Effective replanning and budgetary control systems: Normative characteristics and practical structure

Ko zé, J. G. A icle E ec i e eplanning and budge a y con ol sys ems: No ma i e cha ac e is ics and p ac ical s uc u e Sou h A ican Jou nal o Business Managemen P o ided in Coope a ion wi h: Uni e si y o S ellenbosch Business School (USB), Bell ille, Sou h A ica Sugges ed Ci a ion: Ko zé, J. G. (1984) : E ec i e eplanning and budge a y con ol sys ems: No ma i e cha ac e is ics and p ac ical s uc u e, Sou h A ican Jou nal o Business Managemen , ISSN 2078-5976, A ican Online Scien i ic In o ma ion Sys ems (AOSIS), Cape Town, Vol. 15, Iss. 1, pp. 8-20, h ps://doi.o g/10.4102/sajbm. 15i1.1099 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/217846 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ E ec i e eplanning and budge a y con ol sys ems: No ma i e cha ac e is ics and p ac ical s uc u e J.G. Ko ze School o Business Leade ship, Uni e si y o Sou h A ica, P e o ia The o mal managemen con ol sys em exe s a powe ul in- luence o e he ac ions o middle and op le el manage s in an o ganiza ion. To ensu e ha hese ac ions a e in he bes in- e es s o he o ganiza ion as a whole, ca e ul hough should be gi en o he design o such a con ol sys em. The design should inco po a e ce ain desi able cha ac e is ics. These cha ac e is ics a e iden i ied, desc ibed and lis ed in he o ma o a no ma i e model. A p ac ical managemen con ol sys em which has been implemen ed in se e al o ganiza ions is subsequen ly discussed and e alua ed agains he equi emen s o he no ma i e model. S. A . J. Bus. Mgm . 1984, 15: 8- 20 Die o mele bes uu sbehee sis eem oe en 'n s e k in loed op die aksies an middel- en opbes uu de s in 'n o ganisasie ui . 'n Sodanige behee sis eem moe e sig ig on we p wo d om e e seke da bes uu aksies wa daa deu gemo i ee wo d die oo koepelende belang an die o ganisasie as geheel dien. So 'n on we p moe seke e wenslike eienskappe inko po ee . Hie die eienskappe wo d geiden i isee , besp eek en gelys in die o maa an 'n no ma iewe model. 'n P ak iese bes uu sbehee sis eem wa in e skeie o ganisasies geimplemen ee is, wo d e olgens besk y en g&e aluee aan die hand an die e eis es deu die no ma iewe model ges el. S.-A . Tydsk . Bed y sl. 1984, 15: 8-20 P o . J.G. Ko d School o Business Leade ship, Uni e si y o Sou h A ica P.O. Box 392, P e o ia, ' 0001 Republic o Sou h A ica Accep ed Sep embe 1983 In oduc ion Meaning ul s a egic con ol in an o ganiza ion consis s o eplanning ( e o mula ion o s a egies). This manage ial ac ion is mo i a ed by wha has become known as s a egic planning gaps in ecen li e a u e. These gaps can be iden i ied and epo ed by he managemen con ol p ocess i his p ocess con o ms o ce ain equi emen s. The p ocess o managemen con ol in ol es manage ial communica ion, in e depa men al liaison and o he o ms o in o mal managemen con ac . In addi ion, a o mal manage- men con ol sys em usually o ms pa o he managemen con ol p ocess. Al hough he o mal managemen con ol sys em is only a pa o managemen con ol i plays a signi i- can ole in shaping manage ial ac ions. Manage s wo k wi hin a sys ems in as uc u e which exe s a powe ul in luence o e hei beha iou . The o mal managemen con ol sys em can be desc ibed as a closed loop (An hony & Dea den, 1980: 19 - 20) consis ing o he ollowing sequen ial componen s: (a) Objec i es and goals de i ed om he s a egic and managemen planning p ocesses. (b) Financial budge s e lec ing he an icipa ed inancial im- pac associa ed wi h he achie emen o he objec i e and goals. These budge s in eg a e he majo elemen s (s a is- ical o ecas s, subjec i e p edic ions and he impac o an- icipa ed new managemen ac ions) o he planning p o- cesses in o a p ojec ed se o inancial s a emen s. (c) A esponsibili y accoun ing amewo k p o iding measu emen s o ac ual pe o mance as well as com- pa isons wi h planned pe o mance. (d) A inancial epo ing amewo k o communica e a iances, ends and analyses. These epo s se e o ig- ge managemen ac ion, no mally in he o m o eplan- ning which closes he loop. This a icle deals wi h componen s (c) and (d) o he manage- men ~n ol sys em. An a emp is made o de elop a lis o no ma i e cha ac e is ics which will enhance he e ec i eness o eplanning apd budge a y con ol sys ems. Subseq~en ly, he majo s uc u al elemen s o a p ac ical s~s em which has been in oduced in se e al o ganiza ions is d1~u~sed ~d e alua ed agains he lis o no ma i e cha ac- ens 1cs. '" h1s pa icula sys em does seem o mee o a signi i- can ex en he majo equi emen s o e ec i e eplanning and budge a y con ol. S. A . J. Bus. Mgm . 1984, 15(1) Cha ac e is ics o e ec i e eplanning and budge a y con ol epo s To be e ec i e, eplanning and budge a y con ol epo s mus : (i) e lec he o ganiza ional esponsibili y s uc u e, (Mo se, 1981; Dopuch, Bi nbe g & Demski, 1974; Sweeny & Wisne , 1975; Ho ng en, 1982); (ii) emphasize he con ollabili y c i e ion, (Shillinglaw, 1977; C owningshield & Go man, 1979); (iii) mo i a e e icien and e ec i e manage ial decisions, (Schu e, 1981; An hony & He zlinge , 1980); (i ) mo i a e decen alized manage ial decisions ha bene i he en i e o ganiza ion, (Mo se, 1981; Ho ng en, 1982; Gee, 1976); ( ) lead o con ol o agg ega e ac o s a he highe o ganiza ional le els, (Mo se, 1981; Ho ng en, 1982); ( i) lead o manage ial ac ion, (Schu e, 1980); ( ii) lead o an op imal ade-o be ween imeliness and cos , accu acy and ele ance, (Mo se, 1981); ( iii) p o ide eed o wa d as well as eedback in o ma ion, (Schu e, 1981; Schu e, 1980). Re lec he o ganiza ional esponsibili y s uc u e Du ing he planning