Page 421 - PM Integrated Workbook 2018-19

Answers

Example 2

Bottom up budgeting is generally seen as preferable because it leads to
improved managerial motivation and performance. However, there are
situations for which top down budgeting is preferable.

Describe three situations where top down budgeting would be more
applicable.

(1) 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.

(2) In times of crisis there may be insufficient time to set a participative
budget and targets may have to be imposed to ensure survival.

(3) Participation has to be genuine for it to result in improved motivation.
Pseudo-participation, where senior managers seek the opinions of the
ultimate budget holders but do not act on these views, may lead to
demotivation.

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