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

Orlin Pharma is considering how demanding to make its budget targets. Using Hofstede's classification of budget styles and typical motivational research, which target is most likely to produce the best performance from managers?

A challenging but attainable target works best. Managers accept it as achievable yet stretching, so effort rises. Unachievable targets are rejected and demotivate, while certain or easy targets provide no stretch, and simply repeating last year's result ignores changed conditions.

  1. AA challenging but attainable target that managers accept as achievableCorrect
  2. BA target set at the level managers expect to hit with certainty
  3. CA very tough target that few managers believe can be met
  4. DA target set at last year's actual result with no adjustment

Explanation

Research on target difficulty indicates motivation peaks where targets are demanding yet seen as achievable. Very tough targets are rejected and can cause dysfunctional behaviour; easy ones give no stretch, and unadjusted prior results ignore changed conditions.

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