Top-Down Versus Bottom-Up Budgets

Question 3

Top-down versus Bottom-up Budgets Describe (a)the benefits of top-down budgeting and (b)the benefits of bottom-up budgeting.

Solution to Top-down versus Bottom-up Budgets (15 minutes) a.Benefits of top-down budgeting include: Better for decision control in the sense that the variance from the budget is useful for performance measurement and compensation Lower influence costs and less gaming by the people being held accountable for the numbers The budgeted numbers are not biased by lower-level managers who are being evaluated based on these numbers (less sandbagging) Less time is spent generating these top-down numbers to the extent that lower-level managers spend no time on the process b.Benefits of bottom-up budgeting include: More knowledge assembly of information held by lower level employees Participative budgeting provides more employee buy-in and perhaps better acceptance and higher morale Better for decision management