Question

Assume that you work in a sales department that prepares an annual budget. Your "new" sales director has just given the department its new budget that was prepared without any input from you or your colleagues. What do you think the response will be and why?

Answer 1

The method of budgeting is imposed budgeting which is used in the context. Imposed budgeting is a top-down process. Managers follow the goals and impose budget targets for activities and costs. It can be effective if a company is in a turnaround situation where they need to meet some difficult goals, but there might be very little goal congruence. It starts at the top, where the budget is prepared by senior management according to the goals that the company wants to achieve in the next financial period.

Limitations of Imposed Budgeting

Lack of motivation

When bottom level staff is not involved in the budget preparation process, they will feel demotivated because their input is not required. This may result in tension and loss of productivity.

2. Decline in performance

This means that a department that requires additional funding to finance its activities will need to work with the funds allocated from the top management. Lower-level managers may even use it as an excuse for failing to meet the revenue targets accomodated by the management.