PERFORMANCE EVALUATION: THE EFFECT ON THE PROPENSITY TO CREATE BUDGETARY SLACK Developments In Business Simulation & Experiential Exercises, Volume 22, 1995 126 PERFORMANCE EVALUATION: THE EFFECT ON THE PROPENSITY TO CREATE BUDGETARY SLACK Joseph N. Roge’, Louisiana Tech University Gary F. Linn, Louisiana Tech University ABSTRACT This study used Monte Carlo simulation to analyze two previous studies. Noun’s examination of organizational commitment and job involvement’s association with budgetary slack, and Mia and Chenhall’s (1994) study on the association of broadscope managerial accounting systems on superior’s evaluation of managers in uncertain and certain environments were the studies that were examined. Regression analysis was used to examine the link between these two models. INTRODUCTION Performance evaluations are prevalent in most of today’s business settings. Evaluations are usually completed by a superior, and the results are generally shared with the subordinate. When this information is shared with subordinated it is considered to be feedback. If the evaluation is positive then the feedback could be considered praise from the superior by the manager. Locke etal. (1981) found that praise could motivate a manager to perform better. If budget preparation is part of the managers duties, then it would seem that the manager would be motivated to prepare a better budget (less budget slack). The current study uses simulation to analyze several relationships between managers in differing environments and their propensity to create budgetary slack. Specifically we will examine these managerial characteristics: job involvement, organizational commitment, performance evaluation and the use of broadscope managerial accounting systems (MAS). The results do not confirm that there is a relationship between superiors’ evaluation of managers and those managers’ propensity to create budgetary slack; however, it does confirm a direct link between broad scope MAS and managers’ propensity to create budgetary slack. Broad Scope Managerial Accounting Systems MAS has evolved to include traditionally non-financial data focusing on functional areas and predictive information to enable managers to make more informed decisions (Mia and Chenhall 1994). This additional non-financial date, which is referred to as broad scope, has been shown by several researchers (Hayes, 1977, Larker 1981, Gordon and Narayanan, 1 984) to be significant in aiding decision making by managers. Budgetary Slack Young (1985) defined budgetary slack as how much managers “intentionally build excess requirements for resources into the budget, or knowingly understate productive capability.” Onsi (1973) found that 80 percent of managers admitted to bargaining for budgetary slack, and he assumed that no operating budget had zero slack in any year. While slack may be present in most budgets it is not necessarily in the best interest of the company. It may be beneficial to reduce slack because budget slack may result in a decrease of control or distortion of information used indecision making (Govindarajan). RESULTS When the two complete models were tested there was no evidence of a significant relationship between managerial effectiveness and the propensity to create budgetary stack. When no relationship was found, the model was examined for multicollinearity by examining the variance inflation factors. Significant levels of multicollinearity were found in job involvement, organizational commitment, and the interaction term. Each of these had variance inflation factors (VIF) of well over ten. The use of broad scope MAS did not show any multicollinearity. The new model supported a direct relationship between broad scope MAS and the propensity to create budgetary slack; however this relationship was positive instead of inverse as would seem intuitive. CONCLUSIONS This study found no support for a significant relationship between performance evaluation and the propensity to create budgetary slack. This is possibly due to confounding of the variables. The study did find a relationship between the use of broad scope MAS and the propensity to create budgetary slack. This relationship is, however, positive. As tested, the model shows that as the use of broad scope MAS Developments In Business Simulation & Experiential Exercises, Volume 22, 1995 127 increases, the propensity to create budgetary slack also increases. The direction of this relationship appears counter intuitive. Information overload may have a significant role in this relationship. When managers obtain additional broad scope information, portions of the information may be irrelevant and therefore cause more confusion. Managers who use broad scope MAS may attempt to micro- manage the budget, and in doing so are more apt to participate in the budget process. Young (1985) found that subordinates who participated in the budget process built slack into their budgets. Therefore, the results of this study may support the findings of Young’s previous study. We believe that further research should be done to examine the relationship between broad scope MAS and the propensity to create budgetary slack. REFERENCES References are available upon request. Table of Contents Volume 22, 1995 Simulation Performance, Learning and Struggle Are Good Simulation Performers Consistently Good? Cognitive and Behavioral Consistency in a Computer-Based Marketing-Simulation-Game Environment: An Empirical Investigation of the Decision-Making Process