Describe the two Budgetary Styles

1. Imposed budget (Top-down)
It is an approach where management prepares budget with little or no input from operating personnel, which is then imposed upon the employees who have to work to the budget figures. This is effective in the following conditions:
(a) Newly formed organizations
(b) In small business/organization – manager know what is going on
(c) During periods of economic hardships.
(d) When operational managers lack budgeting skills
(e) When the organization’s different units require precise coordination.

Advantages of Imposed budgets:
(a) Such budgets increase the probability that the organizational strategic plans are incorporated into the planned activities.

(b) They enhance the coordination between the plans and objectives of divisions. (c) They use senior managers awareness of the total resource availability.
(d) They decrease the possibility of inputs from inexperienced or uniformed lower level employees
(e) They reduce the period of time taken to draw up the budget.

Disadvantages of Imposed Budget

(a) It may result in dissatisfaction, defensiveness and low morale among employees who must implement the budget.
(b) The feeling of team spirit disappears.
(c) The acceptance of the organizational goals and objectives could be limited.
(d) The feeling of buyer as a punitive device could arise i.e as a way of forcing workers to work hard.
(e) Unachievable budget from overseas divisions may be imposed in local divisions if consideration is not given to the local operating and political environment.

2. Participative Budgeting (Bottom-up)
In this level budget are developed by lower level managers was then submit them to their superiors. It is thus referred to bottom-up approach. The transfers are based on lower level manages perception of what is achievable and the associated resources required. The degree to which lower level management are allowed to participate depends on

(a) The senior managers awareness of the advantages of participatory budgeting. (b) Their agreement with its advantage
Participative budgeting is effective in the following areas: (a) Well established organizations
(b) In a very large business
(c) During periods of economic boom i.e when no hardship is there
(d) When operational managers have strong budgetary skills
(e) When the organizational different units are autonomous/independent

Advantages of Imposed Budget

(a) Information from employees most familiar with each unit needs and constraints is included. (b) Knowledge spread over several level of management is pooled together.
(c) Morale and motivation is improved
(d) Acceptance and commitment to organizational goals and objectives by operational managers is increased.
(e) Coordination within divisions is improved.
(f) Operating managers are able to develop budget plans, which are realistic- since they know the implementation and quality required.
(g) Specific resource requirements are included. We have more detailed budget.
(h) An expression of the expectations of both senior managers and subordinates is provided.

Disadvantages of Imposed Budgets
(a) Consumes more time and therefore expensive.
(b) The advantage of lower level management participation may be repeated by changes implemented by senior management leading to dissatisfaction similar to that experienced with imposed budgets.
(c) Such budgets may cause manages to produce budgetary slacks (margin set in budget facing difference between what managers state is to achieve and what is achievable) e.g if production is 100 , a manager states 90 making a slack of 10. This will make the budget easily achievable and not motivating
(d) Managers may be unqualified to participate and the budget produced may be unachievable.
(e) An earlier start to the budgeting process may be required when there is uncertainty about the future.

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Titany answered the question on October 12, 2021 at 08:24