Limitation of Employees Evaluation Building slack into a budget undermines the fundamental objective of employee performances appraisal. Employees’ performance appraisals are always conducted to evaluate the efficiency of employees in terms of goals met within stipulated durations, work quality in terms of results yielded, and the stability of the employees’ personality at the work place. Whenever managers build slacks into the budget, they always ensure that they set targets and standards that serve their self-interest. In doing so, managers and employees always set low budgetary goals both at the organizational and the personal level against which performance appraisal will be conducted. Managers or subordinates involved in building budgetary slacks misallocate excess resources and funds for unwarranted tasks in order to mitigate any unforeseen expenditures that may stain their performance records. Results and decisions made on the basis of such flawed employee appraisal may undermine the overall performance of an organization. Because of the flawed appraisal, an employee may be promoted or feted based on mediocre performance. In the end, the entire process of performance appraisal falls short of meeting the intended objective, which is to reward genuine outstanding staff members (Accounting tools, 2013). Ineffective Planning In the long term, building slack in the budget may bring about ineffective planning within a given institution through misguided allocation of resources. In all cases, budgetary slacks take either of the two forms as follows: underestimated revenues or overestimated expenses. In the later case, subordinates mandated with the composition of the budget deliberately overestimate the expected expenses within the given budget period. Consequently, the organization in return allocates massive resources and funds misguided by overestimated expenses reflected in the budget. Excessive resources at the disposal of subordinates prompt wasteful utilization contrary to the planned objectives of the organization. On the other hand, the underestimated revenue expected may also inappropriately lead to projection of invalid outcome at the end of the budget period resulting in incorrect planning by the management. In the end, fictitious expense figures and misallocation of corporate resources and understated revenues culminate to ineffective planning by the organization. In addition, continual allocation of excess resources and increased cost overstatement may further translate to loss of profits (Ready Ratios, 2013). Underperformance by Employees The nature of the budgetary slack facilitates underperformance by the employees. Whenever managers or subordinates introduce slacks in the budget, they always ensure gratification of self-wants. It is generally accepted that managers and employees are always driven by bonuses and rewards associated with achievement of set goals and standards. Others are more motivated with the desire for promotional consideration, which is offered as incentives for meeting the set goals. Driven by such factors, managers often underestimate the expected revenues with the objective of setting lower standards to act as bench for their
Negative Effects of Building Slack into a Budget (Institution’s name) 24th June 2013 Negative Effects of Building Slack into a Budget According to Warren (2012) the concept of budgetary slack refers to the practice of underestimating the amount of revenue to be generated or overestimating the amount of expenses that will be incurred by an organization within a given budget period…
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