Budgetary Control and Organization Structure

TLDR

Despite widespread use of budgets for organizational control, little is known about how budgets influence behavior or interact with other behavioral controls. The study investigates how organization structure interacts with budgets as sources of control. Data from 25 organizations were collected via mailed questionnaires and field interviews, then factor‑analysed to link budget‑related behavior with measures of organization structure and context. The analysis revealed clear relationships between organization structure and budget use and effects, confirming that budget‑related behavior depends on structural features such as centralization, size, technology, and environmental dependence.

Abstract

In spite of the widespread use of budgets for control of organization activities, relatively little is known about how budgets influence behavior. Furthermore, the interaction of budgets with other means of influencing human behavior has remained largely unexplored. This research explores the interaction and relationships of one source of control, organization structure, with another source of control, budgets. Data gathered from twenty-five organizations are analyzed to explore some of the interrelationships between organization structure and the use of budgets by managers. Data collected by mailed questionnaires were factor analyzed to provide measures of budget-related behavior that could be related to measures of organization structure and context that were collected in field interviews. The analysis of these data indicates clear relationships between organization structure and the use and effects of budgets and provides insight into several complex relationships suggested by other field and a priori research on control in organizations. The findings of this study are consistent with those organizational studies which have concluded that the structure of organizations can be viewed as contingent upon environment and organization characteristics such as size, technology, and dependence (the extent to which an organization is autonomous in relationships with other organizations) (see Woodward [1965], Burns and Stalker [1961], Lawrence and Lorsch [1967], and Pugh, Hickson, Hinings, and Turner [1969]). Budget-related behavior is found to be contingent upon various aspects of organization structure such as centraliza