Question

Budget Development Process

Describe your company’s process for developing a budget.

Does your organization engage in participative budgeting? Does your company use a top-down approach? What are the pros and cons of each method?

Answer 1

Budget processing is a way in which a company builds its budget. Good budget processing includes strategic planning and cost management and also analysis of available and unavailable cost like fixed cost, variable cost and semi variable cost.

Participative budgeting :-

Participatory budgeting means involving each and every person who are engaged in the organisation for building the budgets. This type of budgets involve more clerical work and takes much of time. In this type of battery plannings we need to consider all views of each and every employee or worker in the organisation. Due to this reason this method of budgetary needs too much of time it leads to budgets lacks.

Our company does not involve participatory budgets.

Pros of participatory budget

1. Each and every employee and manager will get a chance to be a part of budget preparing it gives more good faith and trust on the management.

2. A very accurate but that my come out from this method.

Cons of participatory budget

1. It may take long time for consideration of each and every employee and manager in the budget preparation.

2. As each and every manager and employee involved in budget preparation and target settings this may leads to setting lower targets to themselves.Setting your targets leads to lower performance of the organisation and it leads to reduction in reputation and Goodwill of the company. This leads to a danger drawback termed as budgetary slags.

Top down approach :-

This is method of budget in which stock management with consideration services given by the lower level management and employees.

In this method direction making power with top management and the lower level management and employees can you suggestions and considerations for the budget preparation.

Pros of top down method :-

1. This method takes lesser time for prepare the budget.

2. Entire control in hands of higher level management it does not face budgetary slag problem.

3. As the decision taking power rest with lower number of people the process of decision making will be completed very soon.

Cons of top down approach

1. Employees may feel oppression by the top management due to not making them part of budget preparations.

2. Top down approach not consider the problems of employees or floral management due to this there may be increase in employee resignation and labour turnover ratio.

These are all the information required to solve the given question.

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