Chalk & Cheese: Executive Short-Course vs. Academic Simulations Revisiting Personality Bias in Total Enterprise Simulations Are Good Strategies Consistently Good? Investigating the Use of a Computer Simulation as an Effective Pedagogical Tool for the Application of a Strategic Model The Problem of determining an Individualized Simulation's Validity as an Assessment Tool A Simulation Based Analysis of the Value of Information in the Hrebiniak Joyce Typology of Adaptation Relative to Porter's Generic Strategies The Impact of Sales and Income Growth on Profitability and Market Measures in Actual and Simulated Industries A Comparison of a Stand Alone Version of a Simulation with the Traditional Competitive Version Computer-Assisted Gaming of International Business Analyzing Simulations with Computer-Based Programs and Applying the Experience to a Real-World Business A Preliminary Investigation of the Use of a Bankruptcy Indicator in a Simulation Environment Graduates' Views on the Use of Computer Simulation Games Versus Cases as Pedagogical Tools An Analytical Advertising Model Approach to the Determination of Market Demand Dealing with the Complexity Paradox in Business Simulation Games A Prototyping Approach for Incorporating Large Data Bases into Media Planning Simulations: An Example Using Magazine Media Through the Looking Glass, Inc: Superior-Subordinate Personality Type and the Leniency effect Evaluating the Effectiveness of Role Playing Simulation and Other Methods in Teaching Managerial Skills Student and Teacher Perceptions of a Management Simulation Course Performance Evaluation: The Effect on the Propensity to Create Budgetary Slack Management Team Formation for Large Scale Simulations Comparative Static Analysis with the Complete PPA Package: A Strategic Market Planning Tool Consistency in Intent: Learning Objectives at the 1994 Intercollegiate Business Policy Competition A New Twist on an Old Game: The Business Strategy Game: A Global Industry Simulation 3ed Evaluation of Performance in Management Simulation: A Management Coefficients Model Building SimuWorlds: Strategic Management Games of the Future Bulls and Bears: A Stock Market Simulation A Systems Thinking Paradigm and Think Computer Simulation Model of Broadcast and Cable Television Industry Competition Jacket Factory The Sales Management Simulation The Marketing Management Simulation A Demonstration of Promodel Demonstrating A New, Cross-Functional Business Simulation: Vision+ A Cost Chain For The Business Strategy Game Simulation Special Session On Experiential Teaching Compensation Dilemmas: An Exercise In Ethical Decision-Making Organizational Storytelling: Telling Tales In The Business Classroom Evaluating Experiential Training: Case Study And Recommendations The Internship Portfolio: An Innovative Tool For Experiential Learning, Critical Thinking, And Communication An Ethnographic Analysis Of The Pedagogical Impact Of Cooperative Communicating Consumer Behavior: A Long-Term Integrated Exercise Using Personal Consumption Journals And Consumer Analysis Papers An Experiential Paradigm For Teaching Business Problem Solving Developing Leadership Skills The Spss® Student Assistant: The Integration of A Statistical Analysis Program Into A Marketing Research Textbook Negotiating With Your Students Using TQM Principles To Transform Accounting Systems Into An Experiential Exercise Enhancing The Effectiveness Of Outdoor-Based Experiential Training Using Virtual Reality Concepts Case Writing In A Developing Country: An Indonesian Example Experiential Learning Using Focus Groups How Real Should Experiential Pedagogy Be? A Viewpoint From Our Students Reengineering The Internship: A New Approach To Experiential Learning Utilizing The Cosmopolitan/Local And Marginal Man Constructs To Measure Students' Propensity For Creativity Developing Experiential Processes For Teaching Quantitative Techniques For Business Team Learning Roles: A Cooperative Learning Technique Creating the Ultimate Small Business Student Experience: Melding Score/Ace with SBI The Development of Trust in Work Teams: The Impact of Touch Some Outcomes of Experiential Learning: How the Cultural Dynamics of Different Countries are reflected in Workplace Norms & Values Incorporation of Job Analysis Results in Various Forms of Selection Interviews Chudesno, Inc.: An Evaluation of an Experiential Training and Development Simulation An Exercise for Exploring the Relationship between Jungian Psychological Types and Organizational Dynamics Partnership: A Radical Approach to Experiential Learning Partnership: A Nice Idea, But How Do I Get Started? Recognizing Discrimination at Work Using Critical Incident Skills Questions to Help Students Become More Successful at Job Interviewing The Video Project Introduction to Psychological Type Theory Come On Down Understanding Facilitation for Development and Continuous Learning: A Micro-Workshop Leadership and Empowerment: An Experiential Exercise in Decision Making Experiential Exercises and Pedagogy Track Workshop: Selecting a Manager for Maquiladora, Inc. Experiential Training In Multi-Cultural Corporate Settings The Role of Facilitation as an Aid to Complete Learning An Experiential Exercise to Illustrate Difference in Information Processing Behaviors and Styles How to Deliver Accessible Survey Results Age Diversity in the Workplace- Family Feud Style Nafta Standoff: A Cross-Cultural negotiating Role-Play Three Strikes and You're Out!: A Downsizing Experiential Exercise