The Use of a Single Budget or Separate Budgets for Planning and Performance Evaluation

Arnold, Markus Christopher; Artz, Martin (December 2016). The Use of a Single Budget or Separate Budgets for Planning and Performance Evaluation (Unpublished). In: New Directions in Management Accounting Conference. Brussels, Belgium. 14.-16.12.2016.

Budgeting has different functions in the firm that are not necessarily congruent with each other but conflict. Specifically, in many firms, budgets are simultaneously set and used for both operative planning and performance evaluation. Although prior literature recommends using different budget levels for different purposes to resolve potential conflicts between these functions, empirical evidence indicates that the majority of firms use a single budget level for planning and performance evaluation. To examine the questions of whether and why firms do so, we identify economic and behavioral costs of using separate budget levels. We find that when deciding about the use of a single versus separate budget levels, firms trade off the costs of incurring higher variances against the costs of preparing a separate budget and reduced credibility of the performance evaluation system. Moreover, we find that using a single budget level for both purposes at the beginning of the year does not signify using a single budget level at the end of the year. Firms seem to respond to the various economic and behavioral costs either at the beginning of the year or, alternatively, in the course of the year and adjust budget levels for planning, performance evaluation, or both accordingly. Our study contributes to the literature on the integration of control-oriented and decision-oriented functions of management accounting instruments by reconciling discrepancies between descriptive empirical practice and recommendations from prior literature about the use of a single versus separate budgets for multiple purposes.

Item Type:

Conference or Workshop Item (Speech)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute for Accounting and Controlling > Controlling

UniBE Contributor:

Arnold, Markus Christopher

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics
600 Technology > 650 Management & public relations

Language:

English

Submitter:

Alexandra Neuenschwander

Date Deposited:

11 Jun 2018 15:46

Last Modified:

20 Sep 2018 11:12

Related URLs:

URI:

https://boris.unibe.ch/id/eprint/107447

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