Advantages and Disadvantages of Participative Budgeting
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.
Participative budgeting has the advantage of transferring information from the subordinate to their superior This knowledge is likely to be more reliable and accurate as the subordinate has direct contact with the activity and therefore is in the best position to make budget estimates. Participative Budgeting also gives subordinates the opportunity to discuss organisational issues with superiors, in which an exchange of information and ideas can help to solve problems and agree future actions (Nouri & Parker 1998). This transferral of information is important particularly when dealing with a matter of high task difficulty as, the more difficult a task, the greater the need for consultation with subordinates. Participative budgeting has a higher performance rate when dealing with more difficult and more volatile tasks than non consultative budgeting (Lau & Tan 1998)
The disadvantage of subordinate/superior information transferral is, of course, that the information supplied by the subordinate may not be entirely accurate; the budget estimations may be overstated to make the subordinate’s job easier to achieve. The difference between the true estimated budget and the overstated budget is ...
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...an agreement, in which the superior may have a final say in the matter, this too can be detrimental to the business because it only serves to lower the morale of the manager, and confidence in the work he or she is trying to achieve. Secondly the attitudes of the negotiators can greatly affect the outcome. For example, if one negotiator has a competitive behaviour rather than a cooperative behaviour then it will most likely make the other negotiator adopt a more competitive attitude and thus decrease the likelihood of inducing counteroffers that can lead to an agreement (Fisher, Fredrickson & Peffer 2000). Negotiations can also cause those involved who disagree in significant and irreconcilable ways to accentuate those differences (Hilton 1994).
In conclusion, the advantages of participative budgeting include an increase and transferral of information, an increase in subordinate morale and job satisfaction, the development of negotiation skills and goal congruence. However these advantages only come into full affect when particular conditions are present, without these conditions it may turn into a disadvantage through budgetary slack, low job satisfaction and responsibility.
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
What is your role in development of the budget? What percentage of its development is at your discretion?
Budgetary control is a tool used by the management of the company for both planning and controlling. Planning is crucial in this case, which has to consider all strength and weakness so that company can achieve its success as per the plan. In case of Ferguson & Son manufacturing company the budgeted values are compared directly with the actual values. The company has the practice to make comparison with the fixed budgeted values with the actual budgets without any flexibility that is there is no consideration about the current scenario. As mentioned earlier, a planning process involves an in-depth analysis about all the circumstances so that the company can achieve them. In this case, the inflexibility present in the fixed budget added more trouble to the employee’s of the company. This behavior resulted in employees to consider that the company is concerned only about money and not about the quantity of goods that were produced by them. Generally, inflexible budget add more pressure to the employees as the company will be concerned only about the profitability at any point.
Top-down budgeting is the preferred method of budgeting for government agencies and many organizations (Ljungham). The methodology of top-down budgeting is described as “dominated by top members of the executive branch and the legislative branch” (Williams & Calabrese, 2011, 178). The methodology entrusts top members to make annual budgeting decisions for their organizations. In many instances, top members also use this time to set annual program or department goals and targets. Top members make these decisions without solicitation of input from bottom levels of an organization. This can result in operational and logistical constraints in the lower levels of an organization when plans are implemented (Williams & Calabrese, 2011). Additionally, it can serve as a source of frustration for staff when uninformed budgeting decisions create consequences. This is particularly true when staff is tasked with making things work in the aftermath of budgeting decisions, despite having clear or attainable goals and budgets. Like all budgeting methodologies, there are benefits and difficulties.
As any romantic will assert, love is by far the most powerful force known to human hearts and minds. This sentiment is espoused throughout history, almost to the point of cliché. Everyone has heard the optimistic statement, “love conquers all,” and The Beatles are certain, however idyllic it may be, that “all you need is love.” Humanity is convinced that love is unique within human emotion, unequalled in its power to both lift the spirit up in throws of ecstasy, and cast it down in utter despair.
According to Hopwood, (1976, as cited in Parker and Kyj, 2006) sharing of information between superiors and subordinates are one of the main benefits of the budgeting process. Shields and Shields (1998, as cited in Parker and Kyj, 2006) argue that information sharing during the budgeting process between the superior and subordinate is of high importance because both the individual and the organization can potentially benefit from it. Survey results show (Parker and Kyj, 2006) that vertical information sharing plays a huge role in understanding the performance effects of organizational commitment and budget participation. Role ambiguity is the intervening variable between the relation organizational commitment and budget participation (Parker and Kyj, 2006). Vertical information sharing consists of upward information sharing and downward information sharing.
