Responsibility budgeting and accounting is a process for motivating and inspiring people to perform more effectively in the context of working in complex organizations. From the public management outlook, its purpose is to motivate managers to serve the policies and purposes of organizations to which they belong, and also meet the demands and preferences of the citizens and customers they serve. This process detects and corrects unintentional performance errors and intentional irregularities, such as theft, misuse or inefficient use of resources.
The discipline management control is founded on presumption that controllable behavior is largely self-directed. The goal here is the minimization of agency costs. Agency costs arise where employees opportunistically pursue their own interests instead of their employers. Agency costs also arise when an organization finds it unpleasant to discipline or dismiss employees. Minimization of agency costs means minimizing the sum of costs that result from opportunistic behavior on the part of employees and of controlling that behavior. Economic theory states that this optimum is to be found where the marginal costs of control equal their marginal rewards.
Control costs range from the employment of security guards to the design and implementation of new or reconfigured accounting and reporting systems. The labor market and competition tends to reduce agency costs. Attempting to make agent goals more congruent with those of their employers can reduce agency costs.
Assets are subject to rules governing their use or decision rights. Organizations obtain decision rights by creating and allocating levels of decision-making power. Three systems aid this process:
- Systems that measure performance (internal accounting systems)
- Systems that reward and punish performance
- Systems that partition rights
The three approaches are interconnected. When an organization changes one, it must change
them all.