p ocess a se o p og ammes is de eloped. A p og amme is a speci ic ac i i y which an o ganiza ion plans o unde ake in pu suance o i s objec i es. The budge ing p o- cess b ings abou a change in emphasis: Each p og amme is ' ansla ed in o e ms ha co espond o he sphe e o espon- sibili y o each manage who is cha ged wi h execu ing he p o- g amme o some pa o i .' (An hony & Dea den, 1980:20). The plans o iginally exp essed as indi idual p og ammes a e acco dingly e o mula ed in e ms o he esponsibili y s uc- u e o he o ganiza ion. This s uc u e consis s o a ious decision cen es (enginee ed cos cen es, disc e iona y cos cen es, e enue cen es, p o i cen es and in es men cen es) h oughou an o ganiza ion. The manage s in cha ge o hese decen alized esponsibili y cen es ha e he eedom o exe cise hei disc e ion bu ha e o accep esponsibili y o he esul s as e lec ed in pe iodic con ol epo s. These epo s can os e e ec i e decen aliz.ed manage ial beha iou by epo ing on a egula basis how he manage and he po ion o he o ganiza ion he is esponsible o , a e doing. Requi emen : E ec i e eplanning and budge a y con ol epo s should ecognize he a ious decision cen es h ough- ou he o ganiza ion and should ace he app op ia e elemen s o cos s, e enues, asse s and liabili ies o he manage s in cha ge o hese cen es (Ho ng en, 1977:156-157). Emphasize he con ollabili y c i e ion Wi hin he esponsibili y s uc u e, budge a y pe o mance epo s should emphasize hose ac o s con ollable by he esponsibili y cen e manage s. The con ollabili y c i e ion im- plies ha manage ial pe o mance epo s be so s uc u ed as o exclude all a iances ha a e no o some signi ican ex en wi hin he con ol o he pa icula manage . This, howe e , is an excep ionally di icul equi emen . The di icul y is di ec - ly ela ed o he numbe and ype o noncon ollable o semi- con ollable pe o mance a iables ha exis in a pa icula si ua ion. Un o una ely, ew pe o mance a iables a e e e comple ely con ollable. This implies ha 'con ollabili y' has o be de ined as he abili y o in luence o a 'signi ican ex- en ' a pa icula cos , e enue, asse o liabili y (Homg en, 1982:146-147). The dange lies in ca ying his app oach o he ex eme by 9 adop ing a con ibu ion de ini ion o a pa icula esponsibili y cen e ha elimina es so many o he possible sou ces o a iances ha he manage is elie ed o mos esponsibili ies. Appa en ly he bes app oach is o ask he ollowing ques ion: 'Who in he o ganiza ion exe cises he mos con ol o e his pa icula i em?' Responsibili y o his pa icula i em is hen assigned o his pa icula manage . The p inciple ha all i ems o cos and e enue a e con ollable by someone in he o gani- za ion gi en a long enough ime span o con ol mus be ecog- nized in he s uc u e and ope a ion o pe o mance epo s (Homg en, 1982:147). A clea dis inc ion has o be made be ween he pe o mance o he manage in cha ge o a esponsibili y cen e and he pe o mance o he esponsibili y cen e as a subuni o he o ganiza ion (Gee, 1976:51). The manage should be e alua ed on his basis o his con- ollable pe o mance. Manage ial pe o mance epo s com- pa e he ac ual con ollable pe o mance o a esponsibili y cen e wi h wha he pe o mance should ha e been unde he p e ailing ci cums ances. E e y esponsibili y cen e migh o some ex en ope a e unde unique ci cums ances: Di e ences may exis be ween di e en cen es in he same o ganiza ion in e ms o he age and condi ion o p oduc i e acili ies; he numbe , loca ion and eliabili y o supplie s; he numbe and majo cha ac e is ics o cus ome s and compe i o s, as well as a hos o o he ac o s. This implies ha he pe o mance o e e y manage should be e alua ed in e ms o he si ua- ion in which his esponsibili y cen e ope a es. Ca e should be exe cised in d awing any in e cen e com- pa isons. Unde mos ci cums ances, he mos equi able me hod o employ is o compa e ac ual wi h budge ed pe o - mance. Such a compa ison elimina es he p oblem o com- pa ing cen es wi h di e ing p o i po en ials. These di e en- ial pe o mance po en ials migh be due o ce ain cen es ope a ing in less p o i able indus ies o in less p o i able geog aphical a eas (Reece & Cool, 1978:46). In con as , he pe o mance o he esponsibili y cen e is e alua ed o de e mine how well i has a ed as an economic en i y. In his case, some cos s ha a e uncon ollable by he manage o such an o ganiza ional subuni may be logically assigned o he cen e. An economic pe o mance epo would o dina ily con ain all he cos s o he esponsibili y cen e, in- cluding hose cos s which ha e been incu ed cen ally on behal o he cen e. The in en ion is no o alloca e all cen- ally incu ed cos s o he esponsibili y cen es. Es ima es ha e o be made o hose cen al cos s which would cease o be in- cu ed i he pa icula cen e is discon inued. These cos s should be included in he economic pe o mance epo s o he esponsibili y cen es (Gee, 1976:56). Requi emen : Replanning and budge a y con ol epo s should be s uc u ed in such a way ha he pe o mance o he espon- sibili y cen e manage as well as he pe o mance o he esponsibili y cen e as an economic en i y can be e alua ed. The manage should be e alua ed on he basis o a com- pa ison o ac ual wi h budge ed pe o mance. Only hose i ems o cos o e enue 'signi ican ly con ollable' by him should be included in his po ion o he pe o mance epo s. Fo he pu pose o an economic e alua ion o he esponsibili y cen e, all o he i ems o cos and/ o e enue incu ed by o on behal o he cen e should be included in he emaining po ions o he pe o mance epo s. Mo i a e e icien and e ec i e manage ial decisions The pe o mance o an o ganiza ional subuni is no mally 10 e alua ed in e ms o bo h