THE FORCES AFFECTING THE AUTONOMY OF BUDGET

MANAGEMENT

Tarek M. AbdulRazek, Bari University, Italy

Tm.85@hotmail.com

ABSTRACT

There is a great influence of autonomy on controlling and managing budgets. Autonomy

is the degree to which a person within an organizational system is able to affect his own actions
and environment. In this paper, we will illustrate the changes of budget management and what
are the forces that will affect the autonomy of the budget management.

INTRODUCTION

I
n the past two decades, there has been a fundamental restructuring of the budget
management systems. The previous view of budget management focused primarily on
resource allocation and input control, and was usually highly centralized. This approach to
budget management accepted a set of policy objectives and allocated inputs to reach these
objectives. At the same time, central budgeting agencies focused almost exclusively on control
and compliance as the primary function in budget management. The new budget management
model aimed at forging a more direct link between allocating resources through the budget and
performance in reaching stated objectives.

CHANGES OF BUDGET MANAGEMENT

This reorientation necessitated a number of changes in traditional budget management

which increased flexibility mainly on the ability of management to reallocate funds within
controls on budget line items. Changes are directed at giving organizations and managers greater
freedom in operational decisions and removing unnecessary constraints in resource management.
In return, organizations and managers are more directly accountable for results.
In a traditional, highly centralized budget system, there is a presumption that changes are derived
top-down from the Budget top management. This is not necessarily the case when introducing
the new devolved budget management model. Typically, any relaxation of centralized controls is
likely to meet the resistance of the central Budget management, which should be the key agent of
change. This resistance arises from a number of sources.
First, there is the typical fear of the unknown. How to convince the Budget management
of the need for a new a budget management model which moves away from compliance and
stabilization objectives and begins to emphasize efficiency, and effectiveness in resource use?
Obviously, they will not be easily convinced unless they already have in place a management
framework that assures basic compliance with the law, and sufficient certainty in the fiscal
outcome to be able to minimize short-run disruptions to spending plans that may be needed to
ensure fiscal stability.
Second, this conservatism is often reinforced by a genuine fear that relaxing central
controls, and giving budget program managers greater personal freedom, will result in more
waste and corruption. How to assure the Budget management that the program managers will act
responsibly? It is recognized that where accounting and internal control systems are poor,
corruption may increase. It follows that there should be a major program to upgrade agency
financial management skills to some basic level to offer the Budget management assurances.
Third, there is often a natural reluctance to give up the power that goes with centralized
control. Change is threatening. As a consequence, the central Budget management, which should
be the leader of reform, becomes its chief obstruction.
Fourth, it is not often recognized that the central Budget management has limited
capacity for change. In private sector companies change is an activity that receives much top-
level attention, and tends to be heavily funded. In the public sector it typically has suffered from
compassionate neglect. Often there is a need to inject or build up this capacity within the
government. The management constraint does not merely hinder the successful implementation
of the reform process. The new budget model being introduced implies that public officials will
cease being administrators and assume a management role similar to that in the private sector.
Unfortunately, a centralized budget management system does not foster such management
capacity.
FORCES AFFECTING THE AUTONOMY OF BUDGET MANAGEMENT

As we have seen above that one of the major factors of change from a traditional budget
management to new budget management models is giving freedom to managers and employees
working on the budgets i.e. depend on autonomy to reach this objective.

So, in the beginning we are going to speak a little bit about the meaning of autonomy.
Autonomy is “The degree to which a person within an organizational system is able to affect his
own actions and environment”. Autonomy clearly implies to some extent the exercise of control
over others.

Autonomy is a variable quality which characterizes an organization's relationship with

external powers on which it depends. The global autonomy of a budget management
characterizes a very large number of individual decisions considered as a whole. The autonomy
of budget management can be analyzed with reference to three categories of factors, namely,
rational, organizational, and political.

Rational Factors

The first rational factor is the degree to which the management is exposed to actual
competition in the markets in which it operates. The main question here is to know whether these
markets are monopolies, or monopolistic, or purely competitive. How does that influence the
degree of autonomy? The more the management is exposed to competition the more powerful
market forces grow and the less controllable becomes the situation. Uncertainty increases and so
does the amount of information which is necessary to take a decision: such information may be
less and less concentrated at the State level and the management becomes the only place where
all the information requested exists. The management is then autonomous because it cannot be
possibly controlled by the government and its administration, and vice versa.

The second factor is the extent to which the management's activities have a public service
character. These activities may be in effect more or less directed at serving the general interest of
all citizens, as opposed to a group of customers voluntarily selected by the company. Then, the
more public the activities of the budget management the greater the constraints imposed by the
State and the lesser the degree of autonomy, and vice versa.

