Blackwell Reference Online

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Management control is the process of insuring that managers act in ways that contribute to the achievement of organizational goals. One important way to influence behaviors in positive ways towards the achievement of organizational goals, and thus to achieve good control, is by holding managers responsible for results. This form of control is called results control ( Merchant and Van der Stede, 2003 ). In most organizations, budgets are the cornerstone of a financial results oriented management control system. The budgeting process culminates in a written plan – the budget – that describes, in financial terms, what results should be expected, usually covering a one year period. But many of the organizational benefits of budgeting come from the process of developing the budget, rather than from just having the written plan. This process involves two key steps: (1) establishing financial performance targets (budget target setting) and (2) reviewing actual performance vis‐à‐vis budget targets (performance evaluation). Performance target setting within the budgeting process arises as an integral part of an organization's planning cycle. By developing and establishing financial performance targets, budgeting systems provide managers – who often tend to become preoccupied with their seemingly urgent, day‐to‐day problems – the needed encouragement to think about the future, to prepare ... log in or subscribe to read full text