Why Budgeted Performance a Better Criterion than Past Performance for Judging Managers

MANAGEMENT ACCOUNTING
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When it comes to the financial world, time and money come at a premium. They are the two most critical elements of any financial institution or process. Budgeting, in essence, helps to come up with a structured and stratified breakdown of expenditures and their costs so that everything is well catered for therein. Assessing managers is based on it too. Budgeted performance is a better criterion than past performance for judging managers due to its all-around application.
The above statement is true because, to judge performance, it is essential to look at all the aspects of competence and effectiveness of the managers. There is a need for benchmarks against which the same can be checked and compared. A budget is a standard tool for building or setting the expected standards (Elston, 2018). The manager is supposed to act and run the organization concerning the information provided in the budget and not based on their terms alone. It is, therefore, the closest thing to a standard reference point that can be used to provide an assessment of performance.
Also, the budgeted performance is a better assessment tool for determining managers’ performance because the budget captures and rectifies any inconsistencies or errors that were there earlier (Yilmaz, 2018). These inconsistencies might be in the form of higher or lower expenditures or a judgment mistake, resulting in an overindulgence to execute a particular activity over another. When these past errors are carried forward to the next financial period, it usually becomes challenging to eliminate them since they carry some profound financial implications. However, with a proper budget, these can be handled effectively. This is unlike the use o...