Top-down budgeting is listed in Towards a Metatheory of Budgeting as a normative theory of budgeting. Normative theories are defined as complete theories of budgeting that incorporate the budget, appropriations, preparation, and decision events. Normative theories are not intended to describe what occurs in the budgeting process but prescribe considerations for future implementation as a best practice (Williams & Calabrese, 2011). However, with the evolution of organizational complexity, top-down budgeting has become a positive theory. Positive theories explain an observation of the budgeting process and attempt to analyze why that behavior exists as an aspect of organizational culture (Williams & Calabrese, 2011). Top-down budgeting is not a desired best practice and therefore not a normative theory, because the methodology does not include key stakeholders in decision making. Top-down budgeting is used as a way to save time, centralize decision making, and limit the amount of controls given to lower levels of the organization. As organizations become flatter and remove excessive layers of management to become more nimble, the centralization of budget decisions has evolved (George, 2012). The traditional top-down budgeting approach is dated. Under the category of positive theory, top-down budgeting is a descriptive theory that explains an aspect of the budgeting process. It is an observation of practice. In an evolved definition, decisions from leadership are not the end of a process. Instead, they are a factor considered in the decisions for a final budget and department goals.
Top-down budgeting is also explanatory, as there is a description to how and why the budgetary behavior exists. According to Business Knowledge Source, ...
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...g - An Instrument to Strengthen Budget Management* | ASIP Asociación Internacional de Presupuesto Público. Retrieved January 19, 2014, from http://www.asip.org.ar/en/content/top-down-budgeting-instrument-strengthen-budget-management
National Priorities Project. (n.d.). National Priorities Project. Retrieved February 27, 2014, from http://nationalpriorities.org/budget-basics/federal-budget-101/federal-budget-process/ Ryan, P. (2011, December 7). A Brief History of Budgeting in the Nation's Capital. The Federal
Budget Process. Retrieved February 25, 2014, from http://budget.house.gov/uploaded files/bphr
Kavanagh, S. C. (2011). Zero Base Budgeting Modern Experiences and Current Perspectives.
Chicago, Illinois: Government Finance Officers Association.
Williams, D., & Calabrese, T. (2013). Towards a Metatheory of Budgeting. Economists
International , 1, 178-207.
I attended the Saturday Lab 1 session discussing the Denison Specialty Hospital case study. In our session, we had a through discussion into the different budget terminology. I learned about the difference between accrual and cash accounting methods, which is based on the timing of when the revenue and expenses are recognized. I also learned about responsibility centers as an organizational unit under the supervision of a manager, who is responsible for its activities and results. In addition, the manager is accountable for the budget of the department that they head. Therefore, a centralized form of management in developing the budget because it makes easier to because the information for the department budget is located
Mikesell, J. L. (2010). Fiscal administration: Analysis and applications for the public sector (8th ed.: 2010 custom edition). Mason, OH: Cengage Learning
Wayne Swan 2010, ‘Budget Speech 2010-11’ Australian Government. Retrieved May 20th, 2010, from - http://www.budget.gov.au/2010-11/content/speech/html/speech.htm
For government budgeting to be effective, the process that guides it must be an evolving one. As the government gets bigger, it will most likely destabilize the existing method. Therefore, it must change to keep pace with the demands and growth of the country. The process must be capable of handling the complexity of our nation and its multifaceted needs so it will always need revisions and restructuring to face these new challenges. Its ultimate goal must be to reinforce the government and strengthen the country.
McManus, Doyle. “Drawing Budget Battle Lines.” Editorial. Los Angeles Times. Los Angeles Times, 14 Apr. 2011. Web. 5 June 2011. .
“The Budget and Economic Outlook : Fiscal Years 2010 to 2020.” Congress of the United States
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
McClatchy-Tribune News Service. "Editorials on the federal budget". McClatchy - Tribune News Service. 03 Feb 2010 eLibrary. Web. 18 Feb 2010.
Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal findings on the consequences and effects of participative budgeting (Lindquist 1995). Participative budgeting certainly has various advantages, these include the transferral of information from subordinate to superior increased job satisfaction for the subordinate, budgetary responsibility and goal congruence. Its disadvantages include budgetary slack and negative motivation, however it is the conditions in which participative budgeting takes place determines whether the budgeting process is successful. The conditions are dependent on various factors such as the level of participation, level of subordinate influence, the extent to which budgetary slack takes place, volatility, job related information, and the complexity of the budget.
In this era of high competition, traditional budgeting approaches doesn’t encourage innovation among the employees instead are focused on reduction in costs.(Player, 2003).
Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.
Line item budgeting categorizes various expenses and places them in list format on a document for budgetary purposes. This type of budgeting is considered the heartbeat of budgeting due to the systematic method by which it controls revenue and expenses, this is made evident when Tyer and Willand (1992), pointed out “Statutory or administrative controls could be imposed on the transfer of funds from one-line item to another, or between broad categories of expenditure.” According to Schick (1971), “line item budgets were attractive to legislative officials because they did not focus explicit attention on substantive policy issues or choices.”
Lehan, Edward A., Simplified Governmental Budgeting. Chicago: Municipal Finance Officers Association of the US and Canada, 1981.
The national budget is the main instrument through which governments collect resources from the economy, in a sufficient and appropriate manner; and allocate and use those resources responsively, efficiently and effectively (Todorovic & Djordjevic, 2009). The work of public budget has increased extremely more complicated, abstruse and worrying (Hou, 2006, p.730).