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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Brightwell Retail, a stable, decentralised group, is deciding how to set divisional budgets. Divisional managers have detailed local market knowledge, and the board wants strong commitment to targets. However, the board is worried that managers may deliberately understate sales and overstate costs. Which statement is correct?

A participative approach improves commitment and uses managers' local knowledge, but it carries a risk of budgetary slack, so the board must challenge and review submitted budgets. Imposed budgets do not eliminate dysfunctional behaviour and tend to reduce ownership, while participation does not itself remove slack.

  1. AA participative approach improves commitment and uses local knowledge, but creates a risk of budgetary slack that the board should challenge through reviewCorrect
  2. BAn imposed approach removes all risk of dysfunctional behaviour because managers have no input
  3. CA participative approach eliminates budgetary slack because managers own the targets
  4. DAn imposed approach gives the greatest motivation because targets are set by those with most authority

Explanation

Participation draws on local knowledge and increases buy-in, but managers whose rewards depend on meeting budgets may build in slack, so senior review is needed. Imposed budgets do not remove dysfunctional behaviour and often reduce commitment. The other options wrongly claim participation eliminates slack or that imposition maximises motivation.

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