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How Effective are Budget Targets as Personal Performance Measures - Literature review Example

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The following literature review "How Effective are Budget Targets as Personal Performance Measures" is focused on the budget targets’ effectiveness as seen from the perspective of performance measurement that can only be analyzed by looking forward to the present fiscal policies…
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How Effective are Budget Targets as Personal Performance Measures
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Download file to see previous pages It is critical for firms to draw inferences about economic performance from the kinds of performance they can measure. Absent these inferences, firms would not know how well they are doing, and capital markets would not know how to value them. And absent these inferences, firms would be unable to improve their processes and, as a consequence, improve their economic performance". (Meyer, 2002, p. 24)
Budget meeting its target as personal performance measure can be analyzed in two broad categories: "First, a budget can be used as a financial plan, utilized by the finance department to ensure that the organization stays within its operating constraints. Second, it is much more widely used in most organizations as a tool for overall management control. Here budget targets are set for individual responsibility centers and their operating managers, so that operating performance can be monitored and controlled". (Neely, Business Performance Measurement) Irrespective of any category, effective budget targets must possess the following characteristics:
"Strong incentives for departments and their partners in service delivery to plan over several years and plan together where appropriate so as to deliver better public services with greater cost-effectiveness". (Budget-2006)
"Data collection and analysis for performance measures are defined to establish a common understanding for the measure, to describe how and when the data will be collected and interpreted, and to ensure the quality and integrity of the data". (Budget-2006a)
Performance measures further include the following steps:
"Analysis of existing systems (like accounting and auditing) should be conducted in order to determine its performance-basis, if one expects performance data to be used in the system this means that systems that relate to other outdated budgeting approaches need to be replaced to accommodate performance-based budgeting". (Andrews & Hill, 2003, p. 135)
The use of performance information can be increased by including it in the budget and clarifying how this is to be done so that budgeters cannot rely on the traditional methods of budget decision-making. ...Download file to see next pagesRead More
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