Question

(1) Describe the top-down budget method. What are its advantages and disadvantages?
(2) Describe the bottom-up budget method. What are its advantages and disadvantages?
(3) Which budget method (top-down or bottom-up method) is more likely to result in budgetary slack? Why?​

Answer 1

Solution :

Top-Down Budgeting Process

Top-down planning alludes to a planning strategy where senior administration readies an abnormal state spending plan for the organization. The organization's senior administration readies the monetary allowance dependent on its targets and afterward passes it on to the supervisors for execution. Here and there, the directors may advance proposals for the financial plan before the spending readiness, however whether their commitment to the planning procedure will be utilized or not is at the administration's prudence.

Favorable circumstances of Top-Down Budgeting

Since senior administration is worried about the general development of the association the monetary allowance exhibits an in general corporate utilitarian methodology.

Top-down planning spares time for lower the board. As opposed to investing energy making a financial plan starting with no outside help, bring down dimension administrators are given an effectively defined spending plan to actualize. It spares both time and assets that the directors would've needed to use to detail the financial plan.

Top-down planning makes one spending plan at once, as opposed to enabling divisions to build up their financial plans and later joining them. Accordingly, the planning procedure will be less dreary, since senior administration will detail a solitary spending that the divisions will pursue.

It enables the executives to apportion assets to offices with a view to impelling the development of the organization, beginning with the most basic division.

organization, beginning with the most basic division.

Weaknesses of Top-Down Budgeting

The dimension of inspiration diminishes since the chiefs who are required to execute the financial backing don't claim the monetary allowance making process. The directors don't partake in the readiness of the financial plan and may, in this manner, need motivating force to guarantee its prosperity.

Senior administrators are not engaged with the everyday tasks of the organization, and they might not have sensible desires for the costs identified with every office.

Lower-level administrators may think that its hard to execute the financial plan since they are unconscious of how the best administration touched base at the set targets.

Base Up Budgeting

Base up planning begins at the division level and climbs to the best administration. The departmental heads/chiefs set up their financial plan dependent on present data and past encounters and present it to the senior administration for endorsement. They consider edge weights and economic situations to make the spending increasingly sensible and feasible. The monetary allowance introduced to the best administration contains a clarification of every thing demonstrated in the financial plan.

Focal points of Bottom-Up Budgeting

The dimension of inspiration increments since the chiefs are required to actualize the financial plan and are vested with the obligation of the monetary allowance making process.

Since lower-level administrators are engaged with the everyday activities of the organization, they have sensible desires for the costs identified with every division.

Burdens of Bottom-Up Budgeting

Base up planning sits around idly of lower the board. Lower-level supervisors squanders their time planning spending which generally have been utilized for beneficial reason.

Base up planning includes detailing spending plan separately by lower chiefs which influences the working of the association inside and out.

On occasion bring down dimension supervisors center around their area of expertise's development which may influence the goals of the proprietors of the business.

Each methodology has qualities and shortcomings, yet in undeniable reality the two cooperates. The best down methodology utilizing chronicled spend information is perfect to set the financial plan for specific undertakings. Be that as it may, the base up methodology implies you develop the financial plan from zero and places an emphasis on what should be done and for how much and not exactly what should be possible for the financial plan.

Time after time advertisers and their offices will utilize a best down methodology alone in light of the fact that there are numerous destinations which are chosen by the organization top administrators and keeping that figuring spending they ought to be remembered as a primary concern. Along these lines base up strategy is bound to result in budgetary slack in such a case that all the lower administrators would get occupied in setting up the spending at that point in what capacity will the works be overseen in their nonattendance, the base up methodology has all the more slacking qualities at that point accomplishing something useful for the organization overall.