e iciency as well as e ec i ~. E iciency is mos o en exp essed in e ms o he quan i y o ou pu pe uni o inpu (An hony & Dea ~en, 1980:8~. An e icien esponsibili y cen e will p oduce a gi en quan~1 y o ou pu wi h a minimum consump i~n o inpu o maximum ou pu om a gi en u iliz.a ion o mpu . . . The g oup o manage s p ima ily espoDS1ble o e ic~ in an o ganiza ion ' end o ope a e in an en~o~en which is o a la ge ex en bu e ed om he unce am les o he ex- e nal en i onmen : hey hus unc ion in a ela i ely closed sys em' (Schu e, 1981:5). This makes i possible o de elop s anda ds o accep able pe o mance ( o en exp essed as budge ed uni s, o budge ed cos s). ~~ s anda ds, once se , do no change excep i he unde lymg c ~s ances shoul~ change and ep esen he 'ideal' o 'bes ' achie emen possi- ble unde a pa icula se o ci cums ances. Con ol in closed sys ems is aimed a achie ing hese p e- se s anda ds. As his s anda d is he ideal, any pe o mance alling sho o he s anda d is subjec o co ec i e ac ion. Co - ec i e ac ion is aimed a b inging pe o mance back o s an- da d (Schu e, 1981:105-106). E ec i eness is ela ed o he achie emen o esul s: i e lec s he ex en o which an o ganiza ional uni achie es planned (budge ed) sales olumes, p oduc ion ou pu , p o i s, e c. As such, e ec i eness is always ela ed o o ganiza ional objec i es and goals (An hony & Dea den, 1980:8). This does no , howe e , imply ha an e ec i e esponsibili y cen e con- sis en ly p oduces ac ual pe o mance ha con o ms o budge ed pe o mance. In con as o he e iciency c i e ion, hose manage s p ima ily esponsible o e ec i eness, ope a e in an open sys em in which equen en i onmen al changes make he achie emen o p e-se objec i es e y di icul , i no impossible. Acco dingly, an e ec i e esponsibili y cen e migh be desc ibed as one ha p oduces ac ual pe o mance ha is consis en wi h o ganiza ional objec i es and goals. The e ec i eness c i e ion mo i a es manage ial ac ion ha imp o es on an exis ing si ua ion, i espec i e o he le d o cu en pe o mance. This equi es c ea i e men al e o s which should be o malized in ac ion p og ammes (Schu e, 1980:4-5 & 11 - 12). These p og ammes con ibu e owa ds he achie emen o o ganiza ional objec i es and goals and ep esen he eal con ibu ion o he pa icula esponsibili y cen es o o e all o ganiza ional su i al, g ow h and p ~ i abili y (in he case o p o i -o ien ed en e p ises). A esponsibili y cen e should pe o m wdl in e ms o bo h e iciency as well as e ec i eness (An hony & He zlinge , 1980:6): An o ganiza ional uni consis en ly p oducing an ou - pu which ep esen s an inadequa e con ibu ion o he accom- plishmen o he o ganiza ion's objec i es, is ine ec i e e en hough i p oduces his ou pu wi h he lowes consump ion o esou ces. Depending on he ype o esponsibili y cen e o on he manage ial le el, he emphasis can, howe e , shi om one o he o he c i e ion. In gene al, he issue o e ec i eness is o majo impo ance o he highe manage ial le els in he o ganiza ional hie a chy while he e iciency c i e ion plays a signi ican ole in lowe le el manage ial decisions (Schu e, 1981:5). All esponsibili y cen e manage s a e conce ned wi h bo h c i e ia bu he majo emphasis in he cos cen e usually alls on e iciency conside a ions. In con as , e enue cen e as well as p o i and in es men cen e manage s a e no mally mo e conce ned wi h e ec i eness (Mo se, 1981 :442 - 443 & 485). The eplanning and budge a y con ol sys em should mo i a e manage ial ac ions app op ia e o ei he e iciency S.-A . Tydsk . Bed y sl. 1984, 15(1) o e ec i eness equi ed o e e y esponsibili y cen e and o e e y manage ial le el in he hie a chy. R " emen : Replanning and budge a y con ol epo s ad- equ, ·d · a1 d essed o lowe le el managemen should I en 1 y any ac u cos s ha exceed budge ed cos s o any ac ual e enu~ ha all sho o budge ed e enue as an un a ou able a iance. These a iances should be desc ibed as unsa is ac o y mana- ge ial pe o mance. Budge a y con ol epo s add essed o highe !e _el manage- men should make use o he p inciple o p ed1c 1 e con ol (Schu e 1981:133) and should iden i y a pe o mance gap be- ween a 'mon hly upda ed o ecas o wha he esponsibili y cen e is likely o achie e a he end o he inancial yea and he o iginal objec i e as speci ied in he budge . This pe o - mance gap ( a ou able o un a ou able) should igge ~he de elopmen o ac ion p og ammes o imp o e upon he e~ - ing si ua ion, i espec i e o whe he he upda ed _ o ecas ~gh all sho o exceed he objec i es as e lec ed m he o iginal budge (Schu e, 1981: 139 - 140). Wi hin he o egoing, gene al equi emen he ollowing mo e speci ic equi emen s migh be iden i ied: Enginee ed cos cen ea manage s should ecei e pe o - mance epo s ha compa e ac ual o budge ed cos s (adjus ed o ou pu le el achie ed); iden i y ac ual cos s ha exceed budge ed cos s as un a ou able a iances and classi y hese as unsa is ac o y pe o mance. Disc e iona y cos cen eb manage s should ecei e pe o - mance epo s ha compa e ac ual o budge ed cos s and also include ce ain 'se ice measu emen a iables'. These a iables, no mally nonmone a y in na u e and o g ea im- po ance o he e ec i e ope a ion o he disc e iona y cos cen e balance he cos con ol equi emen . Wi hou his balance, he manage o a disc e iona y cos cen e can educe cos s by educing he se ice his depa men ende s (An hony & Dea den, 1980:176-178). Re enue cen e manage s should ecei e pe o mance epo s ha compa e ac ual ma ke ing con ibu ion (sales less con- ollable ma ke ing expense) o budge ed ma ke ing con ibu- ion. P o i and in es men cen e manage s should ecei e pe - o mance epo s ha compa e he ac ual di e ence