Question

Post one example using the concept self-imposed budget and apply it to a company or a project.  

Answer 1

Self-imposed budgets can also be called participatory budgets. These types of budgets assume that there was cooperation and participation from managers at all levels of the organization. It creates a much more harmonious work environment when everyone gets to have a say in the operation of the business.

The advantages of a self-imposed or participatory budget can include:

1. The creation of a team environment where everyone knows their views and judgements are valued by company management.
2. When a front-line manager assists in the preparation of their own budget, they have working knowledge and are able to more accurately estimate expenses for their area.
3. When you, as a manager, get to prepare your own budget, you are more motivated to set goals that are attainable, yet challenging. There is a higher level of commitment when participation is involved.
4. If you as a manager try to attain a goal set by someone else, especially if that someone does not know the intricate workings of your department, it can be easy to just say that the goals were unattainable. When you set your own goals, you can’t make that claim!

Self-imposed budgets should be reviewed by higher levels of management to prevent “budgetary slack". Most companies issue broad guidelines in terms of overall profits or sales. Lower level managers are directed to prepare budgets that meet those targets.

Many companies still do not use this type of budgeting, but instead impose profit targets and encourage department managers to work within those parameters. This can cause lots of motivation issues. The takeaway here is that it is important for employees and lower level managers to have some responsibility in setting goals. It helps everyone take ownership and feel like they are part of the team!

Applying it to a company:

1. Individuals at all levels of the organization are viewed as members of the team whose judgments are valued by top management.
2. Budget estimates prepared by front-line managers are often more accurate than estimates prepared by top managers.
3. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above.
4. A manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Self-imposed budgets eliminate this excuse.