2.3 Setting the difficulty level of a budget
Targets will assist motivation and appraisal if they are at the right level. They should not be too difficult, as this will demotivate staff, but also not too easy, as managers are unlikely to strive for optimal performance.
An expectations budget is a budget set at current achievable levels. This is unlikely to motivate managers to improve but may give more accurate forecasts for resource planning.
An aspirations budget is a budget set at a level which exceeds the achievable level. This will motivate managers to improve if it is seen as attainable but may always result in an adverse variance.
Note the potential for conflict between using a budget for planning/control purposes and using one to motivate staff.
Targets should be:
§ Communicated in advancewww.ExamW.CoM
§ Dependent on factors controllable by the individual
§ Based on quantifiable factors
§ Linked to appropriate rewards and penalties
§ Chosen carefully to ensure goal congruence.