The Pros and Cons of Participative Budgeting Essay
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 …show more content…
Budgets may also be padded out because of the belief that the bigger the budget the more important the manager is perceived to be (Hilton, Langfield-Smith & Thorne 1998). Participative budgeting may result in slack budgets, but a lack of participation may result in budgets that provide subordinates with inadequate resources to perform well. However padding of the budget can be minimised through negotiation with the subordinate, by treating a budget as a negative evaluative tool, and perhaps even allowing some discretion to exceed budget costs when necessary (Hilton 1994).
Participative budgeting is also beneficial as it can lead to greater job satisfaction of the subordinate, as he or she believes that they have influenced the final budget and contributed as a team member. In addition they may feel that their views or judgements have been heard and are valued by top management. As a result of this satisfaction the subordinate is more likely to work at fulfilling a budget that they have