Participative budgeting
Participative budgeting lets the managers accountable for targets help build those targets, drawing on local knowledge and building commitment. Its main risk is that managers introduce slack to make targets easier to achieve.
FrameworkBudgeting
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In a top-down budget, head office sets the target and passes it down, with little input from the managers who will be judged against it. A participative budget instead lets those managers propose the numbers first, drawing on knowledge head office lacks and building commitment to the target. The trade-off is budgetary slack: a manager capable of €800,000 in sales may submit €680,000 to keep comfortable headroom.
Where it fits
TopicResponsibility Accounting & DecentralisationAdvancedSubjectManagerial AccountingAdvancedTopicBudgeting & the Master BudgetAdvanced
Check yourself
PracticeCORE
A key risk associated with participative (bottom-up) budgeting is that:
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