The third factor is the level of technology of the industry to which the management
belongs. Just as the high level of uncertainty in the market environment pleads for greater
autonomy for the management, a highly advanced and rapidly changing technological
environment should result in a larger degree of autonomy—if the decision makers are to be
engineers and specialists who possess all the information required, and vice versa.

The fourth factor is the management's economic performance and need for financial
assistance f r o m the State. When the management is already very autonomous, good
performances and low needs for financial assistance from the State reinforce that autonomy, and
conversely, low performances or greater needs threaten it.

Organizational Factors

The first organizational factor is the degree and quality of interaction with State
administrations. Too much interaction between the management and State administrations will
lower the management's autonomy, even if at the highest level (government-top management) a
formal agreement pretends to increase that autonomy. Autonomy is incompatible with frequent
and extended interactions with the administration.

The second organizational factor is the esprit de corps within the management. It is also a
very complex factor made of several components like opinions, attitudes and behavior common
to all members of the management and may only result from a combination of factors affecting
all these members. A strong esprit de corps will exist when members of the organization have a
sense of belonging to the enterprise and a desire to defend it in the face of external powers such
as State administrations. So, acting on personnel contracts and policies is a most important way
of increasing or decreasing the management’s degree of autonomy.

Political Factors

The first political factor is the influence of political leaders. It concerns those leaders who
intervene in the company's management. The influence depends on several complex elements,
which may be classified in two types : i) those which are related to the motivations and
objectives of the political leader's intervention in the company's management, and ii) those which
determine the effectiveness of his intervention.

The role played by budget managements in the country's economy, the contradiction
between public ownership and free competition and thus the problem of budget management's
autonomy is an issue on which a political leader usually takes a stand. That stand will determine
his attitude toward budget managements which are under his surveillance or control, and will
explain the greater or lesser extent to which he himself tends to intervene in their management.

Now if the stand taken by the political leader is made public, during an electoral
campaign for instance, that political leader, once elected, will tend to demonstrate through some
striking intervention that he keeps his promises. It is difficult then to appreciate whether he is
simply building up his image or whether he is carrying out a systematic long-term policy, but his
intervention definitely affects the autonomy of the budget management concerned.

Thus, the political leader's personal opinion and public stand on budget management,
together with his links with private interests, were shown to determine the frequency and the
direction of his intervention in the management of budget.

Now, the effectiveness of such intervention depends on other elements. First of all, a
political leader may be more or less powerful vis-a-vis the government, depending on his own
official functions and on his national audience.

Secondly, when a political leader has an official position in the government, he may have
a greater or lesser control over his own administration, depending on the length of his stay in that
position, his personal authority and skill, and the responsiveness of his administration to change

Thirdly, an intervention from a political man must be backed with sufficient information
and competence if it is to become effective.

Finally, if it can be said that political leaders may generally have a large influence on a
PE's autonomy, it is also true that their influence has often a short life, as ministers come and go.
This means that a change in a budget management’s autonomy introduced by a political decision
must be backed with strong rational arguments and implemented through adapted organizational
procedures to have a chance to become permanent.
 The second factor is the influence of top managers. It is the role of managers to obtain
and then transform a temporary change into a permanent one if it is good for the budget
management, or to block it and let it die in the opposite case.

The third factor is the degree of congruence between budget management's interests and
national interests. Political leaders and top managers play their respective roles, each with their
objectives and means of action. But since these roles are obviously inter-related, the autonomy of
the budget is influenced by the degree of congruence or divergence between the two.

The fourth factor is the inertia of the current situation. Once the management has had a
certain degree of autonomy for a long time that degree seems to be stabilized and any move to
depart from it becomes more difficult for political leaders as well as for the management. This
does not mean that budget management's autonomy may not change substantially but only that
such changes take a long time to become effective.

CONCLUSION

All in all, the rational, organizational, and political set of factor when combined form a
great influence on the autonomy of budget management. It is worth noting that the
implementation of all of these factors together is not easy. That is why any management should
exert best efforts for the attainment of maximum autonomy in budget.

REFERENCES

1. Diamond, Jack, “PERFORMANCE BUDGETING: MANAGING THE REFORM

PROCESS”, Report of the Meeting of the Group of Experts, Rome, November 2001.

2. Hofstede, DR. G. H., “The Game of Budget Control”, Koninklijke Van Gorcum and
Comp. N.V. Assen, Netherlands, 1967.

3. Narian, Prof. Laxmi, “Autonomy of Public Enterprise”, K.N. Dhawan, New Delhi, 1982.