C9-44. Behavioral Considerations and Budgeting Anthony Wagner, the controller in the Division of Transportation for the state, recognizes the im- portance of the budgetary process for planning, control, and motivation purposes. He believes that a properly implemented participative budgeting process for planning purposes and a management by exception reporting procedure based on that budget will motivate his subordinates to improve pro- ductivity within their particular departments. Based on this philosophy, Wagner has implemented the following budget procedures. An appropriation target figure is given to each department manager. This amount is the maximum funding that each department can expect to receive in the next fiscal year. Department managers develop their individual budgets within the following spending constraints as directed by the controller's staff. 1. Expenditure requests cannot exceed the appropriation target. 2. All fixed expenditures should be included in the budget; these should include items such as contracts and salaries at current levels. 3. All government projects directed by higher authority should be included in the budget in their entirety. The controller consolidates the departmental budget requests from the various departments into one budget that is to be submitted for the entire division. Upon final budget approval by the legislature, the controller's staff allocates the appropriation to the various departments on instructions from the division manager. However, a specified percentage of each department's appropriation is held back in anticipation of potential budget cuts and special funding needs. The amount and use of this contingency fund are left to the discretion of the division manager. Each department is allowed to adjust its budget when necessary to operate within the reduced appropriation level. However, as stated in the original directive, specific projects authorized by higher authority must remain intact. The final budget is used as the basis of control for a management by exception form of reporting. Excessive expenditures by account for each department are highlighted on a monthly basis. Department managers are expected to account for all expenditures over budget. Fiscal responsibility is an important factor in the overall performance evaluation of department managers. Wagner believes that his policy of allowing the department managers to participate in the budget pro- cess and then holding them accountable for their performance is essential, especially during these times of limited resources. He also believes that department managers will be positively motivated to increase the efficiency and effectiveness of their departments because they have provided input into the initial budgetary process and are required to justify any unfavorable performances. Required a. Explain the operational and behavioral benefits that generally are attributed to a participative bud- geting process. b. Identify deficiencies in Wagner's participative budgetary policy for planning and performance eval- uation purposes. For each deficiency identified, recommend how the deficiency can be corrected