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4. According to Merchant and Van der Stede (2017) the effect of any results control system can be weakened if the wrong targets are set
4. According to Merchant and Van der Stede (2017) the effect of any results control system can be weakened if the wrong targets are set or if targets are not set properly. Two of the most important financial performance target issues are related to; i. The appropriate amount of challenge in a target (i.e. the level of target difficulty) ii. The appropriate amount of influence to allow subordinates in setting targets (i.e. the level of participation) Furthermore, some commentators have suggested that the process of deciding what to measure (or how to measure it) should be distinguished from the process of deciding what the target itself should be. Whilst employees can participate in the former process, setting targets themselves should remain the job of managers. Required: (a) Analyze how the level of target difficulty may impact upon employee behaviours (and consequently upon budgeting effectiveness). Within your answer you should discuss the potential impact of setting goals that are 'Conservative', 'Best Guess', and 'Optimistic' (i.e. stretch goals) upon employee motivation and therefore the likely achievement of a budget. (10 marks) (b) Analyze how the level of participation may impact upon employee behaviours (and consequently upon budgeting effectiveness). Within your answer you should consider both the advantages and disadvantages of inviting subordinates to participate in the budget setting process. (11 marks) Question 4 continues on the next page. 5R6Z0041_2021_R Page 10/11 Question 4 continued. (c) Discuss the statement that 'some commentators have suggested that the process of deciding what to measure (or how to measure it) should be distinguished from the process of deciding what the target itself should be', explaining why commentators might believe this, and what the advantages of such an approach would be. (4 marks) Total 25 marks
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