Pg $1118-$ Ethics in Action: Budget Games

The budgeting system is designed to plan and control a business. However, it is common for the budget to be $$gamed$$ by its participants. For example, managers may pad their budgets with excess resources. In this way, the managers have additional resources for unexpected events during the period. If the budget is being used to establish the incentive plan, then sales managers have incentives to understate the sales potential of a territory to ensure hitting their quotas. Other times, managers engage in $$land grabbing,$$ which occurs when they overstate the sales potential of a territory to guarantee access to resources. If managers believe that unspent resources will not roll over to future periods, then they may be encouraged to $$spend it or lose it$,$ causing wasteful expenditures. These types of problems can be partially overcome by separating the budget into planning and incentive components. This is why many organizations have two budget processes, one for resource planning and another, more challenging budget for motivating managers.

What do you think about this article? Do you think it falls under ethical behavior? Explain.

Please use critical thinking in answering. Using AI is not Critical Thinking.