Behavioural Aspects of Performance Evaluation

Behavioural aspects of performance evaluation

In recent years, the behavioural aspects of decision making have assumed an increasing importance in management literature. Traditionally, accountants have followed economists in assuming the main organizational problem to be the maximization of profit and allocation of resources necessary to this end. Consequently, accountants have tended to regard organizations from a technical viewpoint, treating men as adjuncts to or as substitutes for machines, to be hired and employed for the purpose of maximizing productivity and profits. The growing realization that the importance of accounting is related to decision making has highlighted the need to understand human behaviour in organizations. This development was well summarized by a committee of the American Accounting Association which reported:

'To state the matter concisely, the principal purpose of accounting reports is to influence action, that is, behaviour. Additionally, it can be hypothesised that the very process of accumulating information, as well as the behaviour of those who do the accumulating, will affect the behaviour of others- In short, by its very nature, accounting is a behavioural process.' (The Accounting Review, Supplement, 2001.)

Therefore, accountants should have an understanding of human behaviour and a knowledge of the work of behavioural scientists in this connection. This webpage is concerned, therefore with the behavioural aspects of performance evaluation.

The objectives of performance evaluation

The objectives of performance evaluation may be stated as follows

(a) to assess how effectively the responsibilities assigned to managers have been carried out;

(b) to identify areas where corrective actions should be taken;

(c) to ensure that managers are motivated towards organizational goals;

(d) to enable comparisons to be made between the performance of different sectors of an organization, to discover areas where improvements may be made.

In our analysis of the process of control, we have so far discussed two important prerequisites for performance evaluation. We have discussed the problem of identifying areas of responsibility over which individual managers exercise control (responsibility accounting), and we discussed the setting of standards of performance to be used as yardsticks for the evaluation of performance. In this webpage, we address ourselves to some of the behavioural problems of budgets as measures for evaluating performance.

For More Information On Doubtful Debts

Read on: The Control of Managed Costs Summary

There are two main cost classifications-manufacturing and non-manufacturing costs. Non-manufacturing costs may be sub-divided into three categories-administrative, research and development and marketing costs. These costs are frequently referred to as 'managed' or 'discretionary costs' since they are incurred at the discretion of management.

The difficulty of controlling managed costs is created by the absence of a method for determining appropriate cost levels since it is not possible to relate accurately and in financial terms the benefits associated with such costs. Moreover, it is not... see: The Control of Managed Costs Summary