels are strongly associated. A Good budget will lead to higher motivation levels, better loyalty and an overall increase in satisfaction levels. Whereas, a bad budget will lead to frustration, in-house politics, dissatisfaction and lower motivation levels. So a reasonable budget which takes into account all the factors mentioned is the way many companies around the world are currently following. The use of CRM and technology tools also help create a balanced budget and hence better productivity for the company. Works Cited Hostede, G.F. “The game of budget control”. Retrieved on 3rd, December, 2006 from http://books.google.com/books?hl=en&lr=&id=EG9PN5EugBkC&oi=fnd&pg=PP11&sig=qDyxcXdnsV_y8ARleJPd9YOZuVw&dq=company+budget+as+a+motivator&prev=http://scholar.google.com/scholar%3Fq%3Dcompany%2Bbudget%2Bas%2Ba%2Bmotivator%26hl%3Den%26lr%3D#PRA1-PA41,M1 Kinsey, Jaqueline.”Promotional Rationing and Budget Management”. November 1999 Vol 1, No 1, p12-13. Retrieved on 3rd, December, 2006 from http://www.pharmj.com/PrimaryCarePharmacy/199911/articles/budgetmanagement.html Grubisic, Dragana.”Demotivation factors Research Study”. Retrieved on 3rd, December, 2006 from http://www.ceeol.com/aspx/getdocument.aspx?logid=5&id=4E162257-F434-492F-92F4-7681947C1C92 Read More