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Discussion forum III

Discussion forum III

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Discussion Forum 3

The mandated approach to budget design refers to the upper-level management

setting solely the general and specific parameters to prepare the budget. These

parameters generally cover sales goals, expenditure levels, guidelines for

compensation, and more. Hence, the most important decisions on budgeting rely

on them. The lower-level management has little inputs on the preparation of the

budget. They just have the task of doing basic calculations and follow the

instructions dictated from the upper management.

Advantages & disadvantages

One of the main advantages of this approach is it gives the upper management

better control of the financial strength of the organization. Through this approach

the upper management assess the organization real needs, allocates funds in their

budget to meet those needs and provide meaningful direction to the middle

management which in turn pass the information on the employees. The staff can

be more accountable when making decision on the budget. The Top-down

approach is also more time efficient and can be sometimes of high quality.

One disadvantage of the mandated approach is the lower management often

attributes it a dictatorial approach as they did not participate in the preparation of

the budget. Also, people can struggle to reach the goals set by the upper

management as they find them unrealistic. The upper management can fail to

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acknowledge the needs of each department and thus sets inaccurate forecast.

Therefore, that can result to overfunding or underfunding of some departments.

Participative approach

Also known as the bottom-up approach, in this approach the lower management

is involved in the elaboration and the development process of the budget. Unlike

top-down approach, mid management work on the budget of their department.

The managers can discuss the sale projection and can free voice their concerns.

Multiple reviews take place and corrections are made along the way till a final

budget version is set.

Advantage and disadvantages

This approach provides more job satisfaction, employees autonomy toward thwir

division and improves employee’s morale. It also helps foster good relationship

horizontally i.e., between different departments and vertically i.e., between the

employment and upper management. In addition, it helps the employees to feel

more accountable towards their departments and feel their knowledge of the

needs of their departments

The take it takes to come up with a final budget version is one of the

disadvantages this approach presents. Processes tend to be long and its

administration expensive. Managers tend sometimes to pad the budgets which

gives them more leeway throughout the year.

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Discussion Forum 3 The mandated approach to budget design refers to the upper-level management setting solely the general and specific parameters to prepare the budget. These parameters generally cover sales goals, expenditure levels, guidelines for compensation, and more. Hence, the most important decisions on budgeting rely on them. The lower-level management has little inputs on the preparation of the budget. They just have the task of doing basic calculations and follow the instructions dictated from the upper management. Advantages & disadvantages One of the main advantages of this approach is it gives the upper management better control of the financial strength of the organization. Through this approach the upper management assess the organization real needs, allocates funds in their budget to meet those needs and provide meaningful direction to the middle management which in turn ...
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