be ween e enues and expenses (p o i ) o he budge ed p o i . In he case o in es men cen es he amoun o p o i should be ela ed o he in es men equi ed o gene a e ha p o i (p o- i abili y). P o i and p o i abili y measu es ul il he dual ole o measu ing e iciency as well as e ec i eness. They a e measu es o e ec i eness because he objec i es and goals o a p o i -seeking o ganiza ion a e no mally s a ed in e ms o amoun o p o i , e u n on in es men and ela ed inancial pe o mance measu emen s. Acco ding o An hony (1980:174) hese measu es can, howe e , also be used o measu e e i- ciency: 'Since p o i is he di e ence be ween e enue, which is a measu e o ou pu , and expense, which is a measu e o inpu , p o i is also a measu e o e iciency.' "Engin~ cos s a e elemen s o cos whose op imum amoun (inpu ) gi en a pa icula ou pu can be de e mined wi h a easonable deg ee o accu acy. bin he case o disc e iona y cos cen es, he e is no objec i e way o de e - mining he op imum quan i y o inpu s (cos s) equi ed o achie e a pa - icula desi ed esul . Examples a e s a depa men s such as pe sonnel and inance. s. A . J. Bus. Mgm . 1984, 15(1) He also poin s ou ha such an o e all measu e o pe o - mance elimina es he equi emen o de i ing an op imum balance be ween e ec i eness and e iciency. Mo i a e decen alized manage ial decisions ha bene i he en i e o ganiza ion E ec i e eplanning and budge a y con ol epo s should con- ibu e owa ds he achie emen o a ha monious balance in he ope a ion o he o ganiza ional sub-uni s. The eplanning and budge a y con ol p ocess should mo i a e manage s o ake hose ac ions ha will no only imp o e he pe o mance o he esponsibili y cen e unde hei con ol bu will bene i he o ganiza ion as a whole. This equi emen necessi a es clea and unambiguous signals om op managemen . A use ul ap- p oach is o ask he ollowing wo ques ions: (An hony & Dea den, 1980:42) - Wha ac ion does a pa icula con ol p ac ice mo i a e manage s o ake in hei own pe cei ed sel -in e es ? -ls his ac ion in he bes in e es s o he o ganiza ion? Excep o possible p oblems ha may be caused by com- mon e enuesc and common cos s, d manage ial ac ions in cos and e enue cen es ha bene i he esponsibili y cen e will no mally also bene i he o ganiza ion as a whole. In he case o p o i and in es men cen es, howe e , p oblems may a ise. P o i and in es men cen e manage s a e e alua ed on some basis o p o i abili y; in he case o p o i cen es, no - mally in e ms o some absolu e amoun o p o i o con ibu- ion; in he case o in es men cen es, usually in e ms o some measu e ela ing he amoun o p o i (con ibu ion) o he asse base u ilized o achie e ha p o i igu e. Undue emphasis on p o i igu es while dis ega ding he in es men base employed o gene a e hese p o i s is a one-sided pe o mance objec i e. The pe o mance o p o i cen e manage s should, he e o e, be in e p e ed wi h cau ion. To he p o i -gene a ing objec i e o he p o i cen e manage , is added an addi ional pe o mance objec i e o he in es men cen e manage : he expansion o he in es men cen e by means o judicious in es men in addi ional esou ces. The majo i y o companies (Reece & Cool, 1978:29 -30) use e u n on in es men (ROI) measu es when e alua ing in- es men cen e manage s. Some companies employ he esidual income (RI) measu e when ela ing p o i s o he in- es men base. c Requi emen : P o i cen e eplanning and budge a y con ol epo s should measu e he pe o mance o he manage in cha ge o he cen e in e ms o he di e ence be ween ac ual and budge ed 'con ollable con ibu ion ma gin' which is no - mally de ined as e enues minus all expenses con ollable by he p o i cen e manage . In es men cen e eplanning and budge a y con ol epo s should measu e he pe o mance o he manage in cha ge o <common e enues esul om si ua ions whe e mo e han one e enue cen- e pa icipa ed in he wo k ha ga e ise o he e enue. c common cos s a e cos s ha a e caused by he ac ions o mo e han one cos cen e. •Fo an explana ion o he me hods employed o calcula e ROI and RI, e e o Mo se, 1981, pp.744-745 and 752-753. Re e o he ollowing sou ces o an exposi ion o he ad an age and disad- an age associa ed wi h he use o ROI and RI as manage ial pe o mance measu emen : An hony & Dea den, 1980, p.290; Shillinglaw, 1977, p.791; Bie - man & Dyckman, 1976, p.391; Reece & Cool, 1978, pp.29-30; Dea den, 1969, p.124; Sweeney & Wisne . 1975, pp.16 22. 11 he cen e in e ms o ei he ROI o RI measu emen s. Pe - o mance should be e alua ed in e ms o he di e ence be- ween ac ual ROI's o Rl's in compa ison o a ge ROI's o RI's. These a ge (budge ed) measu emen s should be se o each in es men cen e based on an analysis o he p o i po en- ial o ha cen e. Manage ial pe o mance should no be e alua ed by compa ing ac ual ROI's o Rl's achie ed by he di e en in es men cen es (Reece & Cool, 1978:43). Lead o he con ol o agg ega e ac o s a he highe o ganiza ional le els The eplanning and budge a y con ol sys em should ecognize he di e ing needs o di e en le els o managemen in he o ganiza ional hie a chy o pe o mance in o ma ion. Pe - o mance epo s add essed o highe le el manage s should be in a mo e condensed o m han hose lowing o lowe le el manage s. Execu i es on he lowe le els a e he closes o ac- ual ope a ions and he e o e equi e equen , imely and co - ec eedback abou ope a ions unde hei con ol. The pe - o mance epo s lowing o hese manage s should acco dingly be de ailed, deal wi h speci ic i ems o cos and/o e enue and de ia ions o ac ual om budge (s anda d) o hese speci ic i ems. Highe le els o managemen a e u he emo ed om ac- ual ope a ions. Thei need o equen and apid eedback, he e o e, dec