Cost Management Using Costs for Management Decision-Making

Cost Management Using Costs for Management Decision-Making

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nGood management demands loyalty to ethical standards of an organisation. Budget-making process is a device in which costs of projects are set and organisations goals are mutually agreed upon (Cook, et al, 2007). Therefore, managers should make decisions that reflect specific game plan that should be followed in striving to achieve those goals. When unrealistic budget is made, an organisation may be destroyed by constant wrangling about case-by-case resource allocation decisions.

nOrganisational ethics is a set of standards based on the good conduct values that guide the normal operations of the organisation. The set of standards are incorporated in the Codes of Ethics, which focuses on the principle of integrity, accountability, transparency, fair and equitable treatment and truthfulness (Cook, et al, 2007). In budgeting decision making, organisation may be required to balance the transparency with confidentiality, and truthfulness when making realistic budgets. The essence of management is decision making. Principled decisions are very important alternative or complement to analytical decision making (Heath, 2012). Ethical decision making utilises moral principles to come up with valid decisions. When the organisation standards are not considered in making decisions involving budget it can lead to unethical outcomes. Ethical decision making is important in management because it prevents risks and uncertainty of investments (Walther, & Skousen, 2009). First the manger must select and communicate the right principle in which decisions must adhere. Secondly, the manager must make decisions applying the appropriate organisations principles.

nPrincipled decision making can be used to segregate potential investments into unacceptable categories while selecting vendors (Heath, 2012). This helps to minimize cost of the projects which could otherwise be skyrocketed. Therefore organisations standards of ethics should be used to guide corporate decisions (Walther, & Skousen, 2009). When such ethics are used in decision making, the organisation will be in a position to better cope with changes over time, changing market condition and fluctuations in cost. Managers are responsible for controlling cost within the budget of their project and are supposed to take remedial measures when adverse variance arise and are excessive. Budgetary control is the process where the managers exercise financial control (Cook, et al, 2007). This aims to establish the existence of a variance in the budget. Budgeting provides a base against which actual performance can be determined (Heath, 2012). Moreover, comparison between actual and budget is used as the foundation for making decisions on the most appropriate actions. When managers are fully aware of the process of budget control they are better informed on actions and have valid understanding of the effect of future actions.

nThere are many ethical challenges that may arise in budgeting. Managers need to know that financial frauds begin in overly optimistic budgets aimed at reaching unrealistic goals (Heath, 2012). These events often begin with small assumptions over time will ultimately make up for a problem. The initial budgeting acts seem to be harmless but then they are followed by an ever escalating pattern of fraud that finally leads to failure (Cook, et al, 2007). Therefore, to maintain organisation standards of practice, the manager should be very careful in decision making. He or she must provide realistic budget directives in accordance with organisation standards. Besides, lower-rank managers need to be honest in reporting “bad news” when they compare budget and performance (Heath, 2012). In addition, managers should report faults and any inconsistency when they find fault with the budget guideline. The collapse of the project occurs when the lower-level employees hide the truth hence misleading the top management.

nThe budget slack can lead to unattainable budget standards. If the workers feel that the budget is unrealistic they may become disenchanted or frustrated (Walther, & Skousen, 2009). This may reduce the morale and the performance of the employees. Therefore, good managers should be aware of this problem hence they must ensure that organisational psychology is maintained to achieve the ethical standards of the organisations.

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nCook, M., Noyes, J., & Masakowski, Y. (2007). Decision making in complex environments (1st ed.). Burlington, VT: Ashgate Pub. Limited.

nHeath, J. (2012). Decision making and budgeting (1st ed.). New York: Facts On File.

nWalther, L., & Skousen, C. (2009). Budgeting and Decision Making (1st ed.). Bookboon.