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Negative effects of Building Slack into a Budget
Finance & Accounting
Pages 4 (1004 words)
Negative Effects of Building Slack into a Budget (Institution’s name) (Student’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.
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. ...
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