eases. The emphasis in pe o mance epo s should mo e away om speci ic unc ional i ems (di ec ma e ial, wages, a elling expenses) o mo e gene al pe o - mance s anda ds dealing wi h esponsibili y (pe o mance o a p oduc ion line, a ac o y, a b anch o ice). Too much de ail in he pe o mance epo s add essed o op managemen ends o obscu e impo an ac s, ends, h ea s and oppo uni ies. This equen ly has he e ec ha highe le el manage s dis ega d he o mal eplanning and budge a y con ol epo s and ely on some in o mal mechan- ism o supply hem wi h he in o ma ion ha hey ac ually use in hei decision making p ocesses. Requi emen : Replanning and budge a y con ol epo s ad- d essed o highe le el managemen should be as e se as possi- ble and e lec pe o mance in e ms o esponsibili y segmen s epo ing o he manage o whom he epo is add essed. Lead o manage ial ac ion Pe o mance epo s, especially hose add essed o highe le el managemen , should be, as s a ed in he p e ious sec ion, as concise as possible. Excessi e de ail on e e y aspec o ope a- ions equen ly obscu es po en ial p oblems and oppo uni ies. The design o he eplanning and budge a y con ol epo s should di ec a en ion o hese p oblems and oppo uni ies. This is, u he mo e, e y di icul o achie e in an o ganiza- ional cul u e whe e an un a ou able a iance plus an accep- able explana ion is ega ded as sa is ac o y pe o mance. The explana ion is usually accep able because he un a ou able a iance is a ue e lec ion o cu en ope a ing condi ions which di e comple ely om he an icipa ed ope a ing con- di ions on which he budge was o iginally based. The emphasis should mo e om a equi emen ha a ian- ces (usually un a ou able) should be explained o one equi ing ha some hing be done abou he a iances. The a iances should be analysed and in e p e ed as a s a ing poin o c ea i e managemen ac ion. The c ea i e managemen ac ion in his case should be aimed a capi alizing on pe cei ed op- po uni ies and minimizing he un a ou able impac o p o- 12 blems ( h ea s). Requi emen : Replanning and budge a y con ol epo s should no only e lec he a iances be ween ac ual and budge o he con ol pe iod co e ed by he con ol epo bu . should also ex apola e hese ~ends o h_e end ? he inan~1al = o es ablish a new planning base. Gi en his new ~lanning , c ea i e managemen ac ion, in he o m ? ac 10~ p og ~- mes, mus be de eloped o imp o e on his base, es~1 e o he ac ha he base may all sho (un a ou able anance) o exceed ( a ou able a iance) he budge (Schu e, 1981: 129-140) Lead o an op imal ade-o be ween imeliness and cos , accu acy and ele ance The need o lowe le el manage s o equen and apid eed- back leads o a si ua ion whe e a signi ican po ion o he in- o ma ion in an ope a ional con ol sys em' is in ' eal ime (in o ma ion is epo ed as he e en is occu ing)' _(An hony & Dea den, 1980:15). This also ensu es ha ope a ional con- ol in o ma ion is 0 qui e accu a e. In con as , he in o ma ion in a managemen con ol sys- em, h is usually e o-ac i e and some elemen s, a leas , a e no absolu ely accu a e. In designing eplanning and budge a y con ol epo s, as impo an elemen o he managemen con- ol sys em, he ade-o be ween accu acy, ele ance, ime- liness and cos should be kep in mind. The manage o a e e- nue cen e can be supplied wi h las yea 's sales igu es which will be absolu ely accu a e, bu no e y ele an o imely. Requi emen : Replanning and budge a y con ol epo s should con ain in o ma ion abou only hose ac o s which a e con- ollable by he use o he epo s; his in o ma ion should be ele an o he e icien and/o e ec i e execu ion o he majo esponsibili ies o he use ; he epo s should be ecei ed in ime o enable he use o change he p obable cou se o e en s du ing he emaining po ion o he budge pe iod. Fmally, he supply o any (addi ional) in o ma ion, on a egula basis, o he manage o a esponsibili y cen e, should be de eloped in a cos /bene i amewo k. P o ide eed o wa d as well as eedback in o ma ion Mos eplanning and budge a y con ol epo s do no e lec he an icipa ed impac o any de eloping ends o da e on he yea -end pe o mance. The emphasis is usually on he his- o ical de ia ion o ac ual om budge ed pe o mance o he p e ious mon h and he yea - o-da e. This app oach equen - ly, especially du ing declining phases o he business cycle, leads o ' e y unpleasan su p ises, pa icula ly in decen alized o ganiza ions, owa ds he end o he inancial yea ' (Schu e, 1980:7). Al hough his ' eedback' app oach is ele an o he majo esponsibili ies o ela i ely low-le el cos and e enue cen es whose manage s a e p ima ily in ol ed in ope a ional con ol, a change in emphasis is equi ed in pe o mance epo s add essed o manage s in cha ge o esponsibili y cen- 'Re e o Schu e (1980) o a mo e comp ehensi e discussion o he philosophy unde lying his app oach o c ea i e manage ial ac ion. 'Ope a ional o echnical con ol is he p ocess o ensu ing ha speci ic asks a e ca ied ou e icien ly ... i in ol es ... manage s a supe - iso y le el whe e physical asks a e pe o med' (Schu e, 1981:6). "Managemen con ol.is he p ocess o ensu ing ha esou ces a e ob ained a_nd ~sed ~ ec i. ely in h~ accomplishmen o he o ganiza ion's objec- i es. (Ibid) This p ocess in ol es manage s a he middle and op le els in he o ganiza ional hie a chy. s.