The annual budget is refreshed based on financial forecast, system initiatives, and priorities, and operating performance of individual units. The method of forecasting future performance is based on historical data from previous year to date actual results and adjusted for inflation. Senior executives with direct oversight for the department or other departments will attend all quarterly budget meetings. The finance department provides the NM a budget for her unit based from previous year’s data of patients’ volume. The budget includes expenses for salaries, benefits, medical supplies, other supplies, and services. The responsibility of the NM is to review it monthly to ensure that her unit is within the budget. Whenever the NM is over the budget on each predetermined expenses, she will need to write a plan of actions on how to correct the
Provides advice, assistance, and guidance on budgeting and related information to program managers and budget-related personnel in subordinate organizations. Conducts analyses, reviews, and special studies of budget and/or related information.
The traditional budgeting core advantages are the control and performance management. Budgetary control oversees the progress of the organization as it set the standard by comparing to previous year actual figures. Negative variances force the organization to react and make changes before the problems increases. To related back to performance management, budgets set as an outline for operations and it supports manager’s decision-making process. Nonetheless, problem budgeted objectives tend to motivate members better when it is difficult to achieve but for planning wise, traditional budgeting gives the most well estimated for the next fiscal year. If objectives are easily assessable, it will serve as a motivational purpose. On the other hand, if the budgetary system is used as a basis for performance evaluation, it may lead to dysfunctional behavior where managers manipulated the figures to relieve the achievability of the objectives. Despite the criticism for traditional budgeting, most organization had turned to the use of budgeting alternatives. In this essay, zero-based budgeting system was taken into the discussion. Zero-based budgeting is an effective system to control overhead costs and resources. Zero-based budgeting lives up to its name by starting each budgeting cycle with zero. Although it is expensive and time-consuming, it helps to review each and every program meticulously as the
The use of budgets in the healthcare sector have several benefits and serve several purposes. For example, budgets set the performance agenda for the year ahead through estimation of revenues and expenditures (Byrne, 2007). Additionally, a budget allows a health care organization (HCO) to provide a forecast of income and expenditure or profitability, can be used as a tool for decision making, and as a means to monitor business performance (Leo Issac, n.d.). Forecasting allows HCOs to predict whether a profit will be made or not (Leo Issac, n.d.). Moreover, budgets aid in decision making or determining if a potential expenditure has been planned for or not (Leo Issac, n.d.). Lastly, budgeting allows HCOs to
Assisted through the genetic nature of man and woman to reproduce, meaningful devotion to someone of the opposite sex is love in its more rewarding and challenging form. When you find the right individual, the emotions triggered can provide a reaction that can never be repeated. As in many stories of the past, such some written by Shakespeare, real love between a man and woman is able to overcome any challenge or obstacle laid before it. One of the most famous being the story of Romeo and Juliet, where family hatred could not halt the magic and desire between a man and woman who found their destiny with each other. Tragically the story ends with the irony that the pure joy of love between them never fully was achieved as death was their reward. Unfortunately, this foreshadowing is a whimsical representation of the relationships of couples today. With the ever increasing divorce rate, I see a redefining of this form of love for future generations. As the bond between man and woman is quickly eroded with minute effort, the challenge of maintaining an intimate loving relationship with a single person today is truly the most significant obstacle for society in general moving
Love is arguably the most powerful emotion possessed by mankind; it is the impalpable bond that allows individuals to connect and understand one another. Pure love is directly related to divinity. Without love, happiness and prosperity become unreachable goals. An individual that possesses all the desired superficial objects in the world stands alone without the presence of love. For centuries love has been marveled by all that dare encounter it. Countless books and poems have been transcribed to explain the phenomenon of love, but love surpasses all intellectual explanations and discussions. Love is not a definition, but rather a thought, an idea. This idea, the idea of love, burns inside us all. Instinctually, every soul on Earth is
An advantage of performance budgeting would be transparency; this type of budgeting allows stakeholders the ability to ascertain the amount of service delivered for the funded cost. Basically it measures to what extent does government agencies getting what they paid for. This type of budgeting also provides an avenue by which management and line staff can contribute feedback for the enhancement of a program’s success.
Budgetary planning may differ between organizations. Single-period budgets and rolling budgets have methodologies that provide advantages and disadvantages that may make one budget time frame better than another. A single-period may require less time in planning during a fiscal year, but is less accurate than a rolling budget that is continuously planned on a repetitive basis. In either case, budgets are planned in advance in order for a company to operate profitably, and less so to have "actual results equal budgeted results." (p. 496)
I learned a few things about my school and myself in regards to this area of leadership by participating in this activity. I learned that my school asks for very little participation from the teachers and community in regards to the budgeting process. But it could be an excellent venue to review prior year accomplishments as well as decide on future objectives with these stakeholders. If I were an administrator, involving the community and faculty would not only help in maintaining awareness, but I could also use this as a way to help those who may not be directly vested in my school, but who are helping fund it through their taxes, recognize effective administration in our efforts to reduce costs and provide needed resources to the various programs. I also feel that budget decisions cannot be solely programmatic or solely monetary. There needs