The flow of budgets can either be top down or bottom up approach. Generally spea

Question

The flow of budgets can either be top down or bottom up approach. Generally speaking, int the top down approach the managers and higher level bosses would make financial decisions and the would go down the hierarchy ladder. Whereas, in the bottom up it would be the opposite making it more of a hands-on approach as lower level employees get more say in budgeting decisions. I believe the most effective would be a top down with some say from lower level employees. I think this would work really well because it would allow employers to have the power but still give employees the say on their day to day jobs. This will make employees feel more appreciated a lead to more cohesive work place.

Explanation / Answer

Bottom up approach:

Under bottom up approach budget is prepared from the bottom and then summed up to make it muster budget. Advantage of this approach are:

However, main problems in budget preparation are,

Top down approach:

With the top-down budgeting method, the upper-level management of a company comes up with the budget. From that point, the budget numbers are passed down the corporate ladder to the lower-level departments of a business. The managers of those departments then take the budget numbers and utilize them in their departments. Upper-level managers have to devote time to coming up with the budget figures before they are generated.

Advantages

The advantage of using a top-down budgeting method is that you do not have to rely on lower-level managers to come up with budgeting information. Your business can allow the lower-level managers to focus on their departments and what they do best. If you were to use a bottom-up method instead, you would have to wait for the individual departments to come up with budgets and then compile them all into a company-wide budget. Using a top-down method often saves time overall.

Drawbacks

Using the top-down method is not always the ideal choice as it does have a few drawbacks. For instance, the upper-level executives of a company may not have enough knowledge about the individual departments to come up with a budget. In many cases, the budgets may not be realistic because of this lack of intimate knowledge. Although they do help departments to understand what is expected of them, they may not provide enough resources for departments to do their jobs well. In other cases they may allocate too many resources to a particular department.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.