-A . Tydsk . Bed y sl. 1984, 15(1) es whe e managemen con ol is he p ime es~nsibili y. P " ance epo s add essed o such execu i es should e 1o m . . I' (S h be buil a ound he p inciple o 'p ed1c 1 e con o c u e, 1980:8-12). Some mechanisms mus be d~ ~loped o e lec he an icipa ed yea -end esul s gi en he exis ing yea - o-da e pe o mance le el. This mechanism coul~ ope a e on a e y simple and qui e e ec i e basis by ~pplymg he ac ual yea - o-da e o budge ed yea - o-da e a io o he_ an~ual budge igu es. As he ypical budge a y con ol penod 1s. a mon h, his will p o ide a o ecas o yea -end esul s immedia ely a e he end o he i s mon h o he inancial yea . This o ecas will be upda ed on a mon h-by-mon h basis and ~ beco~e in- c easingly mo e ealis ic as he end o he inancial yea 1s ap- p oached.; . . This p ocedu e shi s he emphasis om one o analysmg: m- e p e ing and explaining pas esul s o a o wa d-loo~mg, c ea i e ocus on p obable u u e esul s and he necessi y o gene a e managemen ac ion on a imely basis o imp o e hese p obable u u e esul s. Requi emen : Replanning and budge a y con ol epo s ad- d essed o lowe -le el manage s p ima ily in ol ed in ope a- ional con ol should supply a compa ison o ac ual e sus budge o he p e ious mon h as well as a simila compa ison o he yea - o-da e. Replanning and budge a y con ol epo s add essed o highe -le el manage s p ima ily in ol ed in managemen con ol should, in addi ion o ~e o egoing, add a column ha e lec s a mechanis ic o ecas J o yea -end pe - o mance as well as a column ha allows he esponsible manage o eac o his mechanis ic o ecas by adjus ing i analy ically o mo e accu a ely e lec he p edic ed yea -end esul s. k This app oach will mo i a e manage s who a e p i- ma ily esponsible o managemen con ol unc ions, o change hei con ol ocus om a backwa d-looking one o an ongoing conce n wi h he inancial yea -end esul s. A p ac ical eplanning and budge a y con ol sys em The basic s uc u al elemen s o a eplanning and budge a y con ol sys em which has been de eloped o a bus anspo o ganiza ion• is now illus a ed. This company consis s o 12 ope a ing cen es (depo s), di ided in o wo egions, and a head o ice. A simpli ied o ganiza ion cha o he ypical depo is p esen ed in Table I . The epo supplied o he a ic manage supplies only he a iances in absolu e amoun s and as a pe cen age om budge o he mon h jus pas (May in his case). This is because he mon h jus pas is no e y impo an wi hin he managemen con ol con ex ; wha is impo an is he end exhibi ed in he yea o da e igu es and he ex ension o hese ends o p o- ide a mechanis ic o ecas o yea -end esul s. m This o ecas ; Re e o Schu e (1980) o a discussion o he assump ions unde lying his app oach and he modi ica ions o he ini ial 'mechanis ic' o ecas o de i e an 'analy ical' o ecas which o ms he base line o he c ea- ion o ac ion p og ammes. i A mechanis ic o ecas is calcula ed by applying he yea - o-da e ac ual pe cen age o yea - o-da e budge o he annual budge . k An analy ical o ecas is a mechanis ic o ecas adjus ed by he esponsi- ble manage o e lec he an icipa ed impac o e en s ha a e ye o occu in he emaining po ion o he budge pe iod. 1 This pa icula sys em has been in oduced in qui e a numbe o o ganiz.a· lions. The de elopmen wi hin his pa icula anspo o ganiza ion will se e as illus a ion. mThe mechanis ic o ecas is de i ed by applying he ac ual yea - o-da e o he budge ed yea - o-da e a io o e e y cos and e enue elemen o he annual budge igu es. s. A . J. Bus. Mgm . 1984, 15(1) Table 1 T a ic manage • Technical manage Manage : Ope a ing cen e Chie pe sonnel o ice Sec e a y/ accoun an •The a ic manage is he basic p o i (con ibu ion) cen e wi hin each ope a ing cen e. . . The mon hly inancial pe o mance epo as p esen ed o him appea s m Table 3 is a e y powe ul con ol ool o highe le el manage s as i is he esul o a basic s a is ical calcula ion; he e is no sub- jec i e judgmen in ol ed. The a ic manage can now eac o he mechanis ic o e- cas and p epa e o he mon hly managemen mee ing by ad- jus ing he mechanis ic igu es o an icipa ed en i onmen al changes which may occu du ing he emainde o he inancial yea in he column p o ided o ha pu pose. The an icipa ed inancial impai; o ac ion plans de eloped by himsel and his subo dina es o imp o e on he si ua ion ep esen ed by his 'adjus ed mechanis ic o ecas ' (usually called an analy ical o ecas ) a e en e ed in he app op ia e column. An example o an ac ion plan ac ually de eloped by his o i- cial is supplied in Table 2. The ne esul s a e summa ized in he column ... 'P o- jec ed Financial Pe o mance'. The elemen s con ained in his Table 2 Ope a ing cen e: Ac ion plan no.: PT 1 Objec i e: To dec ease sund y ope a ing expenses by R. .. by he end o Ma ch, 1983 S eps I. Dec ease a ic lines by in- Pa icipa ing o icials Comple ion da e s i u ion o aining p og am Pe sonnel manage 31s July, 1982 2. Dec ease main enance ex- penses o ope a ing equip- men by ins i u ing p e en- a i e main enance p og am Technical manage 31s Augus , 1982 An icipa ed inancial impac Cash ou lows -Cos o aining p og am R ..... -Cos o p e en a i e main enance p og am __ Cash in lows -P ojec ed dec ease in a ic ines (R ..... pe mon h: e ec i e Augus , 1982-Ma ch, 1983) R ..... -P ojec ed dec ease in main enance expenses (R . .... pe mon h: E ec i e Sep . 1982- Ma ch, 1983) R . .... Ne inancial impac R ..... R ..... R __ "The 'planning gap' is usually in e p e ed as a mo i a o o op manage- men s a egic ac ion o close he emaining gap (o imp o e upon a a ou able gap) a e lowe le el manage s ha e con ibu ed ully ia on- going ac ion plan de elopmen . 