Why the Budgeting Process Matters

"Making" the Numbers: How the Budgeting Process Creates Buy-In

Numbers drive action in organizations. Take a sales goal for example: Sales teams are focused on getting to that number to keep their jobs and win bonuses. But it’s the process of setting that goal that is the key to actually motivating individuals to hit the number, according to new research from the University of Maryland’s Robert H. Smith School of Business.

Christine Beckman, a professor of management and organization, looked at the annual budgeting process for a growing hotel management firm to see how the ritual of the budgeting process itself motivated employees to accept their budget numbers and strive to achieve them.

The researchers spent more than six months shadowing employees, sitting in on meetings, and conducting frank interviews with employees at their workplaces and in their homes. They also poured through numerous spreadsheets and other documents to get a clear picture of the hotel group’s budgeting process. What they found was the annual ritual of middle managers hashing out budget numbers among themselves and with top management created an emotional investment in the final budget numbers. Once these final numbers were “set in stone,” all levels of the organization rallied to meet them and drive growth for the hotel group. The organizational-wide buy-in and the focus on growth also made cheating the system to inflate numbers less likely.

Beckman and her co-author say ritualistic organizational processes produce the effect of rallying firm-wide support in pursuit of hitting specific goals that are seen as fair and attainable. Doing the structured work of building the budget and becoming emotionally engaged in the process creates this buy-in. Beyond setting sales goals, they point to forecasting, strategic planning, new market analysis as potential areas where this could happen.

Read more: "Making" Your Numbers: Engendering Organizational Control Through a Ritual of Quantification is featured in Organization Science.