Budgetary Accuracy Improves Managerial Performance

BUDGETARY ACCURACY IMPROVES MANAGERIAL PERFORMANCE By: Paul Foote, Christopher Petruzzi, and Fathiya Al-Maskari Corporate performance measured by such things as profit, earnings per share and total return to investors improves with an improvement in forecasts ... better forecasts not only improves managerial performance of the current period but also after a lag of one and two months ... demonstrates with a simulation model, using students as a proxy for managers. Many managers dispute whether accurate forecasts improve managerial performance. As such, corporations often reward managers for performance measures other than budgetary accuracy. This article shows that budgetary accuracy plays an important role in improving the managerial performance. Therefore, corporations should pay special attention to budgetary accuracy in rewarding their executives for managerial performance. Some of the problems with budgetary forecasts include events that influence the company’s performance but are difficult to predict. The events such as fires, machine breakdowns, snowstorms and price wars can distort short-term forecasts while recessions and booms can distort medium term forecasts, ...