13 column, when placed in compa ison wi h he annual budge , esul in a planning gap" which can be posi i e o nega i e. The elemen s o e enue and expenses con ained in he epo (Table 3) a e all con ollable by he a ic manage . The echnical manage has he o e all objec i e o main- aining he bus lee in good ope a ing condi ion. This is a cos cen e wi h elemen s o bo h enginee ed as well as disc e iona y cos s in ol ed. The inancial pe o mance epo add essed o his o icial is p esen ed in Table 4. The epo s o he chie pe sonnel o ice and he sec e a y/ accoun an appea in Tables 5 and 6. Bo h ypical disc e iona y cos cen es, hei cos con ol esponsibili y is balanced by he inclusion on hei inancial epo s o ce ain selec ed s a is ical da a which measu es he end in he e iciency and e ec- i eness wi h which hey ende hei espec i e se ices. Table 7 is an illus a ion o he epo lowing o he manage in cha ge o he ope a ing cen e. F om he ope a ing p o i o he cen e, all he emaining expenses which ha e no been alloca ed o he subo dina e cen es, a e sub ac ed o yield a 'con ollable p o i '. The pe o mance o he ope a ing cen e manage is e alua ed by means o his concep . All emaining expenses o he cen e a e deduc ed om his igu e o a i e in he 'ne p o i '. This igu e is used o apply agains he in- es men in he cen e o supply in o ma ion on he pe o m- ance o he cen e as an economic en i y. The ope a ing cen es epo , depending on hei geog a- phical loca ion, o one o wo egional manage s who, in um, epo o he managing di ec o . The pe o mance epo s add essed o he egional manage is shown in Table 8 and he epo s lowing o he managing di ec o in Table 9. E alua ion and conclusion The majo s uc u al elemen s (pe o mance epo s) o he eplanning and budge a y con ol sys em desc ibed in he p e ious sec ion a e es ed o con o mi y o he lis o no - ma i e cha ac e is ics in Table 10. A posi i e ( +) sign deno es con o mi y o a pa icula no ma i e equi emen ; a nega i e ( - ) sign deno es di e gence om a equi emen and N/ A deno es ha he equi emen is no applicable o ha pa icula con ol epo . Tables 3 and 4, add essed espec iYely o he T a ic Manage and he Technical Manage , deno e con o mance o i e o he equi emen s, di e gence om wo o he equi emen s, while one equi emen is no applicable o epo s add essed o his le el o managemen . Replanning and budge a y con ol epo s add essed o hese wo o icials e lec he esponsibili y sphe e o each o hese manage s; he epo s a e designed in such a way ~a he~ should mo i a e e icien as well as e ec i e managenal deci- sions; hey consis o eed o wa d as well as eedback in ~ - ma ion ha allows ample ime o meaning ul manage ial ac ion. The equi emen ha he emphasis should all on agg ega e ac o s is no ele an as hese pe o mance epo s a e ad- d essed o a le el o managemen whe e he emphasis alls _on hose unc ional elemen s o e enue and/o cos o e which he esponsible manage has a signi ican deg ee o con ol. The eplanning and budge a y con ol epo s desc ibed in Tables 3 and 4 do no , howe e , comple ely con o m o he con ollabili y c i e ion, no o he equi emen ha dec~n- alized manage ial decisions should bene i he en 1 e o ganiza ion. (con inued on p. 18) S.-A . Tydsk . Bed y sl. 1984, 15(1) 14 Table 3 Ope a ing cen e: . . . Financial pe o mance epo o he pe iod ending. 31s May 1982 Responsible o icial: T a ic manage Accoun Ope a ing e enue Wo ke s: Cash Subsidy Casual passenge s P i a e hi e To al expenses Wages: Bus d i e s Lea ne d i e s Acciden cos s Sund y ope a ing ex- penses T a ic: Sala ies G.E.D T a ic: Sala ies Co. Ancilla y Vehicles cos s Sund y a ic expenses Dep ecia ion: Buses : Ope a ing equip. In e -Co. Hi e: Buses Licences & Pe mi s Bus Replac. Rese e Insu ance: Ope a ing Open 1n1 con ibu ion P ojec ed Mon h Yea o da e Mechanis ic o ecas Adjus men o en i onmen al changes Ac ion inancial Annual Planning Va iance 'lo Ac ual Budge Va iance 'lo plans pe o mance budge gap ·································· ·································· ····················································· ····································································· ····················································· ····································································· ·························································································································· ·································· ·················································································································· ·································· ·································· ····················································· ····································································· ············································································ ················································································ ············································································ ················································································ ···················································································································································· ··································································································· ························································· ··································································································· ························································· ···················································································································································· ···························································································································································· ···························································································································································· ............................................................................................................................................................. ···························································································································································· ···························································································································································· Table 