Budgeting- top down and bottom up Flashcards
1
Q
What is bottom up/ paricipative budgeting?
A
It is buildt up from detail provided by each manager responsible for a budget, with targets being agreed by all involved.
2
Q
What are the advantages of participative/ bottom up budgeting?
A
- Would motivate managers as they are working towards specific targets and may be offered bonuses if they reach those targets
- Should increase accuracy as it is a collective decision and involves all managers from specific departments who should make more informed decisions as they are more likely to know what’s the most suitable budget for their department
- Should increase employee morale as they are helping out with the companies financial setting
- localised knowledge
3
Q
What are the disadvantages of participativebudgeting?
A
- It is very time-consuming to get round to all the departments managers and to then to come to a decision on budgets
- It may cause issues as managers know they will be rewarded through bonuses etc and may for this reason negotiate easier targets that they know they will meet
- It may cause managers additional pressure if they know that they must meet targets
- building in slack so their budget looks better
4
Q
What is top down budgeting?
A
It is imposed by management from above with little discussion about how targets are set
5
Q
What are advantages of top down budgeting?
A
- Less time consuming as only top managers decide budgets
- takes burden off of lower management as it is only top managers who decide budgets
- Ensures alignment with company goals as all departments will be working in tandem to meet specific targets
6
Q
What are the disadvantages of top down budgeting?
A
- Low employee morale as they may feel excluded in decisions and this may reduce motivation
- May misalign with specific needs of departments as they are not managers of those departments
- May lead to unrealistic targets for departments
