Question

how to overcome and mitigate budget padding that might happend in bottom up budget approach?

Answer 1

Q- how to overcome and mitigate budget padding that might happen in the bottom-up budget approach?

Ans- Before knowing the ways to overcome and mitigate the budget padding that might in the bottom-up budget approach, it will be prudent to know the concept of the “bottom-up budget approach” and “budget padding”.

· The bottom-up budgeting approach is a method of budgeting under which each department within the organization are being asked to give the list of projects they are supposed to carry out in the coming financial period along with the associated costs and then finally total cots at the organizational level, as per the input provided by all the departments, are being added and then the total budget is being prepared and sanctioned. Hence, in this method of budget preparation, all stakeholders of the organization play their role in the budget formulation.

· Budget padding means artificially increase in the amount of budget due to the overestimation of the cost of projects and/or underestimation of the future inflow of revenue from those projects.

Now, it will be prudent to know the ways to overcome and mitigate budget padding that might happen in a bottom-up budget approach. They are as follows

i. The organization should focus on better planning for the budget preparation and should also ask the same to each and every department within the organization. They should be asked to spend less on essential and optional items like mortgage payment etc.. So that overestimation of the cost could be mitigated and consequently budget padding.

ii. The departments within the organization should also be asked to scientifically calculate the income and expenses. Neither overestimation nor underestimation of either revenue or expenditure should be promoted. In budget padding, these things play a very important role.

iii. All the stakeholders who are participating in the budget formulation should be asked to give their inputs within a specific time period. As sometimes, time factor also plays a very crucial role in budget padding. So that unnecessary budget padding could be eliminated due to volatility in the economy which is bound to happen if a long time period is consumed in budget formulation.

iv. Budget padding in a bottom-up budget approach can be mitigated by promoting cohesion among the departments and asking all the stakeholders to prepare their expense-revenue estimation for the benefit of the organization as a whole. They should also be asked to while preparing their own budget organizational objectives should be kept in mind.

v. The opinion of those employees/stakeholders should be given due importance who have previous experience in such budget formulation. They should also asked to strictly follow the moral/ethical/legal standards while quoting any financial figures. The figures shoyld not be misquoted at any cost.

By applying ways, budget padding which might happen in bottom up approach can be mitigated.