4 Ope a ing cen e: Financial pe o mance epo o he pe iod ending: 31 May 1982 Responsible o icial: Technical manage Accoun Diesel Lub ican s and g ease Ty e usage Ty es new buses Sala ies: C.E.D. Company Ancilla y ehicle cos s Uni s used Spa es used Consumables Mon h Yea o da e Va iance OJo Ac ual Budge Va iance OJo Mechanis ic o ecas Adjus men o en i onmen al changes P ojec ed Ac ion inancial Annual Planning plans pe o mance budge gap ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· P o . obsole e s ock ........................................................................................................................................................... . C.E.D.: Bonus and lea e ........................................................................................................................................................... . ···························································································································································· Company con i- bu ion Housing Uni o ms Co.: Bonus and lea e Company con i· bu ion Housing Uni o ms T a elling and subsis- ence ···························································································································································· ···························································································································································· ·················································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· s. A . J. Bus. Mgm . 1984, 15(1) Table 4 (con inued) Ope a ing Cen e: Mon h Yea o da e Accoun Va iance 0/o Ac ual Budge Va iance 0/o Mechanis ic o ecas Adjus men o en i onmen al changes Ac ion plans 15 P ojec ed inancial Annual Planning pe o mance budge gap Ren al and leases ···························································································································································· Wa e and elec ici y Main enance: Equipmen Main enance: Buildings Small ools ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· Expenses eco e ed Dep ecia ion: Wo kshop ···························································································································································· equipmen ···························································································································································· Body docks ···························································································································································· To al Main enance Expenses Table 5 Ope a ing cen e: Financial pe o mance epo o he pe iod ending: 31 May 1982 Responsibie o icial: Chie pe sonnel o ice Accoun Rec ui men Expenses: T a ic Main enance Adminis a ion Mon h Yea o da e Va iance % Ac ual Budge Va iance % Mechanis ic o ecas Adjus men o en i onmen al changes Ac ion plans P ojec ed inancial Annual Planning pe o mance budge gap Can een expenses T aining: Admin. Medical expenses Dep ecia ion: T aining ···························································································································································· ............................................................................................................................................................ equip. ···························································································································································· To al: Pe sonnel cos s Table 5 (con inued) Addi ional pe o mance epo o pe iod ending: 31 May 1982 Responsible o icial: Chie pe sonnel o ice Ap il May June July Aug. Sep. Oc No Dec Jan Feb Ma ch (i) Labou u no e a io (ii) Numbe and du a ion o acancies ············································································································································ ············································································································································ Table 6 Ope a ing cen e: Financial pe o mance epo o he pe iod ending: 31 May, 1982 Responsible o icial: Sec e a y/Accoun an Mon h Yea o da e Accoun Va iance 0/o Ac ual Budge Va iance OJo Sala ies: C.E.D ............ . Mechanis ic o ecas Adjus men o en i onmen al changes P ojec ed Ac ion inancial Annual Planning plans pe o mance budge gap Company ........................................................................................................................................................... . Ancilla y ehicle cos s ................................................... , .... , · · · .... · .......... · ...... · ........ · · .... · · · .... · · · .... · · "· ...... · .. " .... · ........ · · ··· ........ · · · P in ing and s a ione y ............................................................ , , , · · ·, · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Telephone and pos age ........................................................................................................................................................... .