Budgeting: Alternative approaches Flashcards
Alternative approaches to budgeting
What is a top-down budget ?
Top management prepare budget with little to no input from operating personnel.
[Imposed / non-participative]
What is a bottom-up budget ?
Budget holders (operating personnel) can set their own budgets.
[Participative]
What are the advantages of Participative budgets ?
[Bottom-up]
Increased motivation.
Better information, fast moving / diverse business.
Increases manager’s understanding and commitment.
Communication.
Senior management focus on strategy.
What are the disadvantages of Participative budgets ?
[Bottom-up]
Senior managers resent loss of control.
Bad decisions from inexperienced managers.
Budgets not in line with corporate objectives.
Preparation is slower, more disputes.
Budget slack - Figures subject to bias.
What are the three types of budget ?
Continuous / rolling.
Incremental.
Zero-based budget.
What are continuous / rolling budgets?
Prepared a budget period ahead.
Update regularly by adding a further accounting period once the first accounting period has expired.
What are incremental budgets ?
Uses the previous period’s budget as a starting point.
Add increments as seen necessary.
What are Zero-based budgets ?
Budgeting process starts from zero because it does not want to take anything for granted.
What is ‘Beyond Budgeting’ ?
It’s an idea that companies should move beyond budgeting because of the inherent flaws in them.
When would Beyond Budgeting be used ?
Companies facing regular environmental changes.
Greater use of continuous budgets.
Greater use of non-financial targets.
Innovation encouraged.
Budgets set locally.
