215918
Description
Mind Map by Shahid Musthafa, updated more than 1 year ago
|
Created by Shahid Musthafa
over 10 years ago
|
|
Top down v/s
Bottom up
budgeting
- Top down Budgeting
- A budget planning strategy where cost estimates are
generated by working from the highest level
downwards. In top-down budgeting, a cost is typically
put on each unit of raw materials, services or labor
required for the project, and the estimated number of
units is then converted into a monetary sum to produce
the overall cost estimate to be used by the business.
Opposite of bottom-up budgeting.
- A top down budget is a budget that is set without
allowing the ultimate budget holder to have the
opportunity to participate in the budgeting process.
- A top down budget is a budget that is set without
allowing the ultimate budget holder to have the
opportunity to participate in the budgeting process.
- A budget planning strategy where cost estimates are
generated by working from the highest level
downwards. In top-down budgeting, a cost is typically
put on each unit of raw materials, services or labor
required for the project, and the estimated number of
units is then converted into a monetary sum to produce
the overall cost estimate to be used by the business.
Opposite of bottom-up budgeting.
- Bottom up budgeting /
Participative
- A bottom up budget is a system of
budgeting in which budget holders
have the opportunity to participate in
setting their own budgets. Also called
participative budgeting.
- Advantages
- Increased
motivation due to
ownership of the
budget
- Should contain better information since
employees most familiar with the
department set the budget thus the budget
will be more technical and accurate
- Increases manager's understanding
and commitment.The line managers
can improve thier budgeting and
visionary skills
- Better communication and
coordination between
departments thus it will lead
to a sense of teamwork
- saves time of high level
executives so that Senior
managers can concentrate
on strategy and other
productive functions
- Increased
motivation due to
ownership of the
budget
- Disadvantages
- Senior managers
may resent loss of
control
- Dysfunctional behaviour:
budgets may not be in line with
corporate objectives as
managers lack a strategic
perspective and will focus on
divisional performance
- May lead Bad
decisions from
inexperienced
managers
- Operational managers may not have
the knowledge and experience to set
a budget. For example, in a small
business only the owner may be
involved in all aspects of the business
and may therefore set the budget.
- Operational managers may not have
the knowledge and experience to set
a budget. For example, in a small
business only the owner may be
involved in all aspects of the business
and may therefore set the budget.
- Budget preparation
is slow and disputes
can arise
- In times of crisis there may be
insufficient time to set a
participative budget and targets
may have to be imposed to
ensure survival.
- Pseudoparticipation, where senior
managers seek the opinions of the
ultimate budget holders but do not act on
these views, may lead to demotivation.
- In times of crisis there may be
insufficient time to set a
participative budget and targets
may have to be imposed to
ensure survival.
- high possibility of Budgetary
slack: managers set targets
that are too easy to achieve.
- Senior managers
may resent loss of
control
- A bottom up budget is a system of
budgeting in which budget holders
have the opportunity to participate in
setting their own budgets. Also called
participative budgeting.
Want to create your own Mind Maps for free with GoConqr? Learn more.