Risk distribution in the budgetary process

  • David Otley
  • Anthony Berry


Budgeting has always been a problematic process. At the end of a budget period it is invariably found that some managers have been able to achieve their budget targets more successfully than others. But when senior managers come to evaluate their subordinates’ performance they have to recognize that some apparent success is caused by certain managers having had easier budgets to attain in the first place. That is, the difficulty of budget targets is likely to vary between one manager and another. Further, it has often been recommended that budgets should be seen as targets that will be achieved only a proportion of the time. In order to motivate the best possible actual performance it is suggested1 that a budget should be pitched at a more difficult level than the performance actually expected. Although such a target will not, on average, be attained it is nevertheless believed that it will motivate managers to achieve a better result than if the budget had been set at a lower level. It is not the purpose of this paper to argue the case for or against the use of budgets as motivational targets. Rather we take as our starting point the observation that budgets are often, in practice, set at levels other than the performance which is expected to occur, and to examine some implications of this observation.


Senior Manager Unit Manager Unit Size Output Deviation Individual Manager 
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  1. 1.
    Hofstede, G. The Game of Budget Control (London, Tavistock, 1968).Google Scholar
  2. Source: Otley, D. and Berry, A. (1979) Accounting and Business Research, 9(36), pp. 325–37.CrossRefGoogle Scholar
  3. 3.
    See for example, Lowe, E.A. and Shaw, R.W., ‘An Analysis of Managerial Biasing: Evidence from a Company’s Budget Process’, Journal of Management Studies, October 1968, pp. 304-315. Other studies are reviewed in Otley, D.T., Behavioural Aspects of Budgeting. Accountants Digest Number 49 (London, ICAEW, 1977).Google Scholar
  4. 4.
    Turvey, R. in Luck, G.M. et al., ‘The Management of Capital Investment’, Journal of the Royal Statistical Society, Series A, 134, 4, 1971.Google Scholar
  5. 7.
    See, for example, the discussion in Amey, L.R. and Egginton, D., Management Accounting: A Conceptual Approach, (London, Longmans, 1973) Chapter 15, p. 490.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 1979

Authors and Affiliations

  • David Otley
  • Anthony Berry

There are no affiliations available

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