Question

Describe Participative Budgeting and identify six benefits of participative budgeting? ( 500 words limit )

Answer 1

A Participative Budget is the budget in which employees actually affected by the budget are directly involved in an organization's budgetary process (e.g. Front line managers). This is a bottom-up approach to budgeting. It is a more collaborative form of budgeting as it tends to involve the management as well as the staff members in finalizing the budget.

Following are the six benefits of Participative Budgeting :

1. Higher Motivation : Since this kind of budgeting involves the staff members in the budgeting process, it tends to improve their morale.

2. Higher chances of Success : Participative Budgeting allows for the upward flow of information from people responsible for the company's day to day operations to the people charged with having an overall strategic perspective. This allows for each level within an organization to contribute its best towards an accurate, integrated budget.

3. Improved Quality of Forecast : People who are actually doing the day to day Job have better idea of What is acheivable, working conditions, various numbers etc.

4. Responsibility can be fixed : Managers can be held responsible for the inputs/data provided by them.

5. Improved Communication : Effective communication is the key to this kind of budgeting process.

6. Identification Potential : In this kind of budgeting, any outstanding work or effort by the junior employees gets immediate attention from the senior management.