Question

A firm of solicitors started to adopt budgeting systems since 2019. The board of senior partners (the Board) estimated the demand for the coming year for each of the firm’s four divisions: Civil, Criminal, Corporate, and Property. A separate partner is responsible for each division.

Each divisional partner then prepared a cost budget based on the Board’s demand estimate for the division. These budgets were then submitted to the Board for approval. The chairman of the Board amended them as he thought appropriate without discussion with the divisional partners. After the chairman’s amendments it will become the final budget for performance evaluation of the four divisions.

Actual performance is then measured against the final budgets regularly and each divisional partners’ performance is appraised by asking the divisional partner to explain the reasons for any variances that occur.

The Corporate partner has been asked to explain why her staff costs exceeded the budgeted costs for last quarter while the chargeable time was less than budgeted. Her reply is below: “My own original estimate of staff costs was higher than the final budgeted costs shown on my divisional performance report. In my own cost budget I allowed for time to be spent on developing new services by making use the information system and improving the client’s access to their own case files. This would improve the quality of our services and therefore increase client satisfaction and chance of success in the court. The trouble with our present system is that it focuses on financial performance and ignores the other performance indicators found in modern performance management systems.”

Based on the characteristics of the solicitors firm, discuss the application of budgetary control and management control for performance evaluation of divisions with listing six points.

Answer 1

Budgetary Control: Is a system of controlling costs which includes the preparation of budgets =, co-ordination of the departments and establishing responsibilities, comparing actual performances with the budgeted and acting upon results to achieve maximum profitability.

Application of Budgetary Control:

Planning: By this means, management looks ahead, anticipates eventualities, prepares for contingencies and provides for an orderly sequence for achieving the enterprise objectives.

Co-ordination: under this , the each division and sub-divisions work towards the common goal or objective with due regard to all other sub-divisions.

Communication: Co-ordination ultimately rests its success upon effective communication.between the divisons and among the sub-divisions.

Motivation: A budget is a very useful device in influencing the behaviour of managerial personnel, and motivating them to put forth their efforts in the attainment of organisational objectives.

Having had the opportunity to participate in the preparation of the budget and thereby laying down standards of achievement, the very managerial personnel are made responsible for attainment of the standards.

Control: Budgetary ontrol makes control possible by the method of Exception, which is the practice of focusing on activities which require atytention and ignoring those whcih appear to be conforming to expectations.

Performance Evaluation:A budget is thus a means of knowing as well as informing the managers how well they are performing in meeting th targets which they have themselves helped in setting.

To provide a comprehensive plan of action in the form of guidance to departmental heads to achieve the budgeted results.

Mnanagement Control

Characteristics of a good Management Control

• Good control means that management can be reasonably confident that no major unpleasant surprises will occur. It must be future-driven and objective-driven.
• Peferct Management Control would require complete assurance that all physical control systems are foolproof and all individuals on whom the organisation must rely always act in the best way possible.
• Different needs and trade-offs are present in different parts of the organisation. It is important the the combination of results and measures is congruent with the organisation's true objectives.
• Effective implementation of tight controls require that managemnet has detailed and reasonably certain knowledge about how one or more of the control objects are related to the overall organisational objectives.
• Heps the organisation to use their resources to meet their needs and emand effctively.
• each division focuses on understanding the goal that an organisation seeks to accomplish.