Question

Contrast the participative versus imposed budgeting concepts. Do you think employees should be included in the budgeting process?

Answer 1

Imposed budgeting is a style of budgeting where budgets are prepared from top management and junior staff has to follow it. Top management does not collect detailed information from junior staff before setting it.

Its merits are: -

1.       It is time-saving and less costly.

2.       It considers the overall picture the top management wants from its company.

Its demerits are: -

1.       Dissatisfaction among employees.

2.       Cut throat competition for funds among lower management.

3.       Poor performance by staff due to limited acceptance of budget.

Participative budgeting is a way of creating a budget in which lower management prepares the budget and then forward it to top management for review and approval. It is generally considered one of the most effective ways of budget preparation because managers at all level participate and coordinate with each other in the budgeting process.

Its merits are: -

1.       Massive acceptance by the staff.

2.       It is realistic.

3.       It is motivating for employees.

Its demerits are: -

1.       It is time consuming

2.       Budgetary slack might occur

3.       Lower management might be incompetent to prepare the budget

Employees should be included in the budgeting process because: -

1.       Employee will more likely adhere to the budget.

2.       Budget become more realistic.

3.       Employees at all levels are recognized which in turn creates a sense of accountability.

4.       Motivation is higher at all levels.

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