1995 Joint Effects of Budgetary Slack and Task Uncertainty 63 If so, then the extent to which task uncertainty influences departmental performance may be influenced by the level of slack The frequent conceptualization, however, of task uncertainty as comprising the dimensions of task difficulty and task variability? (Daft, 1983; Daft and Macintosh, 1981; Macintosh, 1981; Perrow, 1967, 1970; Van de Ven and Delbecq, 1974] presents impediments not only in terms of theoretically predicting task uncertainty’s relation with subunit performance in settings of varying degrees of budgetary slack, but also in the empirical assessment of that relation? Because work units perform tasks that can vary in task difficulty but not in task variability, and vice versa (Van de Ven and Delbecq, 1974; Brownell and Dunk, 1994], the theoretical roles of each of the dimensions require evaluation, together with an empirical assessment of their effects in work units.* Task difficulty refers to the degree to which procedures lay down the series of steps that must be performed for successful work completion [Van de Ven and Delbecq, 1974]. When task difficulty is low, work can be reduced to objective, mechanical steps involving the use of standard operating procedures, instructions, manuals, or programs [Daft and Macintosh, 1978; Macintosh, 1981]. If tasks are well understood prior to their execution, as is the case when task difficulty is low, then the steps comprising those tasks can be effectively planned, mapped and encoded by budgetary control systems [Ashby, 1964; Buckley, 1969; Cunningham, 1978; Galbraith, 1973; Merchant, 1984]. Merchant [1984] noted that budgeting becomes more reliable when budgets focus on clearly demonstrable and programmable input/output relations. In such circumstances, Bruns and Waterhouse [1975] argued that budgets can be designed and implemented that reflect more accurately the better known and predictable nature of the work of subunits. Abemethy and Stoelwinder [1991] suggested that budgets may be used as a form of programmed contro! through the specification of desired product input/output relations. They indicated, however, that the extent to which budgets can reflect such relations and reflect performance is dependent upon tasks being routine in nature, which they described as low in task difficulty and variety. Tasks low in difficulty are well understood and can be structured to facilitate efficient task performance through the identification of clear criteria for task performance [Gresov er al., 1989]. Given such a level of task knowledge, precise quantities of resource inputs can be ascertained to allow for the required outputs. Consequently, there is little room for slack in such settings. This expectation is consistent with Merchant (1985b], who pointed out that the ability to set tight and accurate standardsand to measure performance precisely provides the opportunity to prevent the introduction of slack. By contrast, if task difficulty is high, there is a shortage of task-specific information [Gresov er a/., 1989). Work is not analyzable and solutions are hard to identify, because there are no objective, computational procedures or techniques available to specify precisely what must be done to perform those tasks (Daft, 1983: Daft and Macintosh, 1981]. Successful problem solving and decision making requires greater expertise, intuition and judgment, instead of standard operating procedures [Daft, 1983; Daft and Macintosh, 1981; Perrow, 1967; Van de Ven and Delbecq, 1974]. Such tasks are hard to decompose, and therefore difficult to evaluate in terms of their costs, benefits, and outcomes [Daft and Macintosh, 1981]. Lukka [1988] argued that when uncertainty is high, the quantum of resources required to perform tasks is not clear ex ante, thereby giving rise to the utility of budgetary slack as a means of redressing the prospect of running short of critical resources. Since the resource inputs required 10 perform tasks high in difficulty cannot be ascertained precisely a priori, budgets cannot be constructed to map and encode those tasks as effectively as when task difficulty is low. Attempts to specify rules and procedures hinder rather than aid task performance because tasks in such circumstances cannot be codified precisely or parsimoniously [Gresov er al., 1989]. If insufficient resources are programmed for highly difficult tasks, then they may not be completed, properly, or on time. In other words, the downside of low-balling budget estimates is that subunit performance may be compromised. The provision of resource flexibility through the availability of slack may enable difficult tasks to be more effectively performed than if those resources had not been scheduled, Consequently, as suggested by Cyert and March (1963), slack may play an adaptive and stabilizing role through’the provision of a pool of emergency resources that can facilitate performance when task difficulty is high. If so, then the detrimental effect of task difficulty on subunit performance is likely to be less pronounced when slack is high in contrast to when it is low. This hypothesis is stated in its null form as follows. Hl: Budgetary slack and task difficulty do not interact to affect subunit performance. Task Variability ask variability refers to the extent to which novel and unexpected events are encountered in the planning and conversion processes that necessitate the use of different procedures or methods to carry out the work (Daft and Macintosh, 1981; Perrow, 1967; Van de Ven and Delbecq, 1974]. When variability is low, the array of tasks can be predicted with ‘considerable certainty and few novel or exceptional tasks are undertaken. By contrast, when task variability is high, unexpected events and problems are often encountered (Daft, 1983; Daft and Macintosh, 1981; Macintosh, 1981; Withey eto, 1983). ‘slack influencing the relation between task variability and performance is ». Brownell and Dunk {1991] argued that in a low task difficulty but high even though the array of specific tasks ahead cannot be foreseen (high it arises, is analyzable since it is straightforward to specify theTelevant inputs necessary 10 achieve a desired outcome (low difficulty). They proposed that flexible manufacturing systems emphasizing CAD/CAM provide an example of the independence of task variability and task difficulty. Although each unit of output can constitute a lot size of one. the customization of the production process is dependent on it being computerized. To enable that software to be written, each of the manufacturing steps must be clearly identifiable and programmable. Similarly, Goldas [1986] pointed out that a computer controlled machine can teadily make 12 of the one type of product in a row, or randomly produce one each of 12 different designs, provided the software for each of those 12 designs is in place This example illustrates that if task difficulty is low, the level of task variability does not influence the capacity of the machine to perform its required array of tasks. Similarly, if task difficulty is high, the levcl of task variability would not affect the extent to which the machine performs effectively. Whether task variability is high or low makes no statement of the level of task difficulty, given the independence of the two constructs. Hence, the ability to specify the relevant set of inputs in the budget to achieve a desired outcome (a question of task difficulty) and the argued role for budgetary slack is independent of the level of task variability. Since slack is the incorporation of amounts in the budget to make it easier to attain [Merchant, 1985a; Lukka, 1988; Young, 1985], then a necessary condition for slack is that a budgeted array of tasks have been planned. Referring back to the machine example, when task difficulty is high, machine performance is likely to suffer in the absence of slack. The application of slack tailored to a given set of budgeted tasks (whatever the level of variability) may assist in countering an inability to specify a given set of input/output relations. In contrast, the degree of variability faced by the machine has no necessary additional call on resources other than for the budgeted array. Consequently, task variability is less likely than task difficulty to have performance implications that can be influenced by the provision of slack. To facilitate the empirical assessment of whether task variability and slack interact to attect performance, the following null hypothesis is proposed for testing. Hg: Budgetary slack and task variability do not interact to affect subunit performance Method ‘A random sample of 61 companies was selected from the population of manufacturing ions listed in the Kompass Australia business directory employing more than 100 people in the Sydney, Australia, metropolitan area. Firms with less than this number of were not expected to have clearly defined areas of responsibility to which _ managers would be appointed. A total of 118 managers were contacted by telephone, and were requested personally to take part in the research, No restriction was placed on the ‘responsibility from which managers could be drawn for sampling purposes, since no argument for restricting sampling to any one functional area. A questionnaire ter, together with a reply-paid self-addressed envelope was mailed to each a higher response rate and to provide evidence that the targeted ed 10 the questionnaire themselves, a telephone follow-up was made.TABLE | : Descriptive Statistics of the Variables in the Study Theoretical Range — Actual Range n Mean StdDevn Min Max — Min Max udgetary Slack 79° 13.71 4.85 4 28 4 26 Task Difficulty 79 25.73 5.83 7 49 10 48 Task Variability Bei 33.72 6.98 7 49 14 44 Subunit Performance 79 4.20 0.71 1 5 2 2 Responses were received from 79 managers; a response rate of 67 percent. In all, 46 companies were represented in the sample. A total of 25 respondents were drawn from individual companies, another 17 organizations provided two respondents each, three respondents came from the one organization, in two instances four responses were received from the one firm, and in one other case nine respondents came from the one company. The managers represented marketing, manufacturing, research and development, engineering and administration units. The mean age of the respondents was 42 years, they had held their current positions on average for 4.5 years, their mean length of experience in the areas they managed was 13 years, and the average number of employees in their areas of responsibility was 102 Variable Measurement Budgetary Slack Budgetary slack was measured using the Dunk [1993] four item seven-point Likert scaled instrument, The results of a factor analysis revealed that the four items in the measure load single factor with an eigenvalue of 1.3878, explaining 34.7 percent of the variance in ying variable. The Cronbach alpha (Cronbach, 1951] for the measure was 0.68. ive statistics for the instrument are contained in table J. instrument «leveloped by Van de Ven and Delbecq [1974] was used to based on a seven-point Likert scale. The Cronbach alpha (Cronbach, was 0.57, similar to that calculated by Withey er al. [1983]. Even istency of the instrument is not high, it is still within acceptable Guilfo "1; Nunnally, 1967}. Importantly, Van de Ven and ‘between scale scores and the ratings of :’s construct validity. Descriptive statistics995 Joint Effects of Budgetary Slack and Task Uncertainty 67 1951] for the scale was 0.76, which suggests that it has considerable internal consistency. Evidence of the validity o! the measure is based on Withey et al.’s (1983] findings that it correlated highly with the validated Sims er al. [1976] Job Characteristics Inventory of task variability together with the substantial agreement between independent external judges’ ratings of work unit task veriability and scale scores. Due to these psychometric properties, Withey et al. [1983] recommended its use in research. Descriptive statistics for the measure are reported in table 1. Subunit Performance A five-point single item Likert-scaled measure consistent with that used by Merchant {1981, 1984] and Brownell and Merchant [1990] was used to assess subunit performance. The instrument requested managers to rate the performance of their areas of responsibility on a scale anchored by (1) not at all effective and (5) very effective. Table 1 presents descriptive statistics for the instrument. No attempt was made to obtain corporate records of performance because it is essentially impossible to obtain properly matched objective data relating to subunit activities across multiple organizations [Brownell and Merchant, 1990; Govindarajan, 1984; Merchant, 1981, 1984; Williams ef al., 1990}. Even though internal management accounting reports, cash flows, operating profit and ROI have been classified as objective data (Govindarajan and Gupta, 1985; Venkatraman and Ramanujam, 1987], there is no evidence to suggest that these data are more objective than self-ratings [Brownell and Dunk, 1991]. Moreover, Venkatraman and Ramanujam [1986] argued that organizations may not make available for reasons of confidentiality and sensitivity data on financial performance. tantly, Abernethy and Stoclwinder {1991} found no evidence that subunit managers Jenient in any consistent fashion in rating the performance of their subunits. From a ical perspective, rating leniency is a form of measurement error, which Nunnally gorized as either nonrandom (systematic bias) or random. Nonrandom error d to the addition (or subtraction) of a constant to the otherwise “true” score ent variable [Carmines and Zellar, 1982; Tsui and Barry, 1986]. That er, has no effect on the nature of the relation between independent and in multiple regression models (Nunnally, 1981]. By comparison, the n error in the model error term reduces the likelihood of the null [Neter er al., 1985}. cin ion matrix of the variables in the study. The table shows that bility correlate at 0.25, which is far from supportive of task onal construct. Whether the significant and negativeAccounting and Finance November TABLE 2 : Correlation Matrix of the Variables in the Study . Subunit Performance Budgetary Slack Task Difficulty Budgetary Slack -0.043(n8) Sully 6 ye Task Difficulty -0.380(p < 0.001) 0.193 (n.s.) Task Variability —1).087 (n.s.) 0.312 (p < 0.01) 0.251 (p < 0.05) association between task difficulty and performance is influenced by the level of slack is subject to hypothesis test. Given the use of performance self-ratings and the potential for managers to rate the performance of their departments more favorably when slack is available, the table provides evidence that there is no zero-order positive relation between these two variables. Consequently, this finding provides some assurance that managers rate the performance of their areas of responsibility independent of the level of slack that may be in their budgets. Although budgetary stack and task variability are correlated (r = -0.312, p<0.01), multicollinearity is unlikely to influence the significance or sign of the coefficient ofthe interaction term in multiple regression models [Allison, 1977; Hirst and Lowy, 1990] Results The following two-way interaction model was employed to test the hypotheses. Separate regression analyses for task difficulty and task variability were conducted in turn. Y= by + BX, + OX, + bX,X, +e a) where _ ¥ is subunit performance is budgetary slack task difficulty; task variability is that budgetary slack and task difficulty interact to affect subunit was tested by examining the significance of b;, the coefficient of the . The results presented in table 3 suggest that b, is significant at p = 0.025, rejection of the null hypothesis. The two-way interaction model is also p= 0.001, explaining 21.3 percent of the variance in performance.° Despite ificance of b, and b,, Southwood [1978] demonstrated that main effectTABLE 3 : Results of Regressing Subunit Performance on Budgetary Slack, 1 Interaction Variable Coefficient Value t Pee aes eee 73267 10.8317 881 0,001 Budgetary Slack b, 0.1342 0.0534 -2.51 0.014 ‘Task Difficulty b, 9.1125 00307 3.670.001 Budgetary Slack x Task SS 0.0046 0.0020 2.28 0.025 ————_ TABLE 4: Results of Regressing Subunit Performance on Task Difficulty bn Variable Coefficient Valu td Error t P Panel A: Low Budgetary Slack Constant bo 6.3619 0.5821 10.93 0.001 Task Difficulty b, 0.0799 0.0206 -3.82_—_—0.001 R? = 0.288 F, 4, = 14.57, p = 0.001 Panel B: High Budgetary Slack, Constant by 4.7183 0.3878 12.16 0.001 Task Difficulty by 0.0204 0.0155 o13) 0.197 _R? = 0.042 F, 49 = 1.72, p = 0.197 TABLE 5: Results of Regressing Subunit Performance ‘on Budgetary Slack, Task Variability and their Interaction Coefficient Value Std Error t Pp by 5.6150, 1.1010 5.10 0.001 b, 0.0733 0.0743, -1.04 0.301 0.0376 0.0312 -1.20 0.232 0.92 was dichotomized at the d as zcro, and scores above the median ucted, first, regressing performance on 1 is high. The results of these analyses, low if difficulty negatively affects70 Accounting and Finance November fi serlopsaty (panel A). By contrast, when slack is high, task difficulty does not influence Be ; ince (panel B). These findings support the proposition that the effect of task ieully On performance is less pronounced when slack is high than when it is low The Tesults of testing hypothesis two, however, are different. Table 5 presents the findings of the regression of performance on budgetary slack, task variability, and their interaction Because 6; is not significant at an acceptable level of probability, there is no evidence to suggest that budgetary slack and task variability interact to affect performance.” Conclusions The results of the study sugyest that care may need to be taken to consider explicitly both theoretically and empirically the implications associated with each of the dimensions in studies in which task uncertainty is implicated. The findings of the study suggest that the ‘association between task difficulty and performance is significantly less negative when budgetary slack is high, as compared to when it is low. Consequently, the presence of slack in budgets may be effective in terms of managing the relation between task uncertainty and subunit performance, at least for the task difficulty dimension. There was no evidence that slack performed a similar function with regard to the association between task variability and performance. This finding is consistent with Brownell and Dunk [1991], who found that task variability did not influence the interaction of budgetary participation and budget emphasis affecting managerial performance. Taken together, these findings suggest that the role of task variability may be less critical than that of task difficulty in influencing performance. The results of the study also provide support for claims made by both Onsi [1973] and Galbraith [1973] that there may be circumstances when slack is not necessarily dysfunctional. The findings of this study suggest that attempts to drive slack out of budgets when task difficulty is high may detrimentally affect performance. Consequently, attempts to optimize planned efficiency through the elimination of slack may only be of strategic advantage in terms of performance enhancement in settings of low task difficulty Despite careful attention to research design, the results of the study are subject to a number of potential limitations. First, data were drawn only from companies located in the Sydney, Australia, metropolitan area As such, the results may be generalizable only to that population. Following Hofstede {1980}, however, this possible limitation may be unduly festrictive. Second, no statement of causation can be made since the research is contemporaneous and cross-sectionally based