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 firms 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 Boards 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 chairmans 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 clients 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.

Discuss the present budgeting system and its likely effect on